State lawmakers around the nation are clearly torn on the issue of oil/gas taxes. On the one hand, you see folks like Patrick Bauer and future Indiana gubernatorial candidate Jill Long Thompson arguing that consumers need a cut in gas taxes. On the other, you see lawmakers in Wisconsin and Pennsylvania proposing higher taxes on companies bringing petroleum products into the state.
In each of these case, lawmakers clearly want to do two (potentially contradictory) things simultaneously: make oil companies pay more, and give consumers a break (or at least hold them harmless). Indiana Rep. Bauer bemoaned his ability to tag "gouging" oil companies with higher taxes even as he proposed tax cuts for consumers, and in both Wisconsin and Pennsylvania, lawmakers have drafted bills that would impose a new tax on oil companies while forbidding them to pass the tax through to consumers.
The Wisconsin-Pennsylvania approach is certainly creative. The big question is, how are lawmakers going to enforce it-- and will they even try?
It's easy to enact language forbidding companies to pass on a tax to consumers, but very hard to enforce. For example, suppose Wisconsin's new tax was roughly equivalent to 5 cents for each gallon of gas sold in the state. Now suppose that, one week after this new tax goes into effect, the price of gas in one particular gas station goes up 2 cents per gallon. Can the state impose sanctions on the gas station? Obviously not, because there are a lot of other factors governing weekly changes in gas prices. State taxes are a pretty small part of the gas prices we're paying now. And it could well be that, in the example here, these other factors would tend to drive up the price of gas by 7 cents per gallon in that week. If that were true, the gas station in this example would be perfectly justified in jacking up the price of gas by 2 cents-- they'd be doing exactly what the legislature told them to.
Just as interesting, as ITEP's Jeff McLynch points out, is whether lawmakers will even try to enforce such a provision. Lawmakers of both parties know that you can score cheap political points by knocking big oil for not paying their taxes (and, as various groups have shown in the past, the oil industry richly deserves these knocks), but there's not necessarily all that much political payoff from following through and making sure that companies refrain from passing through the tax hike to consumers. Posturing may be sufficient to win votes.
A better approach, from a federal perspective, would be to eliminate the host of tax subsidies for oil companies that have sprung up over the past quarter century. Since state corporate taxes generally piggyback on the federal corporate base, shoring up the federal base would help states too. That won't win state lawmakers any political points, of course-- but would help ensure that oil companies pay their fair share of state corporate income taxes in a quiet way.
Thursday, May 31, 2007
Sunday, May 27, 2007
Indiana Property Tax Reform: More to Come?
The ink is barely dry on Indiana's much-ballyhooed property tax rebate legislation, and some elected officials are already saying that a crisis has not been avoided-- merely postponed. Here's Keith Benman's lede in the Northwest Indiana Times:
At least one Northern Indiana state legislator thinks a looming property tax uprising in the rest of the state could prompt Gov. Mitch Daniels to call a special session of the General Assembly to do real property tax reform.Rep. Chet Dobis says he fears that if lawmakers don't come up with something more permanent fast, angry homeowners might do it for them:
"In a year or so we will be at the point where we will have no choice," Dobis said. "And it will be a push from the bottom, not from the top."Matt Greller of the state Association of Cities and Counties echoes this viewpoint:
"If anyone is under the impression we solved the property tax issue, I don't think we did," Greller said. "We just put a Band-Aid on it."Asked to respond to Dobis' concerns, a representative for Gov. Daniels said that "there are no...plans" for a special legislative session to deal with the property tax issue. Stay tuned...
Friday, May 25, 2007
Bauer: Suspend State Sales Tax on Gasoline
Patrick Bauer, the Speaker of the state House of Representatives, wants a temporary suspension of the state's sales tax on gasoline during what he calls "the summer gouging period." Gov. Mitch Daniels is skeptical, and his legal counsel thinks that Daniels probably could not legally suspend the gas tax on his own, as then-Governor Frank O'Bannon did seven years ago.
The price tag for such a cut: about $41 million a month.
The big question: should lawmakers be upset or happy when they've got a gas tax that actually tracks with the price of gas? Strictly from the perspective of ensuring that gas tax revenues are sufficient, in the long run, to fund the public services they're supposed to be paying for, you absolutely want your gas tax to be based on the price of gas, and should be happy when revenues grow with the price. But this apparently isn't Rep. Bauer's perspective...
The price tag for such a cut: about $41 million a month.
The big question: should lawmakers be upset or happy when they've got a gas tax that actually tracks with the price of gas? Strictly from the perspective of ensuring that gas tax revenues are sufficient, in the long run, to fund the public services they're supposed to be paying for, you absolutely want your gas tax to be based on the price of gas, and should be happy when revenues grow with the price. But this apparently isn't Rep. Bauer's perspective...
Tuesday, May 01, 2007
Indiana's Property Tax Refund: A Dumb Idea?
Facing homeowner property tax hikes estimated at close to 25 percent for the upcoming year, Indiana lawmakers have included a temporary property tax refund in the budget bill they passed over the weekend.
As we note here, the refund appears to have been designed by public relations strategists rather than tax policy wonks. Every homeowner will get a check in the mail this fall telling them with a little note telling them what the check is for and who they should thank for it. Republican leaders saw this as a political trick:
From this perspective, the main thing to know about the budget bill's property tax refund is that it doesn't seem very well tailored toward making people less mad. Getting a rebate check in the mail a couple of months later will be cold comfort for someone on a fixed income who simply can't afford a double-digit property tax increase.
A second reason to be concerned about this approach to doing things is that it basically asserts that everyone needs a property tax cut. As we've noted before, lawmakers have a disturbing tendency to rail about the plight of fixed-income families in drumming up support for property tax cuts-- only to pull a shell game that ends up cutting taxes for even the wealthiest family. This is a concern because the refunds going to the best-off Indianans could have been more productively used to help keep fixed-income seniors from having to sell their homes-- a goal that virtually any lawmaker would sign on to in theory.
A third reason? Upper-income Hoosiers will be sending part of their refund directly to Uncle Sam. The refunds will reduce, dollar for dollar, the amount of itemized deductions for property tax that itemizing Indianans can write off on their federal 1040 next year. So anywhere between 10 and 35 percent of the refund check, depending on your federal tax bracket, will never see the inside of your wallet. This problem could have been avoided of Indiana lawmakers had decided to target property tax relief to fixed-income families (who tend not to itemize their federal income taxes).
As we note here, the refund appears to have been designed by public relations strategists rather than tax policy wonks. Every homeowner will get a check in the mail this fall telling them with a little note telling them what the check is for and who they should thank for it. Republican leaders saw this as a political trick:
House Minority Leader Brian Bosma, R-Indianapolis, called the rebates a "harebrained idea" that "helps politicians and not the taxpayers."But there are more substantive reasons for thinking that this year's property tax rebate may not be the best way of staving off a property tax revolt. With the property tax, the first thing lawmakers should ask after noting that their constituents are mad as hell about property taxes is "why are they mad?" In Indiana, as in most states, the answer is usually that people see their property tax bills going up even though their ability to pay them has not.
From this perspective, the main thing to know about the budget bill's property tax refund is that it doesn't seem very well tailored toward making people less mad. Getting a rebate check in the mail a couple of months later will be cold comfort for someone on a fixed income who simply can't afford a double-digit property tax increase.
A second reason to be concerned about this approach to doing things is that it basically asserts that everyone needs a property tax cut. As we've noted before, lawmakers have a disturbing tendency to rail about the plight of fixed-income families in drumming up support for property tax cuts-- only to pull a shell game that ends up cutting taxes for even the wealthiest family. This is a concern because the refunds going to the best-off Indianans could have been more productively used to help keep fixed-income seniors from having to sell their homes-- a goal that virtually any lawmaker would sign on to in theory.
A third reason? Upper-income Hoosiers will be sending part of their refund directly to Uncle Sam. The refunds will reduce, dollar for dollar, the amount of itemized deductions for property tax that itemizing Indianans can write off on their federal 1040 next year. So anywhere between 10 and 35 percent of the refund check, depending on your federal tax bracket, will never see the inside of your wallet. This problem could have been avoided of Indiana lawmakers had decided to target property tax relief to fixed-income families (who tend not to itemize their federal income taxes).
The 2008 Budget's Property Tax Refund: Smile for the Camera
As the dust clears on Indiana's 2007 legislative session, there's lingering controversy over the way Indiana lawmakers have chosen to provide local property tax cuts.
The mechanism-- a temporary one, in force for just the next two years-- is a tax refund. Sometime after Hoosiers pay their property taxes this year, they will receive a check in the mail with their share of a $300 million property tax cut. Accompanying the check will be a little note:
There's a good reason for the bold print. If writing a big property tax check is a painful experience for Indianans, this bill won't make it any less so. When they receive a rebate later on, they'll be told what it is (and, of course, who to thank for it). But that's no substitute for simply not having to pay the property tax in the first place.
And, if the experience of other states is any guide, the rebate checks will count as taxable income when some Hoosiers file their federal income tax forms next year. (This will only be true for Indiana residents who itemize their deductions and write off their property taxes, and makes perfect sense: if your initial property tax bill is $2,000, and you later get a rebate for $200, your itemized deduction will probably be for the full $2,000-- so you need to count the $200 as taxable income next year just to keep the books in balance.)
There are more substantial reasons to be unhappy about this year's Indiana property tax refund, which I discuss here. But for the moment, it's enough to note that this appears to be a carefully tailored PR move.
The mechanism-- a temporary one, in force for just the next two years-- is a tax refund. Sometime after Hoosiers pay their property taxes this year, they will receive a check in the mail with their share of a $300 million property tax cut. Accompanying the check will be a little note:
"A portion of your local property taxes due in 2007 are being refunded due to tax relief provided by the Indiana General Assembly. Your refund is in the amount of $_____."Just in case homeowners might not get the message, the budget bill that authorizes the rebate also specifies just how big the bold print needs to be on the refund letter: "at least 12 point type."
There's a good reason for the bold print. If writing a big property tax check is a painful experience for Indianans, this bill won't make it any less so. When they receive a rebate later on, they'll be told what it is (and, of course, who to thank for it). But that's no substitute for simply not having to pay the property tax in the first place.
And, if the experience of other states is any guide, the rebate checks will count as taxable income when some Hoosiers file their federal income tax forms next year. (This will only be true for Indiana residents who itemize their deductions and write off their property taxes, and makes perfect sense: if your initial property tax bill is $2,000, and you later get a rebate for $200, your itemized deduction will probably be for the full $2,000-- so you need to count the $200 as taxable income next year just to keep the books in balance.)
There are more substantial reasons to be unhappy about this year's Indiana property tax refund, which I discuss here. But for the moment, it's enough to note that this appears to be a carefully tailored PR move.
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