October 22, 2016

A Thought about the Inefficiency of High Taxation

"Harvard economist Martin Feldstein, using the 1986 tax reform, estimated that when marginal tax rates on the top income bracket dropped from 50 percent to 28 percent, reported taxable income increased by 44 percent. This didn't fully make up for the reduction in revenues caused by the reduction in the tax rates, but it did pay for half of it and exposed the inefficiency of high taxation."

~ Luigi Zingales, Economist

Source: page 219, "A Capitalism for the People: Recapturing the Lost Genius of American Prosperity.

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Luigi Zingales is the Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance, and Charles M. Harper Faculty Fellow at the University of Chicago Booth School of Business. His " research interests span from corporate governance to financial development, from political economy to the economic effects of culture. He co-developed the Financial Trust Index, which is designed to monitor the level of trust that Americans have toward their financial system. In addition to holding his position at Chicago Booth, Zingales is currently a faculty research fellow for the National Bureau of Economic Research, a research fellow for the Center for Economic Policy Research, and a fellow of the European Governance Institute. He is also an editorialist for Il Sole 24 Ore, the Italian equivalent of the Financial Times. Zingales also serves on the Committee on Capital Markets Regulation, which has been examining the legislative, regulatory, and legal issues affecting how public companies function. In 2014 he was the President of the American Finance Association," according to the faculty directory.

October 21, 2016

Kudos to the Sun Gazette for One of Its 'Highs & Lows'

The Arlington Sun Gazette included two short editorials in its Highs & Lows on its opinion page this week. The second editorial -- called a Thumbs Down in this case -- concerns a proposal by the Virginia Association of Counties (VACo) to ask the Virginia General Assembly to allow counties to double the meals tax rate and to remove the requirement that voters first approve a meals tax before it's imposed.

Here's the second Thumbs Down in this week's Arlington Sun Gazette:

"To a little-noticed but outrageous proposal by the Virginia Association of Counties, of which the Arlington County government is a dues-paying member.

"As part of its 2017 legislative package, currently in the draft stage, the organization plans to ask the General Assembly to allow counties (a) to double the maximum meals-tax rate that can be imposed, from 4 percent to 8 percent, and (b) eliminate the requirement that counties get voter approval before imposing such a tax.

"(An aside: Arlington’s elected officials got a sweetheart deal from the legislature way back in the day; they were allowed to impose a meals tax if all five County Board members agreed. They did, and we got the tax with no public input.)

"Counties and their state organization no doubt will contend they’re just trying to get the same powers that cities have when it comes to taxation. But it looks to us to be another attempt to pick taxpayers’ pockets without the consent of the governed.

"Rest assured: The proposal is going nowhere in Richmond. But the fact it was even brought up shows how out of touch some leaders and staff can be. The public isn’t your never-ending ATM, folks."

We growled about the VACo legislative proposal on October 11, 2016.

October 20, 2016

Cutting Office-Vacancy Rate Will Require a ''Long-Term Slog'

At the Arlington Sun Gazette this morning, Scott McCaffrey reports on a discussion at the Arlington County Board's Tuesday recessed meeting (videos of past meeting available), writing:

"In a briefing described by one County Board member as sobering, Arlington officials said they believe the best-case economic-development scenario for the county is to “slowly and steadily” reduce record office-vacancy rates.

"But even that relatively modest hope could face headwinds, with new employment patterns, increased competition from other jurisdictions and the federal government angling for cheaper leases all conspiring against what had once been Arlington’s main selling point: its central location.

"Arlington’s combination of high vacancy rates and high average rents is “not a good place” to be in, said Arlington Economic Development chief Victor Hoskins during an Oct. 18 briefing with elected officials."

McCaffrey added:

"Countywide, office-vacancy rates stood at just over 20 percent in mid-2016, with county economic-development officials guesstimating the rate ultimately will decline to under 15 percent. But that might not happen until 2023, and perhaps not at all if the General Services Administration continues to pull out of Arlington."

He also reported the "commercial office space has seen average rents decline over the past five years in Arlington, from $45.43 per square foot in 2011 to $42.95 in 2016," and then added, 'County Board member Christian Dorsey called the discussion 'sobering . . . but illuminating.'"

McCaffrey's entire article is well-worth reading.

We growled on April 29, 2016 about jobs and economic development, noting the average office vacancy rate in February 2015 was 21.7%. It dropped to 20.1% in February 2016. We also growled on October 5, 2015, about the county's high occupancy rate, pointing out that 3 of 4 County Board candidates' top concern was Arlington's high office occupancy rate. Finally, on March 13, 2015, we growled about a March 3 presentation by the chair of the Arlington County Board's Economic Development Commission, Sally Duran, discuss "the importance of a flourishing business community which will substantially benefit Arlington taxpayers." An important take away from her presentation was that a 10% increase in office occupancy should result in a $34 million increase in real estate taxes.

At the time, the office vacancy rate was 21.8%. In a County Board budget work session a week later, the newly-appointed director of economic development proposed an additional "investment" of taxpayer dollars of $3.95 million for each of the next three years to "(r)educe office vacancy by half and diversify the Arlington economy over the next 36 months." Now they say the office-vacancy rate may decline to 15% by 2023, or even achieve no growth at all. It will be interesting to see just how accountable the Board holds the director of economic development.

If you are concerned about the Arlington County economy, and its real estate tax base, take a few minutes and write to the Arlington County Board. Just click-on the link below:

  • Call the County Board office at (703) 228-3130

And tell them ACTA sent you!

October 19, 2016

Cell Phone Tax Burdens Rise Two Years in a Row

What is the Federal Universal Service Fund?

"The federal USF (FUSF) is administered by the Federal Communications Commission (FCC) under open-ended authority from Congress. The program subsidizes telecommunications services for schools, libraries, hospitals, low-income people, and rural telephone companies operating in high cost areas," according to the Tax Foundation study.

Last Tuesday, October 11, the Tax Foundation released a new, state-by-state analysis of cell phone taxes, "done jointly with Scott Mackey of KSE Partners" that found "the average U.S. customer pays more than 18 percent in taxes and fees on their wireless bill, several times the state sales tax rates," writes Joseph Henchman at the Tax Foundation's Tax Policy Blog.

Here are the key findings, according to Henchman:

  • Each year, consumers pay an estimated $17.2 billion in wireless taxes, fees, and government surcharges combined.
  • In just two years, the average wireless tax burden has increased by 1.5 percentage points, and wireless taxes are now 4.5 percentage points higher than they were ten years ago.
  • The average state-local wireless tax in the U.S. is 11.93%, more than 4 percentage points higher than the average state-local sales tax.
  • The five states with the highest combined state and local wireless taxes and fees are Washington (18.8%), Nebraska (18.7%), New York (18.0%), Illinois (17.8%), and Pennsylvania (15.7%).
  • The five states with the lowest combined state and local wireless taxes and fees are Oregon (1.8%), Nevada (2.1%), Idaho (2.3%), Montana (6.2%), and Delaware (6.3%).
  • Six major U.S. cities now have wireless tax rates exceeding 25 percent: Chicago (36.24%), Baltimore (29.84%), New York (27.11%), Philadelphia (26.24%), Omaha (26.06%), and Seattle (25.94%).

According to the study, "Wireless consumers pay an estimated $17.2 billion in taxes, fees, and government surcharges." This includes: "$7.0 billion in sales taxes and other non-discriminatory broad-based consumption taxes; $5.1 billion in federal Universal Service Fund (FUSF) surcharges; $2.5 billion in 911 fees; and, $2.6 billion in other discriminatory state and local taxes, fees, and surcharges."

It's important to note, however, "In recent years, increases in the federal USF charge were the largest drivers of rising wireless taxes and fees. This year, however, state and local taxes and fees increased significantly faster that the federal USF surcharge."

You can access both the executive summary and entire 19-page report here. It's worth taking a look since there are several helpful tables and charts.

Interestingly, "The FUSF rate (euphemistically called the “contribution factor”) is set by the FCC each quarter. For the period beginning July 1, 2016, the contribution factor is 17.9%. Thus, the FUSF rate is 6.46% (17.9% times 62.9%)."  Here's the Federal Universal Contribution Fund Rates from 2000 to 2016:

In this study, Virginia scores well, ranking #47 with a combined state-local rate of 6.68%. Coming in #1 was the state of Washington with a state-local rate of 18.78% followed by Nebraska with a combined rate of 18.67% and New York was #3 with a combined rate of 18.04%. The federal government adds on an additional 6.64%. So kudos on this study to the Virginia General Assembly!

Concerned about the taxes you pay on your cell phone? Start by writing to your member of Congress. Contact information is available at the Library of Congress' Congress.gov. Taxpayers living in Virginia's Arlington County can contact:

  • Senator Mark Warner (D) -- write to him or call (202) 224-2023
  • Senator Tim Kaine (D) -- write to him or call (202) 224-4024
  • Representative Don Beyer (D) -- write to him or call (202) 225-4376

Ask for a written response. And tell them ACTA sent you.

October 18, 2016

A Thought about Judging Politiicans

"You mustn't judge a politician by talk. You have to judge them by performance."

~ Milton Friedman (1912-2006)

Source: AZQuote.com.

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From The Concise Encylopedia of Economics:

"Milton Friedman was the twentieth century’s most prominent advocate of free markets. Born in 1912 to Jewish immigrants in New York City, he attended Rutgers University, where he earned his B.A. at the age of twenty. He went on to earn his M.A. from the University of Chicago in 1933 and his Ph.D. from Columbia University in 1946. In 1951 Friedman received the John Bates Clark Medal honoring economists under age forty for outstanding achievement. In 1976 he was awarded the Nobel Prize in economics for “his achievements in the field of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy.” Before that time he had served as an adviser to President Richard Nixon and was president of the American Economic Association in 1967. After retiring from the University of Chicago in 1977, Friedman became a senior research fellow at the Hoover Institution at Stanford University.

"Friedman established himself in 1945 with Income from Independent Professional Practice, coauthored with Simon Kuznets. In it he argued that state licensing procedures limited entry into the medical profession, thereby allowing doctors to charge higher fees than they would be able to do if competition were more open.

"His landmark 1957 work, A Theory of the Consumption Function, took on the Keynesian view that individuals and households adjust their expenditures on consumption to reflect their current income. Friedman showed that, instead, people’s annual consumption is a function of their “permanent income,” a term he introduced as a measure of the average income people expect over a few years."

October 17, 2016

A Thought about Private Property

"What our generation has forgotten is that the system of private property is the most important guarantee of freedom, not only for those who own property, but scarcely less for those who do not. It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us, that we as individuals can decide what to do with ourselves."

~ Friedrich August von Hayek (1899-1992)

Source: AZQuotes.com.

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From the Concise Encyclopedia of Economics:

"If any twentieth-century economist was a Renaissance man, it was Friedrich Hayek. He made fundamental contributions in political theory, psychology, and economics. In a field in which the relevance of ideas often is eclipsed by expansions on an initial theory, many of his contributions are so remarkable that people still read them more than fifty years after they were written. Many graduate economics students today, for example, study his articles from the 1930s and 1940s on economics and knowledge, deriving insights that some of their elders in the economics profession still do not totally understand. It would not be surprising if a substantial minority of economists still read and learn from his articles in the year 2050. In his book Commanding Heights, Daniel Yergin called Hayek the “preeminent” economist of the last half of the twentieth century.

"Hayek was the best-known advocate of what is now called Austrian economics. He was, in fact, the only major recent member of the Austrian school who was actually born and raised in Austria. After World War I, Hayek earned his doctorates in law and political science at the University of Vienna. Afterward he, together with other young economists Gottfried Haberler, Fritz Machlup, and Oskar Morgenstern, joined Ludwig von Mises’s private seminar—the Austrian equivalent of John Maynard Keynes’s “Cambridge Circus.” In 1927 Hayek became the director of the newly formed Austrian Institute for Business Cycle Research. In the early 1930s, at the invitation of Lionel Robbins, he moved to the faculty of the London School of Economics, where he stayed for eighteen years. He became a British citizen in 1938.

"Most of Hayek’s work from the 1920s through the 1930s was in the Austrian theory of business cycles, capital theory, and monetary theory. Hayek saw a connection among all three. The major problem for any economy, he argued, is how people’s actions are coordinated. He noticed, as Adam Smith had, that the price system—free markets—did a remarkable job of coordinating people’s actions, even though that coordination was not part of anyone’s intent. The market, said Hayek, was a spontaneous order. By spontaneous Hayek meant unplanned—the market was not designed by anyone but evolved slowly as the result of human actions. But the market does not work perfectly. What causes the market, asked Hayek, to fail to coordinate people’s plans, so that at times large numbers of people are unemployed?"

October 16, 2016

Facting-Checking 'The Bern' on Workers Living in Poverty

At his website, Senator Bernie Sanders claims, "Millions of Americans are working for totally inadequate wages. We must ensure that no full-time worker lives in poverty. The current federal minimum wage is starvation pay and must become a living wage. We must increase it to $15 an hour over the next several years."

Preston Cooper, fellow at the Manhattan Institute, dug into the Census Bureau's 2015 report on Income and Poverty in the United States, and shows that few full-time workers live in poverty, according to the report he posted last week at Economics 21, the economics research center of the Manhattan Institute. Here's a portion of his explanation"

“Nobody who works 40 hours a week should live in poverty.” This sentiment has been expressed by Democrats from Vice President Joe Biden to Senator Bernie Sanders, and is used to support raising the minimum wage from the current federal level of $7.25 per hour to $12 or even $15 per hour. But the “40 hours a week” mantra misdiagnoses poverty in America. The largest cause of poverty is not low wages but lack of work altogether.

"According to the Census Bureau’s recently released report, Income and Poverty in the United States: 2015, just 2.4 percent of working-age individuals employed full-time and year-round live in poverty, down from 3 percent in 2014. By contrast, nearly a third (31.8 percent) of non-workers were below the official poverty threshold.

"Of the roughly 24 million working-age individuals below the poverty line in 2015, just 2.5 million had a full-time, year-round job. Even this number is likely overstated—the definition of poverty used by the Census Bureau does not take into account taxes and transfers such as the Earned Income Tax Credit, which tops up the wages of low-income workers.

"By contrast, nearly 15 million non-workers—representing 63 percent of working-age people in poverty—were below the poverty line in 2016. Not only are there more non-workers in poverty, but these individuals are also climbing out of poverty at a slower rate. While the number of full-time, year-round workers in poverty fell by 18 percent in 2015, the number of non-workers in poverty fell by just 9 percent.

"Politicians who want to raise the minimum wage argue that it will reduce poverty. But the minimum wage comes with a tradeoff—higher wages for some, but fewer jobs for others as employers cut back on hiring due to heftier labor costs.

"If the goal is poverty alleviation, the tradeoff inherent in raising the minimum wage is not worth it. Antipoverty policy should focus on helping the nine-tenths of working age people in poverty who do not work 40 hours a week and year round. Raising the minimum wage would aid just a small share of those in poverty—while creating even higher barriers to entering the workforce for everyone else."

Below is one of two charts in Cooper's e21 report:

His conclusion is on-point when he says, "To create effective solutions to poverty, we must be honest about its causes. Some people in poverty work 40 hours a week, but focusing exclusively on these individuals misses 90 percent of the problem."

Cooper's entire paper is worth reading, especially since it's fairly short. He includes a second chart showing the percentage of people aged 18-64 in poverty by work status in 2015. Specifically, 63% did not work, 26% worked, but not full-time and/or not year-round. Only 11% worked full-time and year-round.

Forbes magazine contributor Jeffrey Dorfman puts it more bluntly in the first of a two-part series (posted November 19, 2015) explaining "the Democrats misconceptions about the minimum wage." According to Dorfman:

"The three remaining candidates for the Democrat Party had a long discussion about the minimum wage and what it should be raised to during their last debate. Former Maryland governor Martin O’Malley and Vermont senator Bernie Sanders supported raising the minimum wage nationwide to $15 per hour. Former Secretary of State Hillary Clinton played the role of the (relative) grown-up in the room by supporting a raise in the federal minimum wage to “only” $12 per hour. What all three Democrats showed is that they either don’t understand economics or simply cannot speak the truth to the people they need as supporters and voters.

"Sanders made clear the more liberal stance on the minimum wage: “You have no disposable income when you make 10, 12 bucks an hour. When we put money into the hands of working people, they’re going to go out and buy goods, they’re going to buy services and they’re going to create jobs in doing that.” This is the first mistake that liberals make—believing that money in the hands of poor people is better for the economy than the same money in the hands of rich people."

Here are two fact checks from PoliticalFact. The first, dated May 9, 2016, has not Truth-o-Meter, but appears skeptical of raising the minimum to $15 per hour. The second, dated May 4, 2016, addresses Sanders' claim that a $15 minimum wage would reduce federal assistance by $7.6 billion. The PolitiFact's Truth-o-Meter gave Sanders a "Mostly False."

Take a few minutes to write your member of Congress. Tell Congress that alleviating poverty is a worthwhile goal, but they should not pander to special interests. And remind them that higher minimum wages for some results in fewer jobs for others. Contact information is available at the Library of Congress' Congress.gov. Taxpayers living in Virginia's Arlington County can contact:

  • Senator Mark Warner (D) -- write to him or call (202) 224-2023
  • Senator Tim Kaine (D) -- write to him or call (202) 224-4024
  • Representative Don Beyer (D) -- write to him or call (202) 225-4376

Ask for a written response. And tell them ACTA sent you.

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Items in Growls are written by individual ACTA members and do not necessarily represent the views of the Arlington County Taxpayers Association, Inc. Please send comments about Growls to The Growl Meister