State Tax Notes
Politics of State Taxation
July 31, 2006
I consider myself a good liberal on most public finance issues. Sure, I've taken some heat for calling for an end to state corporate income taxation and for noting that states won't be able to effectively impose estate taxes. But other than that I don't really care if we tax the hell out of the rich.
But am I the only self-identifying liberal who doesn't hate Wal-Mart? My friends inundate me with stories of how awful Wal-Mart is to (1) its employees, (2) its customers, (3) the environment, (4) small, independently owned business, and (5) democracy. I've found myself on e-mail lists on which every conceivable ill in the country is somehow blamed on Wal-Mart. I've been sent bumper stickers featuring a frowning smiley face with the tag line "Wal-Mart: Low Wages, Low Morals, Always." It's only a matter of time before Wal-Mart is blamed for global warming and North Korean missiles.
The funny thing is that many of my Wal-Mart-hating friends have never been inside a Wal-Mart. Actually, they wouldn't be caught dead in one. But they did see the movie Wal-Mart: The High Cost of Low Price, a feature-length documentary that claims to uncover "a retail giant's assault on families and American values." I went looking for that movie, but found a different movie called The Women of Wal-Mart. I thought it might be some exposé of mistreatment and harassment of females by Wal-Mart executives. But it wasn't.
Anyway, Wal-Mart is painted as a secretive, hillbilly-run, right-wing organization bent on forcing its low wages and cheap products on the good people of the United States. The company probably is a secretive, hillbilly-run, right-wing organization. But who cares? If you don't like Wal-Mart, don't shop there. Don't work there. If you don't like governments giving tax breaks to Wal-Mart, call your local officials and tell them to stop. If you'd rather spend five times as much on a particular item at your locally owned mom-and-pop store, go ahead. But stop talking about the darn company, because all you're doing is giving it free advertising.
What gives rise to my rant is the recent federal district court decision striking down the so-called Wal-Mart law in Maryland. Maryland passed a law requiring large employers (those with 10,000 or more employees) to spend at least 8 percent of their payroll on healthcare or pay the difference in a special excise tax. Everybody knew going in that only Wal-Mart would be subject to the law. I called a couple of legislators in Maryland for a reaction. One complained that "it's terrible Wal-Mart is going to get away with this."
Now, the district court was probably right in its legal opinion; I have no idea because I know nothing about the laws governing ERISA preemption. But the state has the moral high ground on the underlying issue: States are increasingly besieged by rising Medicaid costs. Far too many employers (such as Wal-Mart) offer little or no health insurance. By requiring "large employers" to spend more on health insurance, Maryland was taking a stab at shifting some of those rising costs to employers.
As my colleague Karen Setze reported recently, many states have been considering legislation similar to the Wal-Mart law. Massachusetts and Vermont passed laws requiring employers to provide health insurance or pay a fee. Of course, those states didn't make it a Wal-Mart issue. As Setze pointed out, only a few states have actually passed similar laws. But the rising costs of healthcare are going to prompt more states to consider — and pass — laws requiring employers to provide health insurance.
I don't have a problem with requiring companies to provide health insurance to their employees. I certainly don't have a problem with requiring companies that don't provide it to pay an excise tax. Wal-Mart has become a symbol to fire up the real lefties and those for whom it's fashionable to pick on corporations with strong ties to Republicans. But the issues at stake are much bigger than Wal-Mart. The states must address rising Medicaid costs. And more fundamentally, people should have access to quality healthcare.
A Whopper of a Tax Cut — for Some
There is a proposal in Ohio (HB 626) to slash the state's income tax rate on capital gains from 6.55 percent to 3 percent. An Institute on Taxation and Economic Policy (ITEP) study found that the richest 55,000 Ohioans — those earning $800,000 or more — would receive 75 percent of the tax cut. That's good, because they probably need the money.
The bottom 40 percent of earners would receive nothing, which also makes sense because they have no capital in need of tax relief. The vast middle class would see on average about $1 a year in savings — $1 a year! Oh, to be middle class in Ohio.
ITEP also found that the measure would cost Ohio 6,000 jobs because the rich folks would take their additional money and send it out of state. Sponsors of the bill ripped ITEP and its study, claiming that the study was flawed, that ITEP was a bunch of left-wing nuts, that ITEP had an agenda.
I've followed the work of ITEP and its related entities — like Citizens for Tax Justice and Good Jobs First — for years. Yes, they are a bunch of lefties. Yes, they have an agenda. But when they have studied the distributional effects of tax cuts, they've generally been right in their conclusions. I'm not saying Ohio shouldn't go through with the tax cuts. But everyone should be honest about who's going to benefit from them.
Rental Car Taxes Don't Work
As reported in several major newspapers, a study has found that people will try to avoid taxes on rental cars. Enterprise Rent-A-Car, the nation's second-largest rental-car company, commissioned two well-known scholars to study the effects of taxes on the business. Bill Gale of the Brookings Institution and Kim Rueben of the Urban Institute looked at local car rental taxes across the United States.
Gale and Rueben found that many renters went out of their way to rent cars in jurisdictions with lower or no car rental taxes. I could have told Enterprise that and saved it whatever it paid Gale and Rueben. Eighty local governments in 38 states have car rental taxes. Politicians like the tax because they think it will be exported to nonresident visitors. But half of all car rentals are by people who live in or near the jurisdiction. As Gale and Rueben found, those people will shop around and avoid the tax. Local governments can't effectively or efficiently tax mobile tax bases. This study is just one more piece of evidence.
Good News in Rhode Island
Despite intense lobbying from the Rhode Island Retail Federation, the Rhode Island General Assembly refused to approve a sales tax holiday. The media reported that the sales tax holiday died because of budget concerns. That could be it; the holiday would have cost $5 million. But I'd like to believe some legislators thought the idea was kind of dumb.
Who Wants to Be a Millionaire?
How about the Arizona Voter Reward Act, which will award $1 million to some lucky state citizen who casts a ballot on Election Day? The goal is to increase voter turnout. Even though I think lotteries are awful, that's pretty cool. After all, I've never missed an election and all I usually get is politicians I didn't vote for.
Quote of the Week
The business activity tax (BAT) nexus bill is unexpectedly working its way through Congress. Even though I don't think states should tax corporate income, I think the BAT bill is a terrible idea. If states are going to tax corporate income, Congress should have the decency not to make the task harder. There's also the problem with preempting state taxing authority. But conservatives have always selectively played the state's-rights/strong-federalism card. When conservatives agree with what the states might do, they're all for state authority. When they oppose the states, they have no problem trampling on 200 years of federalism. Then there's the almost silly notion that physical presence means anything in the modern economy.
I was talking to an opponent of the BAT nexus legislation the other day, and he said, "This bill is like the flag-burning amendment. No one is burning the flag, yet lots of politicians were willing to amend the U.S. Constitution to stop flag desecration. In this case, no corporation with an accountant whose IQ is above 10 is paying significant amounts of state corporate taxes. Yet politicians are willing to scuttle years of established constitutional law to fix an imaginary problem. To say that corporations need protection from the states is nonsense."
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The Politics of State Taxation is a column by State Tax Notes contributing editor David Brunori, who welcomes comments at email@example.com.
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