Random Points

Today is a historic day.  It’s been 43 years since Teddy Kennedy swam off abandoning Mary Jo Kopechne and leaving her to drown.

1969: After a party on Chappaquiddick Island, Senator Ted Kennedy drives off a wooden bridge into a tide-swept pond and his passenger, Mary Jo Kopechne, dies.


It’s the Primary season here in Missouri.  The primary will arrive on August 7th, less than a month away.  Here in Cass County ‘Pub yard signs are sprouting like mushrooms — or toadstools if you’re a democrat.  If you’ve been observant, you won’t see many, if any, democrat signs.  Why? Because they have tightly controlled their members to insure there is no primary opposition.  Like a swarm of lemmings, the dems are in lockstep with their party.  That right there says a lot about them.  Mindless robots operating according to their party’s programming.

The following article is for the ‘Pub winners. I know the dems won’t read it. They’ll follow orders blindly. At least the ‘Pubs show more independence…usually.

Keeping Taxes Low At State Level Is Key To Growth


 Posted 07/17/2012 05:45 PM ET

State taxes impact economic performance more than most people imagine. While the majority of attention is paid to the federal tax code, the evidence suggests that state taxes are just as important in determining economic competitiveness and often mean the difference between economic success and failure.

The level and form of state taxation varies greatly, from no-income-tax states such as Florida and Texas to states like Hawaii and Oregon, which have the highest personal income tax rates in the nation (11%).

Similarly, economic performance over the last decade has varied dramatically among the 50 states, with Illinois, California and New York performing very poorly, while Texas flourishes. Differences in state tax policies help explain this record.

The U.S. economy, in the words of Federal Reserve Chairman Ben Bernanke, is heading for a massive tax cliff. The expiration of the 2001-2003 tax cuts, the expiration of the payroll tax cut and new taxes enacted as part of ObamaCare will completely upend the existing federal tax code.

Given this state of affairs and the political gridlock in Washington, D.C., the best one can hope for is the extension of some of the existing tax rates and the avoidance of a disastrous, massive tax increase in January 2013.

The chances for substantive tax reform that would make the U.S. more competitive are slim, given the administration’s preoccupation with tax “fairness” and demonizing the rich. On the other hand, state taxes are ripe for reform, and many governors around the country are leading the charge to reduce or do away with their state income taxes all together.

Tax reforms happening at the state level are much more likely to succeed than anything coming out of Washington D.C., and the evidence shows that cutting state personal income taxes can have a dramatic impact on economic performance. State tax reform is, therefore, the best chance to improve the competitiveness of the United States in this global race for jobs and prosperity.

If you have read any of my writings, you know that I am not a fan of replacing the income tax with a sales tax.  After conversations with a number of folks, I’m modifying my view…somewhat: I am not supporting replacing the income tax with a sales tax—at the federal level.

We don’t have the conservative strength to implement the concept at the federal level. What we will have is both a national sales tax—morphing into a VAT tax the next time the libs gain control of Congress—as well as an income tax.  However, I now believe the concept, replacing the income tax with a sales tax, can be done correctly at the state level.

There is ample evidence of the impact that state income taxes have on economic performance. Taxpayer data from the IRS Division of Statistics shows that during the last 15 years, Texas and Florida have gained $20.7 billion and $84.3 billion in annual adjusted gross income (AGI) due to migration, respectively. During the same time period, New York, California and Illinois have lost $58.6 billion, $32 billion and $26.3 billion of annual AGI, respectively.

Nine states today do not levy a broad personal income tax, while two of those nine tax only dividends and interest. Altogether, the nine states without a personal income tax have gained $146 billion in annual AGI, while the nine states with the highest income taxes have lost $124 billion. This translates to $26.7 million gained per day for the no income tax states, and $22.6 million lost per day for the highest tax states.

Critics claim that migration has nothing to do with taxes, that it occurs for other reasons such as climate or “long established migration patterns.” Yet great weather hasn’t helped Hawaii, which has lost almost $300 million in AGI over the last 15 years. Similarly, if “migration patterns” are responsible, why is Nevada, which has no income tax, gaining wealth, while its neighbor California, which has some of the highest taxes, losing wealth?

The correlation between wealth migration and tax policy can even be seen in the Dakotas, with North Dakota (which has an income tax) consistently losing wealth to South Dakota (which does not impose a state income tax). The differences in economic performance between the states are profound and cannot be explained by anecdotes. — Investor’s Business Daily.

For those of you unfamiliar with wealth migration, it’s more popularly known as “voting with their feet.” One of my continuing concerns about any sales tax is that it taxes behavior and consumption.  Like anything being taxed, when you tax something, you get less of it. 

That is true with consumption taxes as well. A decade or so ago, the feds decided to tax “luxury” items. Items like personal aircraft, yachts and other items.  The Law of Unintended Consequences kicked in.  The Yacht industry was destroyed. At my last look, there are still no US owned yacht builders in the US. Most went out of business or moved off-shore. (Thank you, democrats.)

The private aircraft industry fared little better. Historic aircraft companies like Cessna, Piper, Beechcraft filed for bankruptcy. None of them are now US owned.  In fact Beechcraft, now known as Hawker-Beechcraft, was just sold to a Chinese company. It is a lesson to be remembered. Taxing consumption kills businesses.

Wealth lost by a state is wealth lost forever. Individuals pay not only state income taxes, but also sales taxes, property taxes and various other government fees. When taxpayers leave, they take with them not only this year’s income but also the present value of all future income and taxes, not to mention the impact that their consumer spending would have on the local economy.

Similarly, when businesses decide to leave, they take jobs with them. Over the last 15 years, New York State lost $58.6 billion in annual AGI. When using a 5% discount rate, the present value of this lost income is over $1.1 trillion, while New York City’s entire operating budget in 2011 was only $65.8 billion, according to its budget office.

While in any given year the gains or losses due to taxpayer migration may seem small, this impact becomes huge when compounded over time.

There are lessons to be learned here that our state representatives and senators should—must understand. Per capita spending in Missouri is surprisingly high. Higher than all our neighbors, even Illinois. We’re fortunate that the port fees on our rivers provide a significant portion of our state revenues. That can change quickly, however, if we, as a state, aren’t observant and proactive to preserve our non-tax sources of income.

I urge you to read the entire article. There’s much more than I’ve quoted here. It is an education.

No Sales Tax on Caucus Platform

I belong to a number of conservative groups in Missouri. Note, I said “Conservative,” not Republican groups although I belong to those too.  For the most part, quite a large part, I agree with their viewpoints—smaller government, fiscal and social responsibility, adherence to the Constitution as it was originally formulated and presented to the states.

But there is one area I vehemently disagree.

Many of these groups are on FaceBook.  I received notice of a post this morning concerning the ‘Pub party platform for this coming Caucus and what should be included.  Once again, the Hydra raised its head—the Federal Sales Tax.

I am continually amazed how people think this is a solution for their hatred of the IRS!  I don’t like the IRS either.  However, it has a necessary purpose.  As long as there are taxes, some agency must exist to insure the government gets its legal cut.  It’s true that often the IRS can give mob leg-breakers tips and lessons how to get people to cough up what is owed.  I don’t like those techniques either.

However, removing the IRS, which seems to be the primary motive of the Sales Tax crowd, won’t remove the need for the function served by the IRS.  Something WILL replace it.

Be that as it may, let me list the objections that I have about any sales tax.

It is a tax on consumption.  Read that again!  It a tax on consumption.  It will increase cost of the taxed item to the buyer.

When times are good, the personal impact is less and often ignored.  The personal bite has a lesser impact. When times are bad, like it has been since the fall of 2008, the tax bite grows longer teeth. 

When times are tough, people review their expenditures…and cut back.  Necessities come first, everything else is reduced or cut completely according to circumstances.

That has had a decisive impact to Cass County. A county sales tax is the sole revenue stream for the county.  Sales tax revenues have fallen short of forecast.  The budget was developed using those forecasts and now when the bills are coming due, the funds aren’t there.  Spending levels depended on that missing revenue. Now, for a number of reasons, the county could have bankruptcy.

That’s one danger of a sales tax, the “trickle-down” effect.  But let’s take another look at sales taxes—the unintended consequences.

Who and what will be required to be taxed.  The proponents say that a sales tax will be more equitable, that everyone will pay their “fair” (oh, how I detest that word) share.  Does anyone really think those on the lower end of the economic scale, those on various welfare programs, will pay their “fair” share?  I don’t.  They already receive food stamps, many receive free or subsidized housing, free medical care.  The liberals will immediately move to exempt this block from the sale tax and given the plethora of liberal judges in the state, I think it would be a matter of hours before some judge blocked the sales tax or exempted the welfare class. 

But that’s just an expected legal entanglement.  What about those working poor?  They must buy food, fuel, pay for housing just like every taxpayer.  The impact to them is higher prices for the necessities of life.  It matters not if the base price of those necessities doesn’t increase (they will), the bottom line is that with the additional sales tax, food, fuel and housing will take more of their limited dollars every month. The people will, in self-defense, cut spending for other items that can be deferred or ended. 

Then there is the impact of increased sales taxes on fuel.  Shall there be limits on who shall be taxed there.  Should fuel be taxed? There is already approximately $0.35 state and federal tax per gallon now and around $0.45 tax per gallon of diesel fuel. 

Increased taxes on fuel has a significant trickle-down effect on everything, everything that is transported by truck from food, fuel, delivery of manufactured items, from auto-parts to clothes at the local Target and Walmart stores. Everything that is sold at the retail level must be transported by truck. If fuel costs go up, so will those items.

Fortunately, we here in Cass County, live close to the Kansas State line.  Kansas has a higher sales tax than Missouri at this time.  If Missouri’s sale tax increases to that or higher than that in Kansas, what is the incentive to buy here, in Missouri?


People will take their limited dollars to neighboring states with lower taxes and buy their necessities there.  Shall Missouri build guard posts on the state borders to impose a sales tax on people returning from shopping trips in other states? 

It is interesting that Kansas has, in past times, sent “spies” into Missouri looking for Kansas residents buying in Missouri to avoid the higher sales tax in Kansas.  Will Missouri now create an office to monitor our buying habits?

The proponents say, “We’ll exempt food and fuel.”  From everyone or just individuals?  If individuals are exempt, what about corporate entities?  Like restaurants.  Shall restaurants be exempt from sales tax on food purchases?  You do know they will then pass those costs along as increased prices for that steak, or hamburger you just bought, don’t you?

And what about the service industry?  Shall they be taxed, too?  They sell a service.  If we’re to be “fair”, the service industry must collect sales tax too.  Like your plumber, or your neighboring electrician.

Shall internet sales be taxes, too?  Many such sales already are.  There will be a significant impact to internet sales as well.  Amazon already has legal battles in some states over the collection of sales tax.  So much that Amazon has moved some facilities from those states.  A number of on-line dealers will no longer sell to California residents for similar reasons.

If the proponents say they’ll exempt every example of these taxed items, how will that meet the state’s revenue requirements?  How can the state properly project revenue to insure it has the funds to meet the budget?

They can’t.  That’s how Cass County got itself in the situation it is now for revenue.  They forecasted a very modest increase and discovered that instead of a slight increase of revenue from the county sales tax, the revenue decreased.  People cut their spending.

With every exemption, the sales tax system gets more complex, more difficult to stay in compliance.  Errors in collection, errors in accounting will increase.

That is the problem with income taxes—too much complexity, too much confusion, unequal application, unequal assessment, unequal enforcement.

A consumption tax can easily turn into a death spiral from negative feedback.  Taxes increase. People spend less. Revenues fall. The state then increases the sales tax to compensate for the lost revenue. People cut further, buy in neighboring states, move out-of-state. Revenues continue to fall.  That’s negative feedback.

So, what is to be done?  I agree the current progressive income tax is too complex and too unequal to continue.  At the federal level, it is supported by the 16th Amendment. To remove the income tax at the federal level, that amendment would have to be repealed.  The likelihood that of happening is remote to say the least.

If a federal sales tax is imposed without that repeal of the 16th Amendment, we would end up with both a federal sales tax AND a federal income tax the next dime the liberals gain control of a house of congress.  I have no expectation the establishment ‘Pubs would fight the revival of the income tax. Worst, the federal sales tax would morf into a Value Added Tax like Europe. At every stage of production, through the wholesaler, to the retailer, to the end user, every stage is taxed and the rolled up costs added to that of the end-user.

That last is exactly what the liberals and democrats want—turn the US into a welfare state like Europe destroying the Constitution in the process.

No, there are too many dangers in expanding scope of sales taxes to allow such to continue.  If you truly want equitable taxation, change the progressive income taxes into flat taxes.  Everyone pays, no exemptions, a flat rate for all, individuals and corporations.  The progressive tax can be changed to a flat tax by an act of Congress or the state legislature.  The trick is passing it in such a fashion to make it impossible (if that can be done) to revert to a progressive tax model.

That is the true fair tax.

All to often people seize on an idea without thinking it through. There are always unintended consequences to every act.  Most can be recognized and planned for.  Any risk manager knows this.

Let’s all be risk managers. Block any inclusion of a state and/or federal sales tax in our party platform come the caucus.