STUMP » Articles » Taxing Tuesday: We're Number One! » 5 February 2019, 06:13

Where Stu & MP spout off about everything.

Taxing Tuesday: We're Number One!  

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5 February 2019, 06:13

One complaint I get is I seem to really hate Chicago and Illinois.

I don’t really. It’s just that they give me so much material to work with.

And I’m trying to avoid my own pain.

Because guess what… New York is Number One!

NEW YORK TOPS IN TAXES

How High Are State and Local Tax Collections in Your State?

Today’s state tax map shows state and local tax collections per capita in each of the 50 states and the District of Columbia. D.C.’s tax collections per capita ($10,841) are higher than in any state. The five states with the highest tax collections per capita are New York ($8,957), Connecticut ($7,220), New Jersey ($6,709), North Dakota ($6,630), and Massachusetts ($6,469). The five states with the lowest tax collections per capita are Alabama ($3,206), Tennessee ($3,322), South Carolina ($3,435), Oklahoma ($3,458), and Florida ($3,478).

Have a map.

Woo.

BUT IT’S NOT ENOUGH

Cuomo announces income tax revenues have dropped by $2.3B

Gov. Andrew Cuomo announced Monday that state income tax revenues plummeted by $2.3 billion since he introduced his new budget plan last month — a bombshell that will force him to curb spending.

Cuomo attributed the revenue drop in December and January largely to the new federal tax code, as well as volatility in the stock market and other uncertainties.

“That’s a $2.3 billion drop in revenues. That’s as serious as a heart attack. This is worse than we had anticipated,” the governor said in Albany.

“This reduction must be addressed in this year’s budget.”

In a rare joint appearance with Cuomo, state Comptroller Tom DiNapoli confirmed the deteriorating finances.

So… what happened, huh?

Cuomo had planned to spend $176 billion — including about $100 billion in federal funds — in the new fiscal year that starts on April 1.

Wait a second. So. $100 billion of the state budget comes from the feds? (I assume this is Medicaid and some other similar stuff)

But let’s start with that $76 billion from state sources, and then we drop it $2.3 billion.

That’s a 3% drop. That shouldn’t be a crisis, especially in New York.

Cuomo’s preliminary analysis claims much of the impact is coming from a drop in revenues from the state’s highest income earners most impacted by the loss of write-offs of state and local tax deductions, known as SALT.

The federal law approved by President Trump and the then-GOP controlled Congress limited SALT deductions to $10,000.

The loss of revenue from New York’s wealthiest puts New York in a bind because the state relies on a progressive income tax system that taxes the rich at a higher rate.

Well, let us put this out there: the 3% drop came because people pre-paid some of their state/local taxes at the end of 2017. That pre-payment wasn’t going to recur. WHAT IS IT WITH THESE STUPID TAX STORIES.

One percent of the state’s top income earners provide 46 percent of the state’s personal income tax revenues, officials said.

Cuomo said Albany can’t go to the well and tax the wealthy again because that would only worsen the situation, citing “anecdotal” evidence that high-income New Yorkers are already fleeing the state to lower-tax jurisdictions.

He offered no figures to back up the claim.

Well, there is this one New Yorker, who supposedly is really rich (I don’t know directly, but I hear the Democrats are getting to the bottom of it… any day now…both in NY and DC), who has temporarily moved to Washington, D.C.

Anyway, I bet Cuomo knows specific people who left… just as I know specific people who pursue the snowbird strategy, and make sure they do not get anywhere near spending over half their time in NYC, as much as they’d like to. The tax hit is too hard.

INTERLUDE: WONDER

PUSHBACK ON THE WEALTH TAX

So, Warren got her wealth tax idea out there (as detailed in last week’s post.

Let’s look at some reactions.

Michael Bloomberg:
Michael Bloomberg compares Elizabeth Warren’s wealth tax to Venezuela, says Kamala Harris’ Medicare-for-all plan will ‘bankrupt us’


Okay.

Megan McArdle at WaPo: Elizabeth Warren’s wealth tax is no way to run government — but a good way to run a campaign

There are three things to note about Sen. Elizabeth Warren’s proposed wealth tax. The first is that it won’t do what she promises. The second is that it won’t happen. And the third is that both of those cavils are almost beside the point.

The Massachusetts Democrat wants to tax fortunes greater than $50 million at a rate of 2 percent of assets a year, with billionaires kicking in an additional 1 percent. Economists Emmanuel Saez and Gabriel Zucman estimate that the tax would raise $2.75 trillion over 10 years, all from people most voters don’t like very well.

The plan is less realistic than wishful. Saez and Zucman assume perfect implementation, with no broad exemptions that would enable ultrarich people, and their squads of tax attorneys, to structure their wealth around the tax. After a few rounds of legislative horse-trading, any real-world bill would be much more complex than the Warren camp envisions and thus easier to avoid. Which is why most countries have decided to avoid the bother.

Consumption taxes such as sales or value-added taxes are easy to administer and raise lots of revenue. Income taxes are trickier but still simple compared with taxing wealth. Most people regularly receive payments that are easy to track and can be valued at . . . the sum of the payments. But what is the value of a business with one shareholder? A large piece of timberland that hasn’t been sold for 50 years? An irreplaceable antique or artwork?

It is really difficult to measure wealth… multiple times. It’s pretty easy to measure income/cash flows.

Just One Minute: Elizabeth Warren’s Wealth Tax Contains The Germ Of A Decent Idea

Elizabeth Warren is trying to crowd the left lane of the Democratic primary race with her recently unveiled wealth tax. Some soundbites of my thinking:

As one of her proponents explains, the US tax code allows unrealized capital gains to go untaxed. This has been a big driver of the recent wealth surge, as Bezos, Gates and Zuckerberg can attest. But if untaxed capital gains is “the problem” why not address that? Change tax rules to force recognition of unrealized capital gains above some wealth threshold. Taxing wealth has dubious Constitutional validity (although John Roberts is smart enough to rationalize whatever he wants). Taxing income has a longer history and mark to market on capital gains is already used by financial institutions and individuals trading futures and index options (see tax straddles).

Okay, if it were more targeted to securities and other financial instruments, it might be workable. But… then you will end up with people shifting their wealth out of options into things where it’s essentially impossible to measure the unrealized capital gains.

Here is the key term: unrealized

I had a friend who had employee stock options at his tech employer in 2000… on paper, he was a millionaire… IF he had exercised those options at the time. I told him that was just paper wealth — that that value could easily fall to zero. I told him he should exercise at least some of the options to pay off his credit card debt. Those “gains” were unrealized… and wouldn’t be realized until he actually made a transaction.

Long story short: remember the tech bust? Yeah, he didn’t exercise any of the options, and after his company’s stock price drop, his options were underwater… aka, they would give him zero if he exercised them (this does not mean the options had zero value… if the stock price rebounded in the future, it could yield something non-zero…. but I do not want to teach about options valuation right now.)

I don’t have any issue with unrealized gains. It’s all just numbers on paper until you actually do a transaction. Tough shit if you want to extract value out of somebody not making transactions.

Tax consumption and/or income (which includes REALIZED capital gains). Taxing wealth is insane.

MattY at Vox: Elizabeth Warren’s proposed tax on enormous fortunes, explained

Warren’s proposal, of course, is for a progressive wealth tax in which the 2 percent rate does not apply to the first $50 million and the 3 percent rate only kicks in when you have more than $1 billion, so nobody would actually be taxed that much. The operation of the tax would, however, exert a dramatic gravitational pull on large fortunes and tend to pull them down to the tax thresholds.

That’s especially true because the mere existence of the wealth tax would, on the margin, encourage wealthy individuals to dissipate their fortunes on charitable giving and lavish consumption. If you try to horde wealth the government is going to tax it, so you might as well spend it.

This is, in turn, exactly the standard economic case against wealth taxes. In a very basic, stripped-down view, the accumulation of capital (buildings, machinery, business equipment, etc.) leads to higher wages and living standards. A wealth tax, by discouraging the accumulation of financial capital, could also discourage the accumulation of physical capital and thus lead to lower wages and living standards.

Most everyone agrees that a highly simplified two-factor model of how the economy works is not accurate, but the extent to which a wealth tax appears even remotely attractive will hinge on whether you think it’s a decent approximation of the real world or a wild fantasy cooked-up to serve the self-interest of plutocrats.

More prosaically, real world experience has been that it is challenging in practice to tax financial assets. Real estate taxes work because you can’t really move your house to the Cayman Islands. But you certainly can move your stock portfolio to a shell company registered in the Cayman Islands. Zucman is the author of a 2015 book on tax dodging, The Hidden Wealth of Nations, so he is well aware of the tax avoidance issues. The plan, according to the Post, includes a range of anti-avoidance measures, including a big increase in IRS funding and mandatory audits.

That is at frickin VOX, coming from idiot-in-practical-knowledge MattY. Even he knows it’s unworkable.

You expect that sort of explanation coming from City Journal or The Wall Street Journal, not Progtopia. But then, many of those sitting comfortably in Progtopia are trust fund babies… which is why they can play at magazine editor and the like. Unlike many of the Buzzfeeders recently laid off (go corporate, dolts), MattY lives off his parents’ considerable assets and would not exactly want the reliable source of income for himself to go away.

But it is hilarious to me to hear people with far more assets (accumulated via their oh-so-clean government “service”) say they want to tax people slightly richer than they are. Envy among the rich is even uglier than class war, eh?

TAX STORIES

Come on, they don’t have any dishonest people in the IRS to leak the returns to the Washington Post or some such?

And yes, by all means, spend your time and effort trying to publicize Trump’s tax filings, Dems. I think that’s a fabulous use of your time.

ENTERTAINMENT

No tweets for you today (I’m tired)

Here’s a video:

See you next week!


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