Tax News: Good to Be Tied to Arkansas in This Case

Interesting numbers from the Tax Foundation, which is in the business of analyzing interesting (tax) numbers. Its annual review of what states did with their tax policies included some strong praise for Indiana. A few excerpts from the release and a link to the full study, which takes some to task for targeted tax hikes and accounting gimmicks (instead of reducing spending).

Nine states increased individual income tax rates (five states reduced their rates), six states raised general sales tax rates, 17 states increased excise taxes on cigarettes and five states increased rates of alcohol excise taxes.
“Two states – Arkansas and Indiana – managed to roll back spending growth commitments and take actions to limit spending, but other states have either kicked the budget can down the road or increased taxes,” said Tax Foundation Director of State Projects Joseph Henchman, who authored Tax Foundation Fiscal Fact No. 204, “A Review of Significant State Tax Changes During 2009.”  

“With state revenues declining due to the tough economic situation, most state leaders in 2009 have tapped high-income earners, smokers, out-of-state business transactions, or other targeted groups, those being the only people that politicians feel safe raising taxes on,” Henchman notes. 

California, Connecticut, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon and Wisconsin increased individual income tax rates. States that increased sales taxes include California, Massachusetts, Minnesota, Nevada, North Carolina and the District of Columbia.
Other miscellaneous tax changes in 2009 include obesity and soda taxes, excise taxes on plastic bags (often mischaracterized as “fees”) and “Amazon” taxes, which force out-of-state retailers to collect sales taxes from customers if the companies have affiliate and advertising relationships with in-state businesses.

Business Council & Professor: Energy Tax Hikes Add Fuel to Economic Fire

The Small Business & Entrepreneurship Council recently discussed the impact of cap-and-trade and related energy tax hikes and guess what, they’re not crazy about them. Some of their findings are quite alarming, however — especially as they cite remarks Clemson University economics professor Segey V. Mityakov made when interviewed by the Council on Foreign Relations. He explains the costs could be dire to both businesses and consumers:

"Restricting carbon emissions by cap and trade is probably not a good idea even in a booming economy. Many studies assessing the costs of mitigation of climate change (either through some cap-and-trade system or by means of a carbon tax) indicate that the losses in consumer welfare are likely to be enormous. At the same time the costs of climate change itself are not very well estimated to justify swift mitigation efforts; different studies produce different recommendations. Thus, there is no clear consensus among the scholars whether and when such a scheme should be implemented in the first place.

"In the case of a recession, additional negative shock to the economy in a form of cap-and-trade system seems like even a worse idea. If cap and trade were created now, it would lead to higher energy prices for American consumers and businesses, as energy producers would be forced to switch from cheaper and "dirty" fuels such as coal to "cleaner" and more expensive sources of energy.

"Thus, it is likely to hit American households through the following channels. On the one hand, consumers are going to suffer directly from the increased prices of the energy and energy-intensive goods they buy. On the other hand, higher energy prices will increase the production costs of American producers, making American-produced goods less competitive in the world market. This would tend to make the current recession even more severe, as businesses, which cannot compete against foreign producers, would close. Facing increased energy costs and competition from abroad, some American companies would have an incentive to shift their production overseas where no cap-and-trade system is operating. These adverse effects on producers are likely to lead to additional job losses in the United States, further increasing the costs of the recession for the American households."