Taxes

AP has not reviewed many letters to the editor recently--partly because we have covered many of the topics of these letters already, and partly because MTV has been airing back-to-back episodes of Made.

But the time has come. This letter is a tad wacky, but touches a few important issues:

Gov. Martin O'Malley wants to ease the state's deficit by not letting the rich pay just the 4.75 percent paid by everyone who earns $3,000 or more, a setup he calls "patently unfair."

The letter writer is referring to the Maryland Income tax. Now then, collecting the SAME PERCENTAGE of taxes from EVERYONE is THE FAIREST tax system you could possibly have. O'Malley's quote was:

"O'Malley called the structure "patently unfair" this week, saying at a Democratic breakfast in Frederick that Peter Angelos, the wealthy trial lawyer who owns the Baltimore Orioles, should not pay the same rate as "the woman who cleans his office".

Uhhh, geez....Governor....didn't anyone tell you: 4.75% of what Peter Angelos makes is a lot MORE than 4.75% of what the housekeeper makes. Why shouldn't everyone pay the same rate? The American Dream is to work hard and get rich...why are we penalized for doing this? Ok letter writer, continue.

Why not have the rich pay 10 percent for incomes over $100,000 and 20 percent for those over $200,000?

Why stop there? How about 100% for $1 million? Great. So the most anybody can make is $1 million, because every dollar after that goes to the government. Then, nobody would have the incentive to keep working hard, and productivity would decline! Excellent! Wait a minute....

Constellation Energy's chief executive officer is taking home $20 million a year.

Making money is not a crime; it is not evil. 99.97% of all people in history would have liked to make as much money as possible. I rather enjoy how you singled out this corporation, being that they are involved in the electric rate hikes, and so forth. The fact is, he is paid that much because that's how valuable he is to the company. If Constellation Energy thought they could achieve the same results by paying less money, I promise you they would do it.

The rich get a lot of their money out of the middle class and the poor.

I can't let this one go. First of all, this is such a vague generalization that it can't be true, even if we understood what you were trying to say. People are paid what they are worth; sometimes there are distortions and people don't make exactly what they are worth, but in the long run your compensation equals the value of goods or services that you produce.

The important point here is that in a capitalist economy without coercion, the value of goods and services is determined through trillions of VOLUNTARY transactions. So, if a middle class or poor person decides to buy something, they are by definition using the price system of the free market to transmit the message that the good or service improves their life. So long as money is spent voluntarily, transfers of money from rich to poor, or poor to rich--indeed all transfers--are beneficial to both parties. (Such a transaction is said to be Pareto Optimal)

Meanwhile, Senate President Mike Miller, D-Calvert, wants to hike the "regressive" sales tax--which, in hitting all buyers at the same rate, hurts the rich less, and hurts the middle class and poor more.

IF A TAX HITS ALL BUYERS AT THE SAME RATE, HOW CAN IT POSSIBLY HURT SOME BUYERS MORE THAN OTHERS???????

House Speaker Mike Busch, D-Annapolis, wants another regressive measure, a 5 percent hike in state college tuition. His opposition to higher tuition was one of the big reasons many of his constituents campaigned and voted for him in 2006.

First of all, he is one of the most 'machine-backed' politicians in the state, and his constituents damn near voted him out of office in 2006. If it hadn't been for such widespread dislike of the Republican President at that time, I bet we wouldn't be having this conversation. Second of all, a hike in college tuition is not regressive in the manner that you speak of because it is not a tax--it is not imposed on all taxpayers by the government. It is imposed on people who CHOOSE to attend the university. On a side note, tuition freezes are bad.

Many parents and students have already been forced into debt to meet tuition increases. Mr Busch's hike would be a vicious blow to lower middle class and poor families who struggle to get their kids through state colleges.

Going into debt is not an uncommon practice for college. People calculate that going to college will help increase their human capital--an investment in themselves--that will help them earn more money in the future so they can pay off their debt and then some. Banks think this too, and will give you student loans. If somebody decides this process is not worth it, they can CHOOSE not to go to college.

Back across the hall, Mr. Miller is pushing for his favorite plague on the poor--slot machines. It's a boldface lie that slots will ease the deficit. The state's take must finance more regulators and inspectors, and more counselors for gambling addicts and for the families of gamblers who commit suicide.

Do the poor not have minds of their own? If they think slots are a plague, they can avoid them like anyone else could. Also, how can slots NOT ease the deficit? Estimates place the boost in taxes from slots at $500-$800 million. How many inspectors do you need? Also, here's an idea: families support themselves and don't allow their relatives to get addicted to gambling or commit suicide. In the horrible and unlucky event that a relative does commit suicide, why is it the responsibility of the taxpayers to pay for the grieving process?

The kneejerk reaction to the deficit is to saddle the weak (and) the poor with it. Where are the ideas for making the strong and the rich--and the corporations, developers and utilities--shoulder some of it? Half of Maryland's largest for-profit corporations pay no income tax at all!
J.A. HOAGE, Severna Park

OMG!! The top 10% of income earners pay like 65% of the total taxes. I would say that the rich not only shoulder 'some' of the tax burden--they shoulder most of it. Also, do you work for either a corporation, developer, or utility? Odds are you do, or someone close to you does. If you keep penalizing corporations, they will move to a different state that is nicer to them. This is why some corporations (legally) avoid some taxes now. And, if you keep raising taxes on corporations, they will face a higher cost structure. They will have to raise prices on whatever they are selling. Since fewer people will buy from that corporation after they raise the prices, the corporation will not have as much work or make as much money. The you, or someone close to you, will lose your/their job.

There is no magic tax solution. All taxes necessarily re-distribute income and create deadweight loss. The less the government spends, the less this will happen.

A Promise Made Good

Yesterday I noted how House Speaker Busch calmly assured us, vis-a-vis a quote in The Capital, not to worry about the budget cuts as they won't effect our essential services. Look! Down the page!! Just a little bit lower than you are reading right now!!!

The Capital, immediately recognizing the damage they did to the Democrat Propaganda Strategy, immediately ran an article the NEXT DAY about how the budget horrors will affect those services.

Here are some quotes:

A state workers union said the cuts threaten services to the most vulnerable Marylanders, from those in foster care to those treated by emergency responders......

"We are stretched to the limit," said Pete Peterson, a helicopter pilot who flies medivac flights.

Pete Peterson. Pete Peterson!!!!! Did the propaganda machine spend any time coming up with this name? I mean, this is straight out of a comic book--a superhero, life-saving helicopter pilot named Pete Peterson. I, for one, would like to meet Mr. Peterson. I bet he has some cool stories, or at least some hippie parents.

Flo Jones, a foster care case manager, said "many of the state's most vulnerable children will be at risk" if the Board of Public Works approved cuts to the already "threadbare" agency.

Feeling suspicious, I took the time to verify that 'threadbare' is indeed a word. Although perhaps slightly misused, it is marginally sensible in the context of this sentence. Now to investigate this Flo Jones character.......

Then the governor chimed in:

We need to restrain spending, O'Malley said yesterday.....

.....handily forgetting how much money he has wasted.

And around and around we go.

Do Your Math on the Sales Tax

Although the title of this blog, AP, refers to the politics of the city of Annapolis, from time to time state issues make their way onto these pages, as the state capital is indeed here as well.

So, the state budget issue goes something like this. Ehrlich came into office facing a budget deficit, then turned it around and left a $1 billion (fact check needed) or so surplus for O'Malley. O'Malley blew through that money in his first year, and now the state has no money, so they say. Politicians are now talking about what they call the 'doomsday budget', and telling us that if they don't raise taxes we will be cast back to the stone age because our schools, police, fire, and other services will just stop working. They are buttering us up for a HUGE tax increase next year, which is what happens when you have the executive branch and both houses of the legislature controlled by liberals. Note to readers: WE DO NOT HAVE A BUDGET PROBLEM, WE HAVE A SPENDING PROBLEM. REPEAT, A SPENDING PROBLEM!

Please read this article, in which Senate President Miller and House Speaker Busch talk about the budget and raising taxes. I am having you read this now, so next year, when all of this actually happens, I can make a cheeky 'I told you so' post on this site.

I am now going to quote selected excerpts from the article, and give you the no BS translation as to what this really means.

The sales tax is estimated to bring in $3.6 billion in fiscal 2008, according to the state. A 1 percent sales tax increase would raise an extra $750 million.

I hope you all like pop culture, because we are now going to play 'Are You Smarter Than A Fifth Grader?'!!! If the original value is 5, then it goes to 6, by what percent does it increase? Well, it's (6-5)/5 = 1/5 = .2 = 20%. THIS IS A TAX INCREASE OF 20%, NOT 1%. IT IS A 1% INCREASE OF THE VALUE OF THE GOOD, AND A 20% INCREASE IN WHAT YOU ARE PAYING. Let's use some numbers. Say you buy a car for $20,000. Now, you pay $1000 in sales tax. With a 6% sales tax, you would pay $1200. First, notice that this is a lot of money! Second, notice that you paid $1000, you now pay $200 more, and that is a 20% increase. This also means that the state will see A 20% INCREASE in sales tax receipts. Please write the papers when they call this a 1% increase.

But any sales tax hike would be part of a broader "menu" that would first look to cut state spending, reduce aid to local government, and then fill the remaining gap with new revenue, Mr. Busch said. Lawmakers have a duty to not unduly burden middle and lower class families with high taxes, he said.

Menu? A f_ _ _ ing tax MENU??!!! Let's get something straight, taxes are where the government (i.e. your neighbors who you elected) takes YOUR MONEY and gives it to SOMEONE ELSE for any reason they want. Democrats and liberals, you can now observe, see this as a natural part of life. They choose from a menu--a comprehensive list of dozens, perhaps hundreds, of ways to take your money. When one way produces less money, or invokes criticism, they just order something else from the menu. Also, remember Mr. Busch's promise not to burden middle and lower classes with higher taxes. First of all, rich families are apparently supposed to be unduly burdened with high taxes. And second of all, I promise you that he will raise taxes for EVERYBODY.

Last session, a bill sponsored by Del. Jim Gilchrest, D-Montgomery, would have taxed services ranging from auto repair shops and parking facilities to tanning salons and escort services.The legislation projected that state revenues could increase by more than $300 million in fiscal year 2008 and go up to more than $760 million by fiscal 2012.

I own a service based business in Prince George's County. What do you think will happen if I have to start paying sales tax (even though I am not selling anything). The cost pressures I face will cause me to either raise prices or decrease the quality of service, or put employees out of work. Somebody else, in another state right next to me, will come in and offer a better value and take business from me. Not only is this idea obviously bad for in-state businesses like mine, IT IS BAD FOR THE STATE ITSELF. This reasoning is a spin-off of the famous Laffer-Curve analysis of the optimal tax rate, which states that at some particular tax rate, an increase in that rate will actually cause a decrease in government tax revenue. Here's how: increases in tax rates increase the tax revenue per dollar of economic output (or GDP), but decrease the actual output itself. In my example, my income goes down because of the competing company who takes business from me. So, the state makes more money on each dollar of profit I make, but that profit is lower than before. At some point, the loss in profit outweighs the increased portion of tax I pay on the profit I still make, and the government therefore ACTUALLY LOSES MONEY BY RAISING THE TAXES. Not to mention, higher taxes may cause me to lay off employees because I can't afford to pay them, so the state loses this employee's income tax, and payroll taxes that I pay on the employee's salary.

I was recently denied admission to the University of Maryland PhD program in economics (who DO they let in? I graduated UMD cum laude in economics, started a freeking business at UMD, and was Young Entrepreneur of the Year. Geez.), but I have put a call in to my personal friend, the Dean of Behavioral and Social Sciences, to see if there is a data-based, calculated optimal tax level (an actual number, say 5.5% sales tax) that would maximize revenue. Conclusion: keep taxes as low as possible and let the private market do it's job.

Regardless of potential backlash, Mr. Miller said, lawmakers must have the political will to tell people what they need to hear, not what they want to hear.

Ha! Translation: lawmakers will tell us they are raising taxes no matter what and we can't do a damn thing about it even if we have a better solution or the majority of us don't want higher taxes.

If anybody wants to start a sister site, perhaps http://www.marylandpoliticsisfrustrating.blogspot.com/, (do not click here, it is not a real site), let me know and we can get together!