I read most of this book yesterday. It’s catchy title worked and I picked it up from the library. It’s subtitle was the reason I finally cracked open the book, “If we let it happen.”
The country is in the midst of huge economic problems. New York City is facing huge debts and has proposed a lot of taxes.
- An “iPod tax” that charges state and local sales tax for “digitally delivered entertainment services” – in other words, that new Beyonce song you download.
- State sales tax at movie theaters, sporting events, taxis, buses, limousines and cable and satellite TV and radio.
- Costlier driving with the repeal of the 8-cents-per-gallon sales tax cap on motor and diesel motor fuel, plus and increase in the auto rental tax.
- A 50 cent tax on cigars. The current tax is equal to 37% of the wholesale price, or 34 cents a cigar.
- No more sales tax break on clothes and shoes worth $110 or less, except during two weeks a year.
- Higher taxes on wine, beer and flavored malt beverages. He would also impose an 18% tax on non-nutritional drinks like soda.
- The rich would pay more for luxury items through an additional 5% tax imposed on cars costing more than $60,000, aircraft costing more than $500,000, yachts costing at least $200,000 and jewelry and furs costing in excess of $20,000.
- In addition, a host of a fees, including those related to motor vehicle licensing and registration, parks and auto insurance, would go up, as would various state-imposed fines.
In the book, “End of Prosperity”, they load it with evidence that lower taxes stimulate growth, though there is a limit where lower taxes increase tax revenue hence the “Laffer Curve”. But it worked for JFK against Republican opposition which is easy to believe because it always seems to be about partisanship. Reagan did it against Democratic opposition which I am sure included Ted Kennedy. Both did it against their own parties reluctance and both times tax revenue went up. And from an article here,
What all this means is that cutting the top tax rate in half has resulted in much more income being reported and taxed in every country that tried it — the United States, United Kingdom, New Zealand and India, for example. Some mistakenly imagined that proved the rich suddenly became richer when U.S. tax rates fell from 1986 to 1988. What it actually proved was that the rich reported more taxable income when tax rates on an extra dollar became more reasonable.
We often hear about projected revenue from a tax increase as we did in the Presidential election . According to the book on page 37, in 1989 Oregon Senator Bob Packwood “asked the Joint Committe on Taxation to estimate the revenues that wold be raised from 100% income tax rate on all Americans with earninings above $200,000.” They actually gave him an answer besides the common sense answer of $0.
They reported that the government would receive $104 Billion the first year, $204 Billion the second and $232 the third year. The models don’t take in account normal human behavior which would be to earn no more than $199,999.99 or move. Many British Pop Stars, like the Stones and Beatles, moved their money offshore to avoid England’s then 95% tax on the rich. They say that the Beatles song “The Taxman” is about that 95% tax rate.
So why do I bring this up on a Portland real estate blog? I have had numerous clients tell me over the years that they won’t buy in Multnomah county because of the taxes. Recently a client had me advertise their home having Portland Schools with Washington County taxes. Anyone remember when they were talking about a cell phone tax not long ago in Multnomah county? Raising taxes can have an opposite intended effect especially on the ones hurt most by a bad economy and I hope they pay attention to those unintended consequences that other cities and states have felt lest they harm us.
In states where taxes went up on alcohol, neighboring states had an increase in sales and tax revenues while the state that increased it sometimes lost tax revenue. And in California,
Still, raising those taxes further—according to outside estimates, Schwarzenegger’s proposal would have raised the price of beer and wine by more than 8 percent—is no way to boost a state’s economy, by some accounts. Wojnar’s group claims that the California tax would have reduced sales revenue in the hospitality industry by $1 billion and caused the loss of 20,000 jobs.
How many Washingtonians go to Jantzen beach to skip Washington sales tax? How many former Oregonians that move to Washington keep their old license plates and addresses? What if the car industry raised prices to make up for the lack of sales? Don’t we raise taxes in part to deter activities like smoking?
If taxes get to the point where they seem prohibitive we will look for loopholes. SUV’s were hot because of the ridiculous deductions that came with them. And people will move. Most Californians complain about taxes there. It is 3 to 5 times costlier to move from California than to Caifornia according to one moving company referenced in the book.
And lastly, The Pearl thrived in part due to the tax abatements. One condo that I saw for $300,000 had property taxes of less than $400. Nice perk but when we get within 3 years of those abatements ending how much tougher will it be to sell those which are tough enough already? Before we jump on the bandwagon for more taxes just take a moment to think of the unintended consequences and maybe look at waste in government a little closer.
And in case you prefer video to my explanation here is the meat and bones of the idea,
Part 2 above gives the best examples but Part 1 explains thoroughly the (unfortunate named) Laffer Curve.
