Taxation: May 2006 Archives

In a recent report published by the Tax Foundation, the estimated tax compliance burden due to the federal income tax was $265.1 billion in 2005. Mainer's share of the compliance burden is $1.26 billion. This represents a whopping 29.7 percent of all federal income taxes collected in Maine--34 percent higher than the national average of 22.2 percent and the 15th highest percentage in the nation. More specifically, Maine individuals represent 44 percent ($558 million) of the tax compliance burden, businesses represent 52 percent ($650 million) and non-profits represent the remaining 4 percent ($47 million).

This week's installment of the "Hidden/Fee of the Week" is up on the MHPC website--the aeronautical gasoline tax. Enjoy :-)

By now we have all heard about the recently enacted Federal income tax cut officially called the "Tax Increase Prevention and Reconciliation Act of 2005." The Joint Committe on Taxation has estimated the tax cut at -$69 billion over the next 10 years. What you won't hear about is the $21.8 billion of "Revenue Offset Provisions" otherwise know as tax increases. Looking over these tax increases is not for the faint-at-heart as they are full of tax minutia that only a tax accountant could love. There are 13 of these tax increases including the "Application of earnings stripping rules to partners which are C Corporations ($284 million over ten years)" and "5-year amortization of geological and geophysical costs for major integrated oil companies ($189 million over ten years)." Huh? Anyone want to guess what these mean? As usual, the government gives with one hand and takes with the other. More disturbingly, many of these tax increase provisions result in the shifting of the tax burden from individuals to businesses thereby further reducing tax transparency.

As I mentioned in my first posting, tax transparency is a critical component of a good tax system. Without tax transparency, taxpayers have no way to judge whether or not the price of government is worth the benefits. Unfortunately, Maine's tax system is anything but transparent. Perhaps the largest obstacle to tax transparency is the sheer number of taxes that are "on the books." In order to shed light on this problem, MHPC created a section on the MHPC website that provide the details on a specific hidden tax or fee.

The goal is to highlight at least one new tax or fee per week and to keep a running count on the number of taxes we find. The count is important because not all taxes and fees are created equally--some are taxes and fees that are made up of a number of "smaller" taxes and fees. For example, the Special Fuel Tax is actully five taxes levied as Diesel, Propane, Methanol, Ethanol and Compressed Natural Gas taxes. As a result, the current count on the number of hidden taxes and fees stands at 6 (plus the gasoline tax highlighed last week). Stay tuned each week to discover the next "Hidden Tax or Fee."

By: J. Scott Moody

Welcome to The Maine Heritage's Policy Center's new blog. The goal of the MHPC blog is to provide timely commentary on important policy issues. In particular, this blog will help "fill in" the time between studies. This first blog is a great example of this. One of my major tasks this year is to develop a fundamental tax reform plan for Maine. Naturally, this is long process. However, along the way there are useful bits of information that can be passed along in the course of my research to the general public and policymakers. In this blog posting I will share with you the four critieria that I will use to judge Maine's tax system. Of course, the list is not set in stone and I encourage anyone who has any additions and/or subtractions to the list to please send me an email and I will evaluate them. The usual disclaimer applies to the MHPC blog in that all views are strictly the author's and not necessarily those of MHPC--unless it is a reprint of MHPC work such as a press release or study. Enjoy :-)

Principles of Tax Reform.
1. Be Transparent: Taxes are the price of government. Unfortunately, today there are so many different types of taxes; taxpayers struggle to determine what exactly the price of government is. Imagine walking into a store where every shopper faces a different price because of differences in income, age, occupation, where they live, etc. Taxpayers face such a bewildering dilemma both among and within the multitude of taxes they pay that; ultimately, the price of government becomes so obscured that taxpayers are simply unable to weigh the benefits vs. the cost of government. A good tax system is designed to allow the taxpayer to easily determine the price of government.
2. Be Neutral: Paying taxes is an involuntary action and push taxpayers to alter their behavior to minimize their tax bill--taxing income reduces income, taxing retail sales reduces sales, taxing the value of property reduces its value. A good tax system is designed to reduce the influence of taxes on the behavior of taxpayers by taxing at a single point in the economy (income OR consumption OR wealth), having tax a single, flat rate and having a tax base that is broad (no exemptions, allowances or credits).
3. Be Simple: In addition to paying the tax, taxpayers must also spend time and money planning, complying and filing their taxes. This leaves less time and money for family and business. A good tax system is designed to minimize these tax costs on the taxpayer.
4. Be Stable: Taxpayers make many long-term decisions in the face of an uncertain world such as the decision to have children or to to buy a house. A good tax system should not be a source of additional uncertainty by changing continuously, by enacting temporary tax changes and, worst of all, by making tax changes retroactive.