Dennis Hull

Maine's New Recycling Law Is a Regressive Tax That Will Harm Consumers

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Posted by Dennis Hull on Monday, July 19th, 2021, 12:35 PM PERMALINK

Low-income Mainers are already struggling with record high inflation and the twelfth highest state and local tax burden in the country. But a recycling law signed by Governor Janet Mills on Tuesday will make matters worse for those residents with higher prices at the grocery store and on other goods, doing the most harm to families who can least afford the higher costs.

The new program, known as Extended Producer Responsibility (EPR), will charge packaging manufacturers for collecting and processing recyclable materials, in addition to fees for discarding non-recyclable packaging. The Maine Department of Environmental Protection will set a packaging fee schedule on producers based on the per-ton costs of recycling their materials.

While environmentalists and other proponents of the program claim it will lead to funding for new recycling equipment and more efficient procedures, there is no evidence the new law will reduce the amount of trash in landfills. Nor will it improve recycling technology or allow for local tax relief, as some backers of the EPR program have claimed.

Instead, the EPR program will serve as a regressive, hidden tax as producers shift their higher costs onto consumers. Dr. Calvin Lakhan, a researcher at York University in Toronto, estimates that consumer prices will skyrocket anywhere from $99 million to $134 million every year as a result of the EPR program. For a family of four in Maine, monthly costs are estimated to rise between $32 and $59, thanks to higher costs on products that use disposable packaging.

Though the burden is concealed and indirect, all Maine residents will ultimately bear the economic consequences of the EPR legislation. But for low-income individuals and families, who already struggle to afford basic necessities, higher prices at the grocery store will have a far weightier impact.

From May 2020 to May 2021, Maine saw inflation of 6.6% – the largest rise in the final demand index since the Bureau of Labor Statistics started tracking the figure in 2010. Compared to a national rate of 4.9% over that same period, low-income Mainers are already struggling more than their friends and family in other states. The EPR program will cause even further price inflation during a period when those residents would be better served with tax relief.

At the same time that Governor Mills is imposing what is effectively a regressive tax hike, she’s shunning efforts to tax upper income filers. Lawmakers considered several bills to increase taxes on the wealthy during this year’s legislative session in Maine. LD 498 would have hiked the top income tax rate from 7.15% to 10.15%, an increase of more than 41%, while another bill would have raised the corporate tax rate from 8.93% to 12.4%. But even if they had passed, those bills would never have become law due to Governor Janet Mills’ firm opposition to the proposals.

While she won’t support a direct, progressive tax hike on the wealthy, Governor Mills takes little issue with imposing a hidden, regressive one that harms her poorest residents the most. Mills will have a tough time defending that duplicitous decision against her potential Republican challengers in 2022.

Maine was the first to impose an EPR fee scheme, but it may soon have company. Oregon lawmakers recently passed a similar EPR program under SB 582, which is awaiting Governor Kate Brown’s signature. That bill would raise recycling costs by 30% while only raising the recycling rate by 3%, according to a letter signed by nearly 40 manufacturing and business groups. Like in Maine, those higher costs will be passed on to consumers with higher prices for basic goods, many of which use disposable packaging. If Governor Brown blesses the program with her signature, Oregon will become the second state in the nation to impose a regressive recycling tax on its residents.

Expect lawmakers and governors in other states will continue to pursue EPR legislation in the coming years. This effective regressive tax first enacted in Maine should serve as a cautionary tale to avoid, and not a model for other states to emulate, though progressives will certainly try.

Photo Credit: Blahedo


Washington State Prohibits Voters From Having a Say Over Unconstitutional Income Tax

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Posted by Dennis Hull on Wednesday, July 14th, 2021, 4:40 PM PERMALINK

Washington state legislators are making their latest attempt to impose an unconstitutional income tax on its residents. With the passage of S.B. 5096, Washington residents may soon be subject to a 7% tax on the sale of stocks, bonds, businesses, and other investments whose profits exceed $250,000. 

Progressives have long tried to impose an income tax on Washingtonians. However, since the passage of a 1930 constitutional amendment that made all taxes “uniform upon the same class of property,” with property defined as “everything, whether tangible or intangible, subject to ownership,” Washington has successfully evaded every attempt to impose an income tax. Just two years after the passage of the 1930 amendment, a graduated income tax was ruled unconstitutional by the state supreme court – a precedent that holds today. Courts also struck down a 2017 Seattle ordinance establishing a progressive income tax. 

That hasn’t stopped legislators from repeatedly proposing an income tax to voters. Since 1930, Washington voters have defeated 10 ballot measures to impose a personal or corporate income. Most were rejected by a resounding 2/3 majority. Voters expressed their opposition most recently in 2010 with a 64-36% vote against a state income tax – even though it would only have affected income higher than $200,000 and reduced other taxes in return. 

Washingtonians have frequently made their preferences clear. But this year, politicians have shrewdly labeled their capital gains tax legislation as an excise tax. Excise taxes are imposed on the sale of specific goods and services. They’re legal under the state constitution – in fact, the state already imposes a real estate excise tax that ranks as the highest in the region. Democrats insist that the labeling ploy will allow the capital gains tax to withstand scrutiny in the courts, where several lawsuits have already been filed by the Freedom Foundation and the Opportunity for All Coalition. 

But capital gains are already considered income in every other state that taxes them. According to the IRS, capital gains are taxable as income since “almost everything you own and use for personal purposes, pleasure, business or investment is a capital asset” – including your home, stocks, jewelry, and business property. 

“The Washington Constitution is unambiguous,” said Freedom Foundation CEO Aaron Withe. “Taxpayers can’t be treated differently based on the amount of their income.  It’s both punitive and illegal.” Indeed, besides its unconstitutional status as an income tax, the capital gains tax would not be uniform, as is required under the constitution. Moreover, the Freedom Foundation points out in its lawsuit that the capital gains tax is unlawful under the Commerce Clause of the United States Constitution because it treats all sales of capital by Washington residents as taxable gains – including sales that occurred out-of-state. 

Democrats have also carefully worded their legislation to ensure that voters will not have the opportunity to consider it as a referendum. Allowing voters to have a say could seriously endanger the capital gains tax proposal – judging by history, voters would likely make it the 11th consecutive income tax proposal to fail. So, Democrats wrote an emergency clause into the law, thereby prohibiting voters from collecting signatures and mobilizing against the new tax in a referendum movement. With the inclusion of the phrase that the bill is “necessary for the support of state government and its existing public institutions,” Democrats have insulated the proposal from the likelihood that it will appear on the ballot in November. The courts, not the people, are now left to decide the validity of the tax. 

Rather than tiptoeing around the state constitution to create an income tax, Washington legislators should look to their record state revenues to advance their priorities. Washington has more than $3.8 billion in surplus funds, primarily as a result of Covid-era policies. 12 states across the country, including regional competitors like Arizona, Wisconsin, and Montana, used their surpluses to cut taxes across the board, often on both income and property. 

If enacted, a capital gains tax will ultimately create a less competitive business environment in the state of Washington. Entrepreneurs in Washington will start looking to business-friendly states like Florida, Texas, and regional competitors, rather than subject themselves to a high capital gains tax on their burgeoning profits. Rather than hobbling their competitive advantage and burdening their residents with a historic new tax, Washington should follow the example of these states and promote pro-growth, low-tax policies to facilitate a flourishing economy. 

Photo Credit: Masaccio

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California Now Bans State Employee Travel To 17 Red States, But Thousands Of California Families Are Moving To Them Every Year

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Posted by Dennis Hull on Thursday, July 1st, 2021, 4:33 PM PERMALINK

California’s ban on government employee business travel to certain Republican-led states expanded even further this week. With Attorney General Rob Bonta’s addition of Florida, Arkansas, West Virginia, North Dakota, and Montana to the California travel blacklist, the Golden State now forbids state employees from visiting a total of 17 states on official business, barring special circumstances.

Bonta’s decision to expand the list comes on the heels of laws passed in those five states related to the participation of transgender students in school sports. Bonta’s predecessor, now Health and Human Services Secretary Xavier Becerra, dramatically grew the list during his four years in office in response to similar legislation.

Despite Attorney General Bonta’s assertions of “an unprecedented wave of bigotry and discrimination” in the 17 listed states, Californians themselves seem to have a different perspective. IRS migration data reveals that Californians are flocking in droves to the 17 states where California state travel is restricted. Between 2018 and 2019, the state of California had a net loss of a whopping 75,117 people to the 17 states on California’s blacklist. Those residents took $4,722,021,000 in annual income with them.

That continues a years-long trend of outmigration from California to red states with lower tax burdens, a reduced cost of living, and a better tax and regulatory climate. In fact, several of the states on the blacklist recently reformed their tax codes. Florida, one of nine states with no income tax, reduced its commercial rent tax from 5.5% to 2% in April, creating an even more competitive business environment for the state, particularly in comparison to high-tax, high-regulation states like California. Between 2018 and 2019, the Sunshine State saw a net of 4,811 Californians migrate to its shores, hauling over a billion in annual income.

In North Carolina, where the California embargo on state business travel is stretching into its fifth year, 4,648 ex-Californians on net and $268 million in annual income flowed from the west coast to the Tar Heel State between 2018 and 2019. And those numbers seem likely to rise even further over the next few years if the new budget recently approved by the North Carolina Senate becomes law.

The North Carolina Senate budget, passed on June 24, would reduce the state’s flat personal income tax from 5.25% to 3.99%. For California residents in the top marginal income tax bracket, moving to North Carolina would lower their state income tax rate by a striking ten percentage points. North Carolina’s increasingly business-friendly environment may well attract thousands more Californians in the coming years who are weary of their state’s overbearing tax system and stifling regulations.

Meanwhile, Republican legislators in Montana and Idaho, two of the states that Attorney General Bonta added to the blacklist this week, reduced the top marginal tax rate in each state from 6.9% to 6.5%. A net of nearly 14,000 Californians made Idaho their home between 2018 and 2019 – a remarkable figure for the 13th least populous state in the country.

Former Attorney General Becerra added Tennessee to the government travel ban in 2016, when it passed a law permitting mental health counselors to reject patients based on religious beliefs. But a net 5,829 Californians still took their $376 million in annual income to start a life in the Volunteer State between 2018 and 2019. Tennessee has developed an attractive tax climate, becoming a true no-income tax state last December after its investment income tax was fully phased out.

Texas is also among the blacklisted states that recently enacted pro-growth tax reform. Republican Governor Greg Abbott signed a law in 2019 to limit the growth of property tax burdens, requiring localities to obtain voter approval before raising property taxes more than 3.5%. Tellingly, the state welcomed a net 33,274 ex-Californians and their $1.58 billion in annual income between 2018 and 2019.

These migration outflows from California are part of a broader, decade-long trend of Californians leaving for states with friendlier tax and regulatory climates. The Democratic supermajorities in Sacramento show no signs of abating the deluge of progressive policies that continue to drive employers and families out of the state. It’s why California is set to lose a congressional seat for the first time in history next year. Though Attorney General Bonta can try to weaponize his vast political power against Republican-led states through a ban on government travel, the real cost will be paid by a declining California, as families take their wealth and their livelihoods to freer states.

Below is a complete list of net migration outflows from California to the 17 states to which state business travel is currently prohibited, calculated using 2018-2019 IRS migration data.

 

Florida

Net population outflow: 4,811

Net annual income outflow: $1,195,069,000

 

West Virginia

Net population outflow: 125

Net annual income outflow: $17,944,000

 

North Dakota

Net population outflow: 282

Net annual income outflow: $3,409,000

 

Arkansas

Net population outflow: 1,668

Net annual income outflow: $46,470,000

 

Montana

Net population outflow: 2,175

Net annual income outflow: $135,726,000

 

Texas

Net population outflow: 33,274

Net annual income outflow: $1,581,624,000

 

Alabama

Net population outflow: 1,101

Net annual income outflow: $62,818,000

 

Idaho

Net population outflow: 13,942

Net annual income outflow: $734,470,000

 

Iowa

Net population outflow: 327

Net annual income outflow: $15,040,000

 

Oklahoma

Net population outflow: 2,187

Net annual income outflow: $27,860,000

 

South Carolina

Net population outflow: 2,192

Net annual income outflow: $133,094,000

 

South Dakota

Net population outflow: 691

Net annual income outflow: $51,494,000

 

Kentucky

Net population outflow: 973

Net annual income outflow: $31,416,000

 

North Carolina

Net population outflow: 4,648

Net annual income outflow: $268,428,000

 

Kansas

Net population outflow: 608

Net annual income outflow: $20,546,000

 

Mississippi

Net population outflow: 284

Net annual income outflow: $20,377,000

 

Tennessee

Net population outflow: 5,829

Net annual income outflow: $376,236,000

 

Photo Credit: Devin Cook

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Wisconsin Republicans Propose Billions in Middle-Class Tax Cuts

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Posted by Dennis Hull on Tuesday, June 29th, 2021, 12:29 PM PERMALINK

With a projected $4.4 billion in surplus revenue, Wisconsin Republicans are eager to give most of that extra cash back to the taxpayers. A new three-pronged proposal would cut $3.4 billion in taxes, in what would be the largest tax cut in the state’s history.

The most significant aspect of the plan would slash income tax rates for Wisconsin’s largest tax bracket – the middle class. Residents making between $23,930 and $263,480 will see their rates reduced by almost a full percentage point, from 6.27% to 5.3%.

That 15% rate cut translates to big savings for millions of Wisconsin families. According to the state budget office, those earning between $50,000 and $60,000 would save $172 on income taxes every year. Individuals and families will have more cash on hand to save, invest, and improve their lives.

“This is real, substantial and permanent tax relief that will forever change the state,” the MacIver Institute, a Madison-based think tank, noted in its analysis of the budget. “Not only will this tax cut keep taxpayers’ money where it should be, in their wallets, this tax cut will dramatically reduce the amount of taxpayer money available to fund state government. Let that sink in for a moment.”

The plan is also a boon to small businesses, particularly pass-through companies like sole proprietorships, LLCs, and partnerships. Since the majority of these businesses pay taxes under the individual income tax system, they would receive relief under Wisconsin Republicans’ tax plan, creating a greater incentive for entrepreneurs to do business in Wisconsin while increasing their job-creating capacity. Moreover, the proposed income tax cut would provide much-needed relief for existing small businesses that suffered under Governor Tony Evers’ pandemic lockdowns.

Homeowners also stand to benefit under the proposed tax cut, thanks to plans to lower property taxes by $647 million. For a median-priced Wisconsin home, that’s an extra $100 every year in tax savings. The cuts are a result of allocating an additional $647 million to the state’s general school aid fund, while maintaining spending caps for local K-12 districts and technical colleges. Those state funds effectively replace local property tax revenue, permitting property tax relief for Wisconsin homeowners. Reduced property taxes will also benefit renters, for whom the property tax burden is baked into their lease. 

For the third component of the tax cut, legislative Republicans in Wisconsin hope to abolish the personal property tax, which businesses currently pay on equipment and furnishings. The tax was scaled back in 2017, when Republicans controlled both branches of government, but new legislation could finally axe it for good. That proposal will head to the governor’s desk as a standalone bill. If it were included as part of the broader appropriations package, Governor Evers could weaken or eliminate it with his partial veto power, which gives the governor substantial authority to modify specific components of the budget. 

By killing the personal property tax in legislation separate from the budget, Republicans hope to force Evers to either accept or reject it in its entirety, rather than using a line-item veto in the budget.

The tax relief included in the budget has Wisconsin Democrats on the defensive. All four Democrats on the Joint Finance Committee voted against the legislation, pegging it as a tax cut for the rich since three-quarters of the income tax cuts would go to people earning more than $100,000. Yet the legislation would simply reduce taxes across the board in the state’s largest income tax bracket, including for most families earning between $30,000 to $40,000 a year. The vast majority of state residents will see real dollars returned to their wallets. In fact, the income tax rate would remain unchanged in the top bracket. Residents earning over $263,480 would still be taxed at 7.65%, the tenth highest rate in the country. That is something that Wisconsin legislators would do well to address at some point.

Republicans control both houses of the Wisconsin legislature. However, the budget still needs approval from Governor Evers, who vetoed a $250 million tax cut last year. It’s unclear whether the Republican proposal will become law, but next year’s elections are quickly approaching. Maybe some Democrats – and perhaps even the governor – will end up supporting a long-overdue tax relief package that benefits millions of middle-class Wisconsinites.

Photo Credit: Carol M. Highsmith

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New Jersey’s New Pork-Filled Budget Makes Old Problems Worse

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Posted by Dennis Hull on Thursday, June 24th, 2021, 1:09 PM PERMALINK

New Jersey plans to approve a record-setting $46.5 billion state budget this week, clocking in at nearly $6 billion higher than the current fiscal year. The state has a $10 billion surplus this year as a result of heavy borrowing last fall and billions in unspent federal stimulus funds. Democrat legislators are seizing the opportunity to hand out cash to their pals with $500 million in graft.

After three years of tax hikes under Governor Murphy, no tax hikes are planned in this budget, but it still manages to add to New Jersey’s unfolding fiscal disaster, making life more unaffordable for families, and a worse place to do business.

The state, which already has the highest taxpayer debt burden in the country, borrowed roughly $4 billion in bonds in November to supplement its finances during the pandemic. But instead of witnessing a shortfall, revenue projections are up by $1 billion, leaving taxpayers on the hook for billions in unnecessary debt and interest. The top Democrat in the state legislature, Senate President Stephen Sweeney, said he regrets the decision to issue the bonds.

Like most of the state’s debts, New Jersey’s November bond purchases are not “callable” and cannot be paid off early, meaning that the state can’t simply eliminate its debt. Instead, New Jersey will spend $2.5 billion of its surplus on debt-defeasance to pay older debts when they come due. Another $1.2 billion will be reserved as a fund for new projects that would otherwise have contributed to the state’s debt. Those figures, however, pale in comparison to the state’s bond debt that totals nearly $50 billion.

The budget agreement will fully fund New Jersey’s pension plans for the first time since the 1990s at a cost of $6.4 billion. In fact, Democrats plan to add an additional $505 million to the pension program, which could pose significant long-term viability issues for the state.

Meanwhile, Republicans have proposed allocating $2.5 billion toward New Jersey’s unemployment trust fund, which was drained of tens of billions last year in response to the pandemic. The legislature plans to vote on including an additional $135 million in COVID-19 aid for small businesses, on top of the $235 million Governor Murphey signed this week.

Another $319 million will allow the government to send annual checks directly to New Jersey residents. Families making under $150,000 will receive up to $500 this summer in the form of a property tax rebate. Which is a small token gesture given the state’s absurd property tax burden – an average bill of $9,112. A September agreement adding new taxes on the rich will provide the necessary revenue. Known as the Millionaires Tax, the legislation lowers the top tax bracket from $5 million and above to $1 million, while increasing the top rate from 8.97% to 10.75%. That makes New Jersey the state with the third highest top tax rate in the country, behind California and Hawaii.

The state also plans to start allocating $6.5 billion in unused federal funds from the American Rescue Plan to fund new welfare programs and other government services. Major spending items include:

$500 million – payments to renters

$250 million – utility relief

$100 million – expanded childcare services

$600 million – adult special education services (over 3 years)

$180 million – HVAC improvements in schools

$150 million – public health funding for Level One Trauma Centers

$200 million – discretionary fund for Governor Phil Murphy (keep an eye on this one)

Republicans have criticized the budget proposal in recent months, citing its dependency on borrowed and surplus funds to advance an ambitious agenda. Senator Sam Thompson, a Taxpayer Protection Pledge-signer, called it “fundamentally broken and structurally unbalanced,” while the Republican Budget Officer, Senator Steven Oroho, is concerned about “an avoidable payroll tax increase on small businesses” that could result from prioritizing additional spending over tax relief.

Photo Credit: Governor Phil Murphy - Twitter

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