Panicked Legislators Contemplate Tax Hikes in a Recession
There is no credible economic theory of which I am aware that says that government should consider a tax hike during an economic downturn. In fact, just the opposite. When the economy tanks, tax reductions are usually the order of the day. But in the current downturn, both state and federal legislators are considering some huge tax hikes. If they pass, you will be paying more for everything from utility bills to groceries. The only winners will be local, state and the federal governments. Here are just a few of the boneheaded ideas that legislators are working on.
Several years ago, the City of Los Angeles wanted to attract hi-tech business. So the city came up with a plan to reduce the business taxes of internet companies that moved to LA by 80%. Just so you know, Los Angeles has one of the most draconian business taxes of any city in the country. It taxes businesses 1% of their gross revenues and makes no exception for businesses that are losing money.
The effect of the tax cut was positive. A number of large internet businesses moved their headquarters to the West Side of LA. But lately, the city has been notifying some of these businesses that they were given the tax break in error. The city is now trying to collect taxes from them that range into the millions of dollars. It’s no wonder that Bill Glass, President of Shopzilla.com is threatening to move his company to another city.
California state legislators are also considering tax hikes. The state legislature has proposed a new law that would force out-of-state retailers to charge California sales tax on the goods they sell to residents of the state if those companies use advertising services which are based in the state. This is just a downright stupid idea. Amazon has already mounted a challenge to a similar law in the State of New York on the grounds that it is unconstitutional. They have also sent a letter to the state legislature threatening to move their advertising business to companies that don’t do business in California. If the law passes, it is likely to hurt both jobs and corporate profits in the state, which would reduce already dwindling state tax revenues even further.
The Feds don't want to be left out so Congress is considering a massive tax increase on everyone in the form of taxing carbon emissions. The system, commonly referred to as “cap and trade” would increase the cost of all goods and services sold in the country. The Congressional Budget Office has said that the cost of cap and trade will be $846 Billion. Included among the things that will be impacted are stables like food, gas, fuel oil for home heating, clothing, and just about everything else. Virtually everyone can expect to see significant increases in their home utility bills if the proposal becomes law.
Cap and trade is the brain child of environmentalists and the pet child of Nancy Pelosi who is bringing it to a vote in the House of Representatives on Friday of this week. The policy has the stated goal to reduce carbon emissions through taxation. But the bill will have other consequences too. For instance, it will be cheaper for manufacturers currently located in the United States to move their production facilities off shore. By doing this, they avoid the tax completely. The government has no plan to impose the tax on imported goods.
Cap and trade is also likely to create black markets for fuel, food and other essentials as struggling consumers attempt to avoid the tax.
These proposals are just the tip of the iceberg. The City of Philadelphia actually raised property taxes but refused to lay off government employees. The problem is that everyone not involved in government is having to tighten their belts. But those in government don’t seem to care. I believe the popular word these days is “empathy”; something which our elected officials clearly lack.
Governments are looking at taxes as a way for them to keep on spending. They are now to the point of squeezing blood from turnips. Every single dollar of taxes that are paid is equivalent to one less dollar that consumers have to spend to keep the economy going. Increasing taxes also make it more difficult for individuals and businesses alike to get credit. That’s because lenders have to take tax obligations into account when determining the credit worthiness of borrowers. Again, this hurts job growth and economic expansion.
Higher taxes will only exacerbate the current economic troubles faced by the United States; lengthening and perhaps even deepening the current recession. Simply put, it is bad policy. And if that bad policy costs you your job, or means that you can’t afford to heat you house this winter, then you might want to remember who proposed these asinine policies the next time you step into a voting booth.
When Obama was running for President, and even after he was elected, he promised the people of this country that unless they made more than $250,000 their taxes wouldn't go up. If he signs a cap and trade bill, that promise will be nothing more than a bald faced lie.
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