Two Democrats in the U.S. House of Representatives, Steve Rothman (D-NY) and Chris Van Hollen (D-MD) have introduced a bill that would end the IRS's program using private companies to assist in collecting delinquent taxes. (I have argued here before that the ineffectiveness of this program from a cost perspective is even more alarming than the implications for privacy.) This comes after Nina Olsen, the National Tax Payer Advocate, who heads an independent office within the IRS, called upon Congress to end the private collection program in her annual report. With the Democratic takeover of both chambers of Congress, the private collectors' days may be numbered.

The program began last fall with 12,500 delinquent cases handed to private debt collectors and is expected to expand to hundreds of thousands of cases over two years, all of them considered easy to resolve. The problem is that the private collectors will receive a commission of 25 cents for each dollar they collect, while it's argued that IRS employees could do the same work for just 3 cents for every dollar collected. IRS Commissioner Mark Everson admitted last year that the IRS staff could collect these debts for less cost but said that the agency lacked the funding to do so.

This actually points to a broader problem with the way the IRS is funded. The Congressional budget and appropriations process does not have any mechanism to consider the money that more IRS staff can collect as receipts that will more than offset the cost of such staff. In other words, expansion of IRS enforcement staff would show up as a cost in the federal budget, but the greater amount of money the new staff would surely rake into federal coffers would not. This leads to a very irrational outcome in which Congress passes up an opportunity to fully fund the one agency that offers a large, direct return on its investment.

This is a problem that comes up in the debate over closing the "Tax Gap," the difference between taxes owed and taxes actually paid. CTJ Executive Director Bob McIntyre offered several suggestions for closing the Tax Gap in testimony before the Senate Budget Committee last week. One of these was simply to increase funding for IRS enforcement. The IRS estimates that somewhere between $5 and $30 could be collected for every new dollar of funding for enforcement.

Even as Indiana lawmakers continue to scratch their heads over how best to reduce their reliance on local property taxes to fund services, the Indiana Fiscal Policy Institute (FPI) has been beating the drum for the all-important goal of more accurate assessment of property. It was FPI that blew the whistle on the inaccuracies of the property tax system earlier this year with an exhaustive report documenting these inaccuracies, locality by locality. FPI found that some local assessors routinely assess properties at less than their actual worth; others assess higher than actual worth. And in some taxing districts, neighboring homes that should be taxed the same way simply aren't. It's an administrative mess that calls into question the basic fairness of the property tax.

FPI's latest budget brief drives this point home again with an apt comparison to the income tax:

While there are many who wish to provide more relief for property taxpayers, the tax base upon which tax levies are calculated needs to be correct and consistent across the state. The current status of the system is comparable to one in which a taxpayers' W-2 form (the form on which an individual's salary or wages for income tax purposes is stated) may or may not reflect the actual earnings by that taxpayer in a year. Imagine if your W-2 understated your wages by 30% or more, or, even worse, that W-2 overstated your salary or wages by 30%. That, in fact, is the case, as many properties' assessed values are up to 30% or more above or below their market value--the value upon which the property tax is supposed to be based.
If such a condition existed in the income tax, the first thing taxpayers would demand is that the W-2s "get fixed." The basic equity and credibility of the income tax system requires that the income upon which we pay taxes is correctly calculated. Why should we, as Hoosiers, expect less from the property tax system?

The comparison is apt. Whatever measure of "ability to pay" a tax is based on, it stands to reason that this measure should be accurate, and if the income tax was as poorly administered as the property tax, people would flip.

And FPI is correct in asserting that the goal should be to make the property tax base as well-administered as the income tax base.

But it's worth dwelling on FPI's property tax-income tax comparison. Sure, cleaning up assessment practices is an important first step toward property tax fairness. But even when the property tax base is measured accurately, it will remain a less fair basis for taxation than is income.

The value of your home represents wealth, to be sure, but for most families increased property tax wealth simply doesn't have the same impact as increased income. When your income goes up from $100,000 to $150,000 from one year to the next (a fanciful example, but one that facilitates comparison to the property tax), you are definitely getting richer by the day. But when your home's assessed value shoots up from $100,000 to $150,000, you're "richer," but in a way that has no meaning for most families. This added value will only be meaningful to you if you plan on selling your house immediately. Otherwise, the main implication of this added value is that your property taxes will go up as a result-- which won't make you feel "richer" at all.

All of which is to say that if Indiana lawmakers could snap their fingers and make the property tax assessment process 100% accurate tomorrow, the property tax would still remain unfair in a way that desperately needs to be fixed. Adding a true "ability to pay" measure to the property tax by creating a real "circuit breaker" tax credit based on your income would be a great first step. (And Indiana lawmakers have NOT done this, whatever they may think.)

Read the rest of the FPI brief here.

...Would be simply repealing it. And that's exactly what a group of Indiana Republican lawmakers are proposing, according to the Star Press. The good news is that supporters of the plan, such as Senator Thomas Weatherwax, are at least a little bit concerned about how to replace the revenue:

Weatherwax recommended state income and sales taxes be raised by one percent each to make up the revenue. Local governments also would be given new options taxes to replace the balance of lost property tax revenue.

But the question remains: why repeal the entire property tax in the first place? There are plenty of reasons to complain about property taxes. They're supposed to be based on home values, and assessors often do a lousy job of figuring out what homes are really worth. Property taxes are notoriously unresponsive to changes in ability to pay: if you lose your job, your property taxes are still gonna be the same (although your income taxes will go down!).

But these are arguments for reform, not repeal. Why would a sober-minded lawmaker ever advocate for outright repeal of one of the three main revenue sources used by the state?

I can think of two reasons. One is that any legislator who's been around long enough has probably observed that they keep passing property tax reforms, and people don't seem to be getting less mad. (To which the response would be that even at this late date, lawmakers haven't enacted a "circuit breaker" tax credit for fixed-income families.)

A second, more devious reason is that some supporters of this idea probably just want less government-- and, lacking sufficient political support for scaling back the public investments Indiana government provides, they're content to "starve the beast." Simply removing all property taxes will inevitably force income and sales tax rates higher (as well as the rates on other minor taxes and fees that Indianans probably don't currently notice so much). The higher the tax rates get on everything else, the angrier taxpayers will get. The end result? Taxes are lower, but citizens are angrier as a result-- which means further tax revolts, which in turn will drive taxes even lower.

As is always true in the world, the real answer is probably somewhere in between these two extremes. Some people are probably quite ready to drown government in a bathtub, while others are simply at their wit's end and seeking to avoid wholesale tax revolt by enacting a tax "reform" that provides obvious and easily understandable relief.

But whatever the motivation, it's wrong. Revenue diversification is unambiguously good: the more revenue sources you have, the less reliant you are on any one source. And the more revenue sources you have, the lower the tax rate can be on each source, allowing you to spread the cost of funding public services more broadly.

Advocates of tax breaks for business typically argue that such tax breaks will benefit workers as companies are more able to expand and invest. The latest study to call this into question comes from the University of Kentucky, which finds that tax breaks don't create as many jobs as previously hoped. The report concludes, "Based on our evidence showing that training incentives are positively related to economic activity in an area, and given that relatively little is spent on this program, the Legislature may want to consider increasing the amount spent on training incentives" rather than more tax breaks.

It's also doubtful that tax breaks are very important to the success of businesses themselves. Despite the fact that Kansas business owners named excessive taxation as their biggest concern for the fourth year in a row, nearly half of the businesses surveyed by the Kansas Chamber of Commerce weren't even aware that the Legislature had enacted a six-year, $632 million business tax cut last year. The bill eliminated the state's property tax on new capital investment in business equipment and machinery and went into effect last July. It's difficult to believe that tax breaks could be vital to economic expansion if they're not even noticed by the corporations that benefit most from them.

In his State of the Union address on Tuesday, the President proposed a change in tax policy that would end the link between employment and health care ... but that could make health care less affordable overall. The stated purpose of his proposal is to "even the playing field' between those with employer-provided coverage (which is currently subsidized through the tax code) and those who purchase coverage in the individual health insurance market (which is mostly not subsidized under the tax code). This would be accomplished by giving all taxpayers a new deduction if they have health insurance, whether it's through an employer or otherwise. The deduction would be $7,500 for an individual and $15,000 for a family, regardless of how much the health insurance costs, and would reduce both income and payroll taxes. In addition, health insurance benefits provided by an employer would be counted as income for the first time. But most of the families receiving health insurance through their employer would get a tax break initially, since for most (although certainly not all), coverage costs less than $15,000 for a family or $7,500 for an individual.

Unfortunately, rather than evening the playing field, the President's plan would make the tax code more biased towards individually purchased health care and maybe even high-deductible health care. The new health care deduction could encourage some employers to "cash out" the health insurance benefits they currently offer to their employees, since the tax subsidy would no longer be limited to employer-provided insurance. If their employees try to buy health insurance individually, they will find that the plans offered on the individual market are much more expensive and less generous. Since the amount of the new deduction would be indexed to regular cost inflation but not to health care inflation (which is steeper) more and more people over time would find that their coverage costs more than the new deduction. And many people in more expensive plans are those with more critical health care needs or those who live in a part of the country where health care is simply more expensive. In the end, this plan is another attempt to shift risks back onto individuals who have little ability to cope with it on their own.

In what some Democratic members of Congress are calling a first step towards a larger change in energy policy, the House of Representatives on Thursday passed the Creating Long-Term Energy Alternatives for the Nation (CLEAN) Act (H.R. 6). The basic idea of the bill is to take certain tax breaks away from oil and gas companies (who have been enjoying record profits and thus seem to make poor candidates for tax subsidies) and reallocate that money to the development of alternative fuels. In a fit of brazen hypocrisy, the President's Office of Management and Budget declared that this bill embodied a "tax and spend philosophy" since it was reallocating the money to encourage energy independence.

The problem with this statement is that the federal government already is "spending" billions on oil and gas companies right now in the form of these tax loopholes. Foregoing billions in revenue in order to give tax breaks to Big Oil is the same thing as spending billions in order to help Big Oil, from a budgetary perspective, so the government already has a "tax and spend" approach to energy.

In the OMB's view, however, the billions showered on oil and gas companies by Bush and the Republican Congress in the tax provisions of the Energy Policy Act of 2005 (at the expense of American taxpayers who don't own stock in energy companies) did not count as "spending" that would eventually be paid for by higher "taxes" on everyone else. But, the OMB believes that moving these billions away from the immensely profitable oil and gas companies and towards eco-friendly fuels that might make us less dependent on foreign oil -- that's a tax hike coupled with new government spending. Other provisions correcting mistakes in lease contracts which allowed profitable royalty-free drilling on public lands (that means land owned by all of us) and using the revenues for alternative fuels -- those provision apparently embody big government run amok, in the OMB's view.

To understand just how ludicrous the OMB's statement is, a little background helps. The legislation only repeals two of the tax subsidies directed at oil and gas companies that CTJ has criticized. One is the domestic manufacturing tax deduction, which is available for oil and gas companies only because a provision of the 2004 tax cut bill redefined manufactured goods to include oil and gas. The other is the five-year amortization of geological and geophysical expenditures (the faster write-off of the cost of exploring for oil and gas, in other words), which would be changed to a seven year amortization. (Even the White House opposes this tax break but nonetheless signed into law the 2005 energy bill that included it). Other provisions would fix administrative snafus that have allowed companies drilling on public lands to avoid paying royalties. Around $14 billion in savings would be reallocated towards a new Strategic Energy Efficiency and Renewables Reserve, which would promote energy efficiency and fund research on alternative fuels.

Now, it's certainly debatable whether or not Congress should be conducting energy policy (or health policy or housing policy or countless other policies) through the tax code as it currently does. Citizens for Tax Justice has long argued that when Congress feels it won't get away with enacting an initiative as a normal spending program, it basically enacts the same initiative as a tax policy at the same cost. (Foregoing $200 billion in taxes because of deductions for health care is the same as spending $200 directly on health care.) The downside to Congress's tax expenditures, as they are known by tax analysts, is that the costs are often ignored and sometimes they are structured in a way that is regressive (as deductions that offer a larger benefit to people in higher income tax brackets, for example).

In this case, it's not really clear why spending $14 billion on alternative energy is any different, in budgetary terms, than offering $14 billion in tax breaks for oil and gas companies. The only difference is that the $14 billion spent on alternative energy has a policy rationale that most people agree with.

Perhaps this type of argument should be something we're used to in American politics. But what's alarming is that the stakes in this situation are relatively low. One can only imagine how absurd the public discourse might be when the debate turns to tax breaks the conservative establishment really cares about, like the bulk of the income tax breaks that expire in 2010 and that essentially benefit the wealthy.

On Wednesday newly elected Arkansas Governor Mike Beebe kept a campaign promise and proposed a cut in the state's sales tax on food. The proposal would cut the state's 6 percent sales tax, as it applies to groceries, by half. The Governor hopes to eventually repeal the tax on food altogether. However, the price tag for this cut is over $200 million and the benefits from this tax cut aren't targeted towards those who need it. Also, despite the state's recent higher-than-expected revenues, many advocates are worried the funding for the tax cut could come from education or other programs.

A similar discussion is taking place in Idaho, where Governor Butch Otter is proposing a more progressive approach to this issue. His proposal would keep the grocery tax and would instead offer a low-income tax credit designed to offset it. For more on the relative merits of exemptions and credits as strategies for making sales taxes less unfair, check out this ITEP Policy Brief.

States that enjoy a large endowment of mineral resources usually levy a severance tax on the extraction of these resources and these taxes are receiving a lot of attention these days. In Colorado the Auditor's office found that many oil and gas companies may not be filing tax returns. Officials in West Virginia worry that coal severance taxes are on the decline there, while advocates in Arkansas say that now is the time for severance tax reform. For more on this, read the report "Digging Deeper," from Arkansas Advocates for Children and Families.

Rural representatives in North Dakota's legislature have started a revolt against local option sales taxes used by some localities to help fund local education.State Rep. Mike Brandenburg argues that the lack of stores in more rural communities forces residents to shop in towns in more affluent districts, increasing the inequality between rich and poor districts.However, his proposed solution, House Bill 1314, may well create more problems than it solves.The bill would require stores to keep track of the home district of any shopper who spends more than $5, so the sales tax revenue can be directed to the shopper's home county.This system would create a huge administrative burden for both businesses and local governments.For a better solution to the problem of funding inequality between counties, North Dakota should consider revenue-sharing programs like those in Minnesota and Vermont.

In what some Democratic members of Congress are calling a first step towards a larger change in energy policy, the House of Representatives on Thursday passed the Creating Long-Term Energy Alternatives for the Nation (CLEAN) Act (H.R. 6).

The legislation only repeals two of the tax subsidies directed at oil and gas companies that CTJ has criticized. One is the domestic manufacturing tax deduction, which is available for oil and gas companies only because a provision of the 2004 tax cut bill redefined manufactured goods to include oil and gas. The White House has argued that it would be unfair for manufacturing companies, but not energy companies, to take advantage of this tax subsidy

The other is the five-year amortization of geological and geophysical expenditures (the faster write-off of the cost of exploring for oil and gas, in other words), which would be changed to a seven year amortization.

Other provisions would close loopholes that have allowed companies drilling on public lands to avoid paying royalties. Around $14 billion of savings would be reallocated towards the development of alternative energy sources.

The Senate Finance Committee had approved the package of tax "sweeteners"... at a cost of $8.3 billion over ten years... for small business to be combined with the minimum wage hike. The biggest tax break is an extension and expansion of the Work Opportunity Tax Credit, an incentive for businesses to hire welfare recipients and individuals from other at-risk groups. Other breaks would allow restaurants and retail stores bigger tax write-offs, expand the number of businesses allowed to use the more advantageous cash method of accounting, and loosen various tax rules relating to Subchapter S corporations (which pay no corporate level tax).

To his credit, Chairman Max Baucus (D-MT) also included in his bill several revenue offsets to ensure that the bill as a whole is budget-neutral. The biggest offset would restrict an especially egregious form of tax shelters known as sale-in, lease-out (SILOs). These arrangements, which can involve an American bank buying something like a subway or sewer system in another country and "leasing" it back to the foreign government for tax advantages, were already banned starting in 2004 but that ban would retroactively apply to deals made before 2004 under this provision.

Another offset would increase restrictions on "inversion transactions," in which American companies set up phony offshore "headquarters" to avoid U.S. taxes. The bill would also crack down on wealthy people who renounce their U.S. citizenship and move abroad, by making them pay taxes on their unrealized capital gains when they leave the country.

Projected Costs of Individual Tax Break Provisions and Revenue-Raising Provisions, 2007-2017

Deferred Compensation Controversy

One provision, which constitutes a smaller fraction of the offsets but has caused surprising consternation among lobbyists, would end tax advantages for "non-qualified deferred compensation" over $1 million a year. To put this in context, the tax code allows employees to defer paying taxes on money that they or their employer put into "qualified" retirement savings plans, such as 401(k)'s, until they take money out during retirement. But contributions to such "qualified" plans are limited, to no more than $30,000 a year depending on the type of plan

Many corporate executives, however, have set up "non-qualified" deferred compensation plans, which are not taxable to the executives until they take the money out (and which are not deductible by companies until then either). Currently, there is no limit on how much money executives can defer taxes on through these plans. The Senate bill would limit such tax-deferred compensation to $1 million a year. President Bush admonished business executives this week to "pay attention to the executive compensation packages that you approve" but did not endorse the Senate provision.

Future of Bill Uncertain

Senators from both parties said even before the vote on the "clean" minimum wage hike that it could not get the 60 votes needed to pass if it was not combined with tax breaks for small business, although the rationale for "compensating" small businesses. Under the U.S. Constitution, tax legislation must originate in the House, and House Ways and Means Chairman Charlie Rangel (D-NY) could use this rule to stop this legislation from moving if a deal is not worked out between him and Baucus.

The offsets are key because one hurdle any new tax breaks would have to overcome is the pay-as-you-go (PAYGO) rules that the Democrats in the House restored. PAYGO rules basically require that any new entitlement spending or any new tax breaks be paid for by either revenue increases or spending cuts. PAYGO was waived and then replaced with weaker rules while President Bush and his allies in Congress enacted deficit-financed tax cuts. Now, as lawmakers consider large tax proposals such as adjustments to the Alternative Minimum Tax (AMT) or large spending proposals, PAYGO will make it harder for Congress to take any action that increases the federal budget deficit.

Tax legislation is often messy and complicated. This presents a challenge for those seeking to change state tax systems through ballot initiatives or referenda: how can these complex tax issues be boiled down to a simple and accurate description that voters will be able to read and understand while in the voting booth? Arizona's latest ballot-initiative snafu illustrates this difficulty. Health-care advocates successfully gathered signatures last summer for an 80-cents-per-pack cigarette tax hike... but what appeared on Arizona voters' November ballots was a 0.8 cent tax, which was approved by a 53% majority. This would provide one-one-hundredth of the revenue these advocates sought. The state's Attorney General has ruled, oddly, that the 80-cent tax can be collected anyway, but RJ Reynolds is considering filing a suit to prevent the implementation of this tax hike. Read more about it on the Talking Taxes weblog.

In his state of the state address, New Jersey Governor Corzine outlined a proposed property tax reform package and emphasized property tax breaks that are fairly progressive in terms of who benefits. The proposed package would reduce property taxes by 20% for those with incomes less than $100,000. Those with incomes of $100,000 to $150,000 would see 15% reductions, and those with incomes of $150,000 to $250,000 would see a reduction of 10%. In addition to the tax cuts, the proposal would also cap the amount property taxes can be increased per year at 4%.

According to dictionary.com surplus is "an amount, quantity, etc., greater than needed."

Many state, including Kentucky, Arkansas, and Montana, are experiencing revenue that is higher than previous projections. The word many legislators and reporters have been using to describe this type of fiscal situation is "surplus". However, this word is disingenuous and often doesn't give taxpayers a good understanding of their state's fiscal situation.

For example, many Washington State reporters have been writing about higher than expected revenues as a "budget surplus." Calling it a surplus encourages policymakers to think of this as extra money to be disposed of somehow, whether through added spending for specific programs or even permanent tax cuts. But before legislators start spending this money, it's important to not think about this money as being extra or more than is necessary.

Certainly, the creation of a surplus in no way means that there is more money than needed. Every state can identify an area where increased revenue could be put to good use.

In fact, in most states the baseline for judging projected revenue is quite low. Over the past decade or so many states have slashed education, health, foster care, and environmental program spending. This "slashed" budget is what is used as the baseline for making projections into future years. Therefore, the baseline by which this surplus is calculated is arguably too low already.

Finally, these increases in projected revenue can also be quite temporary. Increased revenue this year hardly guarantees more revenue in future years.

Decisions about how to spend increases in projected revenue should be made with much care. Frankly the word surplus is a loaded term and implies something that may not be true.

As states around the nation consider whether to hike their cigarette taxes in 2007, the editorial board at the Birmingham News gives a helpful retrospective on Alabama's experience with hiking the cigarette tax a couple of years ago. Back in 2004, Alabama lawmakers said they wanted to hike the cigarette tax for two inherently contradictory reasons: to raise money, and encourage people to stop smoking. The state got more money out of the deal, but doesn't seem to have discouraged smoking at all. But it's worth reading it straight from the horse's mouth:

Since Alabama raised cigarette taxes two years ago, state officials didn't exactly get what they expected.
The hope was that the hike in cigarette taxes, from a near rock-bottom low of 16.5 cents per pack to a still low 42.5 cents, would discourage some people, particularly teenagers, from smoking. At the same time, the higher tax would bring in badly needed money for the state's General Fund budget.
Officials got part of it right. Cigarette taxes did boost the General Fund, now ranking as the third-biggest source of money in the budget. (The bulk of sales and income taxes go into the Education Trust Fund for schools.)
But the notion that higher tobacco taxes would result in fewer smokers hasn't held true. Surveys by the state Department of Public Health show about one-fourth of Alabama adults smoke, the same as before the cigarette tax increase took effect.
Why no effect? Two reasons jump out.
First, Alabama's cigarette tax is still on the low side - 39th lowest in the nation, in fact, certainly not enough of an economic deterrent to lead smokers to kick the habit. The national average for cigarette taxes is 80 cents per pack, nearly double Alabama's. Some 20 states charge $1 or more per pack, while a handful of states tack on $2 or more.
But even a tax of more than $2 a pack might not be enough, health officials say. One study found that to have a real impact on smoking cessation, cigarette taxes must exceed $7 a pack. Raising cigarette taxes to that level isn't going to happen here, or in any other state.
Another reason Alabama hasn't seen a decrease is smoking is that the state is doing little to discourage the habit.
Despite the $162 million the state expects to take in this fiscal year in cigarette taxes and the $94 million it expects as its share of the national tobacco settlement, Alabama spends a minuscule amount each year to discourage smoking.
Only $682,000 is budgeted for this fiscal year for anti-smoking programs, ranking Alabama 46th among the states. Worse, it's only 2.6 percent of what the Centers for Disease Control and Prevention recommends.

The News gets it exactly right. Lawmakers perpetually talk out of both sides of their mouths on this topic, assuring balanced-budget advocates that they can count on cigarette tax revenues to help fund public services and assuring health advocates that their goal is to discourage smoking. Of course, the two goals are at cross-purposes. A moderate cigarette tax hike, such as the one enacted by Alabama two years ago, is most likely just not enough to get people to quit in itself-- which means that all Alabama has accomplished here is pushing even more of the cost of funding public services onto the backs of the low-income Alabamans on whom the cigarette tax falls most heavily.

There are, of course, good reasons to hike cigarette taxes. Smoker impose enormous costs on state health care budgets. If a punitive cigarette tax encourages smokers to quit, the loss in cigarette tax revenue will almost certainly be repaid in the long run through lower health care costs and a healthier workplace and living environment for Alabamans.

But Alabama lawmakers, by doing virtually nothing to discourage socially harmful smoking, have made it clear that all they're really interested in is using cigarette tax revenues to avoid making less popular (but more fundamentally important) decisions about fixing the structural flaws in their income, sales and property tax laws. And that's not right.

For advocates of fair and sustainable taxation, it was the "perfect storm." In their wisdom, Arizona policymakers decided not only that it was worth trying to gain support for a 80-cents-per pack cigarette tax hike to pay for early education, but that instead of just passing a law, they should let the people vote on it.

The story would be bad enough if it ended right there: using rapidly-vanishing cig tax revenues to fund ongoing expenses is dumb. And asking voters to ratify such a move rather than passing regular legislation is downright cowardly.

But it gets worse. When the state published the official text of the ballot measure, Proposition 203, it misprinted the size of the proposed tax hike. Instead of calling it an 80 cent hike, the state's official description called it a ".80 cent" hike. As in, 0.8 cents per pack. Check out the incorrect ballot measure text on our website here (incorrect part is highlighted in yellow.)

On November 7, Arizona voters approved the measure handily, and on December 8 the new 80 cents-per-pack tax hike went into effect. Almost immediately, the folks at cigarette manufacturer RJ Reynolds cried foul, pointing out that the state had implemented a tax hike 100 times bigger than what voters had approved.

The Arizona Attorney General has ruled that the misprint on the ballot text doesn't matter, and that the full 80 cent hike can go into effect. Read the AG's opinion here. His rationale, in brief, is this:

1) the language of the actual ballot initiative (which covers 9 pages of small-print text, read it here) says very clearly that the cigarette tax hike is supposed to be 80 cents per pack. And every voter got, in the mail, a voter's guide that included the full text of the initiative as well as the (incorrect) shorter description of the initiative.
2) What voters see on the ballot is an (incorrect) description of the initiative, not the initiative itself.
3) But when voters cast their ballot, they're not voting for the description: they're voting for the actual initiative. As the AG sniffs, "the ballot description is not enacted into law; it is merely a description of the proposed law, not the law itself."
4) Ergo, the thing voters ratified on November 7 was NOT the proposal they read about on the actual ballot-- it was the thing that appeared in the ballot measure itself, which voters hopefully read about when they read the entire 240-page voter's guide (download it here if you've got a fast 'Net connection)

If this seems absurd, well, welcome to the world of direct democracy. When you try to compress a nine-page legal document into a paragraph that non-lawyers can read and understand in 30 seconds in a voting booth, things are more likely to go wrong than to go right. And in the case of Arizona's Proposition 203, they clearly went pretty wrong.

I'm a big fan of early education. But I'm also a fan of doing things right. And it seems to me that when voters are voting on something other than what's actually printed on the ballot, the result simply shouldn't count.

Am I wrong?

The editorial fallout continues for new Florida Governor Charlie Crist, who signaled this week that he wants to double the state's property tax homestead exemption to $50,000. Here's what the Pensacola News Journal has to say about Crist's plan :

[Hiking the homestead exemption] will further distort a tax system already titled off level by the homestead exemption and the Save our Homes amendment that limits increases in assessed values -- used to compute property taxes -- to 3 percent a year on homesteads.Doubling the homestead exemption will continue the trend of pushing the property tax burden onto businesses, renters and owners of undeveloped property.

This is exactly right. Florida's tax system has a lot of problems, but the inadequacy of existing homeowner tax breaks is NOT among them. The existing tax breaks for homeowners are already giving big tax breaks to even the wealthiest homeowners, making them more expensive than they need to be. Simply doubling the existing tax breaks further shifts the cost of funding public services away from homeowners and toward, well, everyone else. But the Journal's board goes one (laudable) step further:

[W]hat Crist needs to do is settle the question of whether there is a better method than heavy dependence on the property tax... Can the property tax be eliminated and replaced with something else, such as a state income tax or an increase in the sales tax? Should it be capped in terms of dollars, not just millage rates, and supplemented with another tax? Should it be rolled back and capped? Should the burden be spread more evenly?Put it all on the table, and let's see what the alternatives are.

This is terrific stuff. Observers of Florida tax politics have learned not to expect courage from their elected officials on this issue; it's a sad commentary that the Journal's willingness to "put it all on the table" seems downright courageous rather than simply being sensible.

Washington State's tax system has attracted its share of critics--and they sing the same tune with astonishing regularly. Whether it's the state legislature's Gates Commission from a few year back, or recent gubernatorial candidate Ron Sims, or (ahem) the Institute on Taxation and Economic Policy, everyone keeps coming back to the fact that Washington is one of only seven states that gets by without any kind of an income tax. Lacking an income tax, lawmakers are forced to rely extra heavily on the remaining taxes, with high (and unpopular) sales taxes, property taxes, and business taxes. It's a simple problem-- with a simple solution: enact an income tax, & maybe use some of the revenues to cut sales and property and business taxes.

In this context, you like to see a state lawmaker who's not afraid to suggest this simple solution. And Rep. Jim McIntire is just that guy-- all the more heartwarming given that he's been running the House Finance Committee. The political will may not be there to enact an income tax-- but at least someone in a position of power has the guts to beat this drum.

But not anymore. The Olympian reports that McIntire has lost his chairmanship of the committee for the upcoming legislative session.-- and that his support for an income tax is a big reason why:

"I think it was clear that the leadership wanted something different," McIntire said late Tuesday, acknowledging that his views on the income tax might have put his caucus in a tough spot politically.

McIntire comes across quite graciously in the article, especially when you consider that he appears to have lost his leadership job not because of any inadequacies in his job performance but because of his beliefs about tax fairness.

This isn't the end for progressive tax reform in Washington State. Far from it, says Rep. Brendam Williams:

"There are any number of us willing to talk about the fundamental need to talk about structural tax reform," Williams said. "I don't think the need for fundamental tax reform is off the table. We've just chosen a new leader."

But it's a shame that House Democrats appear to have chosen their new leader because the old one was too forceful in his belief that an income tax could help fix Washington's fiscal policy mess. A willingness to leave all options on the table shouldn't disqualify you from being a policymaker.

New Hampshire courts have ruled that the state's school funding system is unconstitutional, and has given the legislature until July to remedy this. Predictably, some anti-tax advocates are making noise about amending the state constitution to bar the state's supreme court from ruling on this matter. A new Concord Monitor poll takes the public's pulse on this question. The good news: 53 percent of New Hampshire residents think it would be a bad idea to take away the court's ability to monitor the constitutionality of education funding. The bad news: 40 percent think it's a great idea.

Louisiana is notorious for the poor quality of its property tax administration. Tax assessors are elected, and have a reputation for under-assessing properties. As a result, the "assessed value" of a Louisiana home (that is, the value of a home for property tax purposes) often has little to do with the home's market value. The Times-Picayune's Stephanie Grace tells it like it is:

The property rolls have been corrupted by sloppy practices and laziness, and in some cases outright bad faith, by elected assessors who have long courted favor with voters by systematically lowballing, rather than fairly and accurately evaluate property values.

This is all bad from a fairness perspective-- property taxes should be based on your home's actual value, not based on how much you bribe your assessor--but has been par for the course in Louisiana for a long time (as, in fairness, it was for a long time in most other states). But now this venality is coming back to bite Louisiana homeowners. In the wake of Hurricane Katrina, Louisiana policymakers have implemented a program called "Road Home," which is designed (among other things) to reimburse Louisiana homeowners whose homes were at least partially uninsured. Problem is, to reimburse for losses in home value you actually have to know how much a home was worth. And the complete disjunction between assessed value and market value in many areas of Louisiana means that when the state needs to actually know how much a home is really worth, the property tax system simply can't tell you.

Despite this limitation, the Road Home program is an important rebuilding tool available to Louisianans hit hardest by the hurricanes. Find out more at http://www.road2la.org/.

A December 29 editorial in the St. Petersburg Times makes the case for doing nothing (at least, nothing major) to fix Florida's property tax system in the near future. The Times argues (correctly) that the politically popular tax cuts recently proposed by candidates and elected officials are quick fixes rather than long-term reform:

The political temptations are great. The incoming governor, Charlie Crist, is among those who campaigned in the fall for doubling the current $25,000 homestead exemption. He and others also called for allowing homeowners to take their lucrative Save Our Homes reductions with them when they move. Neither approach really lessens the growing inequities in taxation and likely would, as TaxWatch suggests, only make things worse.

There's more to say here, of course. The only way to eliminate the "growing inequities" the Times alludes to would be to repeal the "Save Our Homes" tax cap entirely. And the real reason why inaction is arguably better than the reforms proposed in the past six months is that in the long run, Florida needs to diversify its revenue portfolio so it'll have a way to pay for property tax cuts. And in Florida, diversification means enacting a personal income tax. Until elected officials work up the courage to discuss how property tax cuts will be paid for, it will be hard to take their current proposals seriously. But the Times is absolutely right to condemn current leaders' emphasis on just making the existing property tax breaks even bigger.

The Times makes an equally interesting argument that while the big tax cuts proposed so far are non-starters, there are some smaller, "procedural" reforms that should be looked at immediately:

The law directs appraisers to value property at its "highest and best use," which has had the unintended consequence of generating enormous tax bills for some small businesses in hot real estate zones. Those taxes, in turn, pressure the businesses to sell out for high-rise offices or condos. That's bad growth policy, which is reason enough to review the standard.

This seems wrong for a couple of reasons. First, market value is generally what tax assessors ought to be shooting for in setting property values. As long as current market values don't reflect an unrealistic and unsustainable bubble, properties should be valued according to what someone would pay for it right now. Most of the inequities in the property tax world are due to departures from the "market value" standard.

Second, the pressure on business properties is directly traceable to the "Save our Homes" tax break that's currently in place. If lawmakers had the guts to confront this by repealing Save Our Homes in favor of a better-targeted approach to homeowner property taxes, and then recalibrated the state tax system to balance things more evenly between property, sales and income taxes, the current business property tax pinch would not be an issue. Period.

That's a big "if," of course. And until these needed changes are made, the short-run concern for businesses is a very real one. But it's important to remember that "market value" is not the culprit here.

A new poll by a New Hampshire newspaper finds growing support for reforming the state's tax system-- and for letting the state supreme court continue to act as a watchdog over the right to an adequate education.

That's the glass-half-full story from the Concord Monitor's coverage of this new poll. Here are the specific findings of interest:
1) Some people are making noise about passing a state constitutional amendment that would prohibit the state supreme court from passing judgment on the constitutionality of the way the state funds schools. 53% of survey respondents think this amendment would be a bad idea.
2) New Hampshire is one of nine states without an income tax. 37% think they should have one, and 9% are unsure.

In historical context, this is probably downright heartwarming for advocates of fair and adequate (not to mention constitutional) taxation; New Hampshire has been struggling with an antiquated tax system and its legacy of "no new taxes" governors for quite a while. But as a non-resident of the Granite State, these poll results still seem pretty bleak to me, taken on their own. Looking at the same two results a different way:
1) 47% of survey respondents apparently think it would be OK to pass a constitutional amendment stripping the state supreme court of its ability to enforce constitutional education guarantees.
2) 53% of respondents will not even entertain the notion of enacting an income tax.

This says to me that advocates of fair and sustainable tax reform still have a pretty big hill to climb in New Hampshire.