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Posts tagged as “taxes”

First take/tax match

One of the routine bills at the Idaho Legislature every year - every year for decades at least - is the tax match bill.

Every year, the Internal Revenue Service changes the rules, in ways large or small, for federal income taxes. And each year, reliably, Idaho follows suit, for the same reason other states imposing income taxes do: If they did not, residents and organizations would have to cope with far more complicated bookkeeping, trying to deal with two different tax standards. Are taxes a hassle for you? Failing to keep state rules in step with the federal would double the hassle factor.

Sometimes those changes do result in revenue changes for the state, either up or down. This year, a newly-allowed federal deduction on equipment buys by small businesses apparently could cost the state $22 million next year. It's not a huge ding in the context of the state budget, but it was enough to get mentioned when the IRS compliance bill came before the House tax committee.

Three committee members voted against the bill because of the change allowing joint filing by same-sex married couples.

Actually, in the current environment there's a little surprise that this normally routine bill doesn't become a cause celebre, with protests and nullification and all. After all, this is an issue with "federal" and "tax" written all over it.

Maybe though some legislators reflected on just how difficult filing their own taxes could become if the state doesn't fall in line. - rs (image/efile)

Tax approaches

From a Facebook post by retired Idaho Judge Duff McKee.

One of the featured commentaries in Saturday’s Statesman had me underlining phrases and chortling to myself with unexpected satisfaction. Ed Lotterman, the economist and sometime columnist from St Paul, wrote to extoll the little known but widely respected economist Professor John Taylor, of Stanford University.

But what caught my attention was the skewering Lotterman gave along the way to supply-side economics. I thought to myself, here at last may be a clear answer to the clown car’s insistence that tax rates be cut across the board.

Without getting too far into the weeds, economic theory can be divided into two schools: Keynesian theory as developed by John Maynard Keynes in the middle 1930s, and the classic view, such as the theories of Alfred Marshall as published in 1890 and founded upon the works of John Stuart Mill (middle 1800’s) and Adam Smith (late 1700’s), among others. Keynesian theory can be construed as centered on the consumer or demand side of the equation, and is focused on the short run. Classic theory, such as Marshallian economics, is more concerned with the production side of the equation, and takes a longer view.

Keynes’ views are still at the center of most modern thinkers. He thought consumers and their demands were the key economic drivers of the economy, and that government action was the fastest, most effective and therefore best way to influence these interests in the short run. Deficit spending, control of money and aggressive tax policy were simply tools in the bag to help regulate and smooth out bumps in the road. The assumption here is that periods of economic adjustment should be anticipated and wherever possible ameliorated by prompt action of the government. Most Democrats adhere to some form of modernized Keynesian theory.

The classical economists, like Marshall, reckoned that the fundamental axis of any economy consists of wants and needs, which are in constant flux and are constantly seeking equilibrium. Marshall thought that in the long run, these forces would naturally adjust to maintain an equilibrium if left alone. Neither taxes nor the supply of money should be manipulated for anything but short term effects, with a long run objective of permitting market forces to control over artificial restraints. Periods of economic adjustment should be tolerated with minimum levels of government interference. Republicans have traditionally favored some variant of the classical view.

The “supply-side theory” is an extension of the classical thought brought to light during the Reagan years, and advanced today by the extreme right edge. It takes the premise of the classical view of economics a significant step further to the right in three areas: (1) the elimination of government restraints to production; (2) elimination of government regulation of the flow and quantity of money (The extreme view here is for a return to the gold standard); and (3) cut tax rates for all, even if such is to levels below that required to generate revenue for current needs. The tacit assumption here is that periods of economic adjustment should be tolerated with no interference from the government.

Lotterman maintains that supply-side economics has been completely debunked by most economists, including the more distinguished of those from the right, like Professor Taylor. He observes that in his 34 years of teaching (which would reach back to the edge of the “trickle down” economy days of Ronald Reagan) he has not run across a single textbook that asserts supply-side economics as truth.

On the specific question of tax policy, the plain facts are that if tax rates are cut to a level below that required to maintain the government, the short term effect will be that revenue will decline and the deficits will increase. Without further cuts to spending, which even the Republicans concede would be Draconian, Keynesian theory teaches that where such is imposed in time of economic growth, the extra stimulus is artificial and unnecessary and becomes inflationary.

The upshot of it all is that measured by today’s present level of increasing growth, any artificial tax reduction would increase deficits without any commensurate benefit in the short run, and if maintained into the long run, such will eventually destabilize the economy.
This means the answer to the question on clown car’s pronouncement of tax policy is that in the short run, we lose, and in the long run its all nonsense. Period. Class dismissed.

So, taxes in Oregon?

They wouldn't do it in Idaho - no surprise there.

They wouldn't do it in Washington either, which did take some people by surprise.

Now - will the Oregon Legislature raise taxes to cop with their state's huge revenue shortfall?

The exact situation will come into focus this week, when the May revenue estimate is delivered - the last major one this session is likely to get. Big cuts are almost certainly going to happen in any event. But will taxes, in some form or other, be raised to fill the gaps?

There doesn't seem to be much affirmative discussion of the idea at Salem, at least publicly. The Eugene Register-Guard's piece today on the matter may provide some clarity: "No detailed tax package has emerged so far this session, but behind-the-scenes discussions suggest that the Democratic majority in Salem wants to concentrate its pursuit of higher taxes on wealthy Oregonians and profitable corporations."

Consider that maybe an early indicator.

WA: Legislature ahead

Jeff Kropf

It's a shame in some ways the Washington Legislature has just 105 days (okay, with a possible 30-day special as a trailer) to do its thing. There are some really basic questions this legislature could attack, and the structural situation is that it could if there's enough time.

Or, it could just run through the numbers, do the job of passing the budget and setting the revenue streams, and let it go at that. But there's potential here for more.

The key reason is that a triangular situation seems to be developing: Most of the legislative Democrats on one side, almost all of the Republicans on another, and Governor Chris Gregoire more or less in the middle.

This comes together simply because there's one big issue in this upcoming session (and much the same is true in Oregon and Idaho), that being spending. The state currently is on track for a $6 billion deficit, and steady as it goes won't work. Decisions will have to be made: Are cuts to be made? Are taxes to be increased? Will there be some measure of the two? Will some other partial options be found (and, while there are no fiscal wonder pills, there may be some additional options)?

Gregoire seems to have drawn a sand-line around some areas (education, debt service and some others) as no-cut territory, and is looking for major slices elsewhere. The Republicans, and probably some Democrats, would expand the cuttable territory, while most Democrats will probably want to expand the land of no-cuts. What we probably won't see, though, is a serious attempt to simply try to leave everything as it is; as Republican House Leader Richard DeBolt said, "we've never seen a deficit this large before." And he won't get argument on that.

Maybe because the number of Democrats in each chamber is so large, we're not hearing so much (yet at least) of simple anti-government rhetoric. That may be a sign that Republicans recognize they do have a slightly less ambitious but very real opportunity here. Senator Mike Hewitt, R-Walla Walla, has been quoted as saying that spending increases in the last few years by Gregoire and the Democratic majority account for more of the deficit problem than the economic downturn does; and even if you quibble about the numbers, the budget runups in the last couple of biennial cycles certainly have inflated that projected deficit in a major way.

So the question some of the Republicans are getting at - is the state being too generous? - takes on some urgency and could move toward the center of the debate. Not a simplistic philosophical question, but a look at details and degrees. And that, actually, is the sort of thing a legislature should be looking at hardest.

That doesn't automatically translate to something specific. The Olympian has summarized, "Just consider what is on the chopping block: Pay increases for state workers and public school teachers, smaller classes in public schools, health-care coverage for children and low-income families, expansion of the higher education system, and the state human services safety net."

And Senator Lisa Brown, D-Spokane, for example, said all this raises the question of "what kind of state we want to live in, and whether we want to sacrifice some of our key services." But the issue may be joined, seriously. (more…)