Reflections on Corporate Taxes (part I)

Fewer areas of policy are as misunderstood as our vast, byzantine tax code. This is particularly troubling because tax policy has a major impact on our economy, particularly in the creation and increasingly the exodus of jobs in the United States.

Ask most Americans for their thoughts on the tax code and many will declare that "corporations do not pay their fair share of taxes." This appeals to me on an intuitive level, however a closer look at the tax code shows that these sentiments are flawed. To start off with, the United States now has the dubious title of having the highest corporate tax rate in the developed world. I do not have any innate sympathies for large corporations, however as capital and production have become increasingly mobile, our comparatively high tax rate has accelrated the departure of manufacturing jobs from the United States.

A key component to maintaining domestic and attracting foreign investment (which is key to job creation) is to lower the corporate tax rate. This is anathema to most progressives, who are more inclined to turn to tariffs, which work quite well, at least until our trading partners decide to retaliate with tariffs of their own. In other words, "tax carrots" are generally more effective than "tariff sticks."

http://www.cato-at-liberty.org/u-s-corporate-tax-rate-the-highest/

http://www.reuters.com/article/idUSN1249465620080812

http://www.realclearmarkets.com/articles/2008/08/do_corporations_really_pay_no.html

Whose Property Taxes Went Up Most in Chicago?

Why are people surprised that property taxes are going up most in marginal city neighborhoods, like West Garfield Park (46.4%), New City (23%) and North Lawndale (19.7%)? Proponents of massive government spending generally claim that they will fund their desired programs by "taxing the rich." But, the size and scope of government inevitably reaches a point were its costs cannot solely be bore by the rich. And soon the definition of "rich" and "middle class" are greatly expanded to even include home owners in poor neighborhoods. We can be certain that the same will occur with the Obama Administration's expanded health care entitlements; few will enjoy improved health care, but most will face the burden of higher taxes.

Whose property taxes went up most in Chicago?

'IT'S OUTRAGEOUS' Property tax bills coming out this week jump as '7%' cap is gradually lifted BY ABDON M. PALLASCH Political Reporter apallasch@suntimes.com October 27, 2009

Four out of five Chicago homeowners will see their property taxes go up when they get their bills later this week, Cook County Assessor Jim Houlihan said Monday.

In the West Garfield Park neighborhood, the median tax bill will jump 46.4 percent, the highest spike in the city, according to the numbers compiled by Houlihan's office.

"I think it's outrageous. It doesn't seem fair," said Latonya Nelson, 39, who rehabbed a 100-year-old graystone opposite the park with her husband. "Especially with the economy being the way it is."

The main reason for the higher tax bills is the phaseout of the "7 percent" cap on property tax increases, Houlihan said.

Houlihan's controversial effort -- backed by Mayor Daley -- used a complicated math formula to shield homeowners in gentrifying neighborhoods from sudden steep property tax hikes. The formula shielded the first $40,000 of home value from tax hikes and aimed to prevent homeowners' bills from going up more than 7 percent a year.

Lobbies representing businesses and owners of commercial and apartment properties complained the program shifted some tax burden to them. House Speaker Mike Madigan remained a skeptic of the bill and two years ago he pushed through a staggered phaseout. So last year, the first $33,000 of city home values was protected. This year, that number drops to $20,000. That's why the bills will be higher, Houlihan said.

"This is a direct result of Speaker Madigan's phaseout of the 7 percent homeowner exemption," Houlihan said. "This is the one thing that worked. For the first three years, when it was really going, it protected homeowners. I met with the mayor and urged him to go to Springfield and try to reverse that. The budget indicates how serious the problem is: The mayor has $35 million to deal with that."

Mayor Daley's budget released last week included a pot of money to give $200 each in property tax relief to homeowners hard-hit by the phaseout. Daley is expected to talk about property taxes today, but it is unclear whether he will back an effort to revive the 7 percent program still unpopular with Madigan and business owners.

At the time he argued for a phaseout of the program two years ago, Madigan pointed to one study that argued the program's benefits were exaggerated.

Critics said the plan mainly benefitted yuppies. But Houlihan points to the accompanying chart as proof the West, Southwest and Northwest sides were the main beneficiaries and will now be hit the hardest by the phaseout.

The staggered phaseout of the program hits the city hardest and earliest, Houlihan said.

The amount of property value protected from tax hikes in north suburban properties drops from $33,000 to $26,000 this year, so tax bills will go up there too, but not by as steep a rate as in the city, said Houlihan spokesman Eric Herman.

In the south suburbs, where median home values are going down, the first $33,000 of home values are still protected from taxation, so homeowners there in general will not be hit as hard, he said.

Treasurer Maria Pappas expects to mail Cook County tax bills Wednesday, so they could be landing in homeowners' mailboxes as early as Thursday.

"They're trying to build the neighborhood back up, but if property taxes are going to go up 46 percent, a lot of the older folks aren't going to be able to pay that," said West Garfield Park's Matt O'Brien, 52, who works as a Dominick's grocery store cashier.

"The problem is, we're going to get taxed out of our properties," said his neighbor Kate Lane. "'Cause this is the best part of town. We've got the Eisenhower ... the Congress 'L,' the Douglas 'L,' we're getting taxed out for the rich folks and we poor folks are going to have to find somewhere to go."




http://www.suntimes.com/business/currency/1848022,CST-NWS-tax27.article

Indirect Taxation

Pictured Above: Predecessor of the IRS

The public has allowed for the destructive growth in the size of the state because most people are unaware of the extent of the tax burden that they face. Politicians accomplish this through widespread indirect taxation. And while most Americans are troubled by the rising costs of goods and services, widespread economic illiteracy prevents them from drawing a connection between government intervention and their declining living standards.

If these taxes were eliminated, politicians would be forced to fund the state through direct taxation on the earnings. This would allow Americans to truly understand the extent to which the government usurps their labor. And certainly this would prompt the majority of Americans to adopt a greater level of fiscal conservatism and prioritize on which programs and policies are worth funding.

Here are but a few examples of indirect taxation that raises the cost of basic goods and services: Sales Taxes, Business Licenses, Electricity Taxes, Natural Gas Tax, Phone Taxes, Cable Taxes, Bottled Water Taxes, Liquor Tax, Amusement Tax, Hotel Accommodation Tax, Fountain Soft Drink Tax, Airport Departure Tax, Corporate Taxes, Import Tariffs.

Here are a few taxes that make housing more costly for all Americans: property taxes, property transfer taxes, rehab permits, capital gains taxes, dumpster fees.

Here are some taxes that raise the cost of driving, as well as basic goods and services: Gas Taxes (in Chicago this raises the cost of gas by (on average) $0.80 a gallon). City Stickers, Tire Tax, Parking Tax, Parking Meters, Tollway Etc.

Here are a few more taxes that further usurp your earnings: Capital gains taxes, Inheritance taxes, Social Security Taxes, Medicaid Taxes.

And by recklessly printing money the government imposes an inflation tax on all Americans who save money.

http://www.youtube.com/watch?v=1-eqG7tvrzk

http://www.cityofchicago.org/city/webportal/portalDeptCategoryAction.do?deptMainCategoryOID=-536889521&deptCategoryOID=-536889915&entityName=Revenue&topChannelName=Dept&contentType=COC_EDITORIAL&Failed_Reason=Invalid+timestamp,+engine+has+been+restarted&com.broadvision.session.new=Yes&Failed_Page=%2fwebportal%2fportalDeptCategoryAction.do

Predatory Lenders & Victimized Home Owners

Pictured above - serfs paying their feudal lord.

In 1982 Mr. Arturo Lopez purchased a 2 flat in the working class Chicago neighborhood of Bucktown. Mr. Lopez was careful and purchased a property and obtained a mortgage that were within his economic means. He dutifully made the $600 monthly mortgage payments.

Every few years the bank would raise his mortgage on the grounds that the property value was rising, irregardless of Mr. Lopez's financial situation. By 2008 the bank had raised Mr. Lopez's mortgage by 400% to $2,400 per month. Since his income had only risen by 100%, the financial weight of the mortgage had become crushing.

After investigating his financial statements Mr. Lopez learned that he had paid off the loan in 2007, yet the bank kept on charging him. In 2009 he retired and the combination of his lower income and higher monthly payments made it impossible for him to pay the mortgage. Faster than he could say "foreclosure" the bank had seized his property. Mr. Lopez was justifiably enraged, because it was as if the bank had become a feudal lord and he had become a serf who was merely renting the property.

Now substitute "government" for "bank" and "property taxes" for "mortgage" and you'll understand the basically feudal relationship that had evolved between the government and homeowners via property taxes.

Most "progressives" decry the financial ruin of homeowners caused by them voluntarily taking on mortgages that are above their means.

Yet, so few "progressives" seem concerned about the financial burden and ruin caused by the government doubling and tripling property taxes, regardless of the income of home owners. And so few mention the part that rising taxes play in the growth of foreclosures.

In the vast majority of cases banks will make the effort to ensure that loans are within the means of their constituency. Yet, when the government dramatically raises property taxes they do not take the home owner's income into account. Needless to say this has contributed to the exodus of working class and middle class families from many parts of Chicago and Cook County. Yet, not once have I heard the "progressives" who decry gentrification mention property taxes.

Are these "progressives" only able to envision scenarios in which "greedy corporations" are the problem and state intervention is the solution?

I'll leave you with some thoughts that I would like you to ponder:

To levy direct (income) and indirect (sales) is a necessary function of the state. But to tax a home every year under the threat of having the state seize it from you implies that you are the tenant and the state is the feudal owner of the land...which we should find far more troubling that "predatory lending."