by Howard Stephenson
George Orwell’s futuristic book 1984, written in 1948, described life under the totalitarian government of Oceania and its attempts to control the thoughts and actions of its citizens by controlling their speech. Newspeak was the enforced language founded on the English language, though many Newspeak words twisted their English meanings to be exactly opposite of their original meanings.
The Utah Taxpayers Association recently published a “Taxing Times” article which decodes the doublespeak used by the Spending Lobby (SL) of 2004 in which SL members try to sound like fiscal conservatives while advocating for higher taxes and spending. It used to be that fiscal conservatives were those pushing for tax reforms. Now, the SL has taken ownership of the tax reform movement but, similar to Newspeak in Orwell’s 1984, the doublespeak of many 2004 “tax reformers” is really part of an attempt to increase taxes.
The Taxpayers Association presents thirteen “pick-up lines” that the SL uses to increase taxes while trying to sound like they are not raising taxes. Keep track of how many times you hear these lines in the election debates and in the upcoming legislative session.
1. “This is not really a tax increase because we are keeping the rates the same.”
The SL uses this argument when it is trying to eliminate so-called “loopholes”. Tax systems are a function of tax rates and tax bases, and the tax base is determined by credits, exemptions, exclusions, and deductions.
A typical median income household claims deductions and exemptions for state income tax purposes equal to 30% to 40% of adjusted gross income2. Eliminating these deductions and exemptions can increase total taxes paid by more than 50% (the increased taxable income would be taxed at a marginal rate that is higher than the taxpayer’s average tax rate, particularly the average tax rate prior to elimination of exemptions and deductions.)
The SL argues that eliminating or reducing credits, exemptions, exclusions, and deductions are not tax increases. However, the SL tries to have it both ways by arguing that expanding or increasing credits, exemptions, etc. are tax cuts.
2. “We need to broaden the tax base.”
This is similar to the first item. Many economists argue for a broad tax base, but they usually stipulate an accompanying reduction in rates. The SL rarely requests a reduction in rates when requesting an expansion in the base.
3. “This is not really a tax increase because federal taxes are going down.”
Taxpayers have experienced significant reductions in federal taxes, particularly middle income families with children. Due to the $1,000 per child tax credit, many middle income families with three or more children pay little or no federal income taxes.
The SL justifies an increase in state income taxes because federal income taxes have been reduced. However, taxpayers can be certain that the SL will oppose a reduction in state income taxes when federal income taxes are increased. Due to persistently high levels of federal spending, federal taxes will be increased in the future. Social Security and Medicare taxes will also be increased, but don’t expect the SL to ask for reductions in state and local taxes when this happens.
4. “Even though taxpayers will be paying $82 million more in taxes, this is a tax shift, not a tax hike, because some people will be getting a tax cut.”
Using this logic, the SL could propose a tax change that would increase government revenues by $1 billion but still deny that it was raising taxes as long as one taxpayer received a tax cut.
A true tax shift is revenue neutral. That is, if one group experiences a tax increase of $82 million, then another group experiences a reduction of $82 million.
5. “We need to eliminate loopholes. Loopholes are subsidies”
“Loopholes” are tax breaks that other people get. Taxpayers with mortgages do not consider mortgage interest deductions a loophole because they can take advantage of this deduction. However, if another taxpayer owns a huge home and has a correspondingly huge mortgage interest deductions, this would be considered a loophole.
6. “We should eliminate this loophole because most other states don’t have it.”
Since Utah is one of only nine states that allow some or total deductibility for state income tax purposes of federal taxes paid, the SL has argued for eliminating this deduction. Nevertheless, the SL argues against granting reductions in taxable income to Utahns that are given to taxpayers in many or most other states3:
– Thirty-eight states reduce taxes for companies that export goods and services to customers out of state by allowing double-weighted (or greater) sales factor for apportionment of corporate income taxes (or have no corporate income taxes at all).
– Twenty-five states reduce corporate taxes by not having throwback rules for corporate income taxes (or have no corporate income taxes at all).
– Twenty-six states do not require combined reporting or have no corporate income taxes (combined reporting is good tax policy but it increases burdens on taxpayers.)
– Thirty-two states do not impose sales taxes on unprepared food.
– Twenty-nine states do not impose sales taxes on repair of tangible personal property (Utah exempts repair only if personal property is attached to real property.)
7. “We need to raise our property taxes because our property taxes are lower than the national average.”
Utah’s property taxes are lower than the national average due to taxpayer protections provided by Truth-in-Taxation, which the SL tries to weaken every year. However, Utah’s sales tax burden is 37% higher than the national average, and Utah’s individual income tax burden is 23% higher than the national average4.
To the SL, the national average is only relevant if Utah is below the national average. This applies not just to taxes but also to spending. Spending below the national average in one area is a cause for concern while spending above the national average in another area is “nice but not good enough.”
8. “We need to raise our sales tax rates because many states have higher sales tax rates than Utah does.”
Some states have higher rates than Utah, but very few have sales tax bases as broad as Utah’s. Utah imposes sales tax on unprepared food and repair of tangible personal property (as long as it is not attached to real.) Very few states tax both and have sales tax rates as high as Utah’s.
9. “Businesses get all of the tax breaks. Business needs to pay its fair share.”
Taxing businesses has great demagogic appeal, but most taxpayers realize that taxing businesses is a trick to hide the real cost of government. Businesses ultimately pass taxes on to consumers, shareholders, and employees. Since these pass-throughs are not visible or easily identifiable, the SL tries to impose as many taxes on business as possible. Excessive business taxation also forces capital investors to seek opportunities elsewhere and reduces the competitive situation of Utah businesses that compete in out-of-state markets against out-of-state companies.
The single largest tax break in Utah is the 45% primary residence property tax exemption. This tax break automatically shifts $191 million from primary residences to other properties, primarily businesses5. Except for vehicles, households do not pay property taxes on personal property (computers, furnishings, home appliances, etc.) like businesses do. Businesses pay $107 million per year in personal property taxes6.
The local media complains about business sales tax exemptions worth $468 million in 2003, but nearly half of this amount actually goes to individuals and local governments7.
Utah’s business tax burdens as a percent of personal income are nearly identical with business tax burdens in other western states. The Utah State Tax Commission in conjunction with its counterparts in other western states regularly calculates business tax burdens. Since the Tax Commission study makes assumptions unique to each state, this study is more accurate than other studies which apply the same assumptions to all states. Utah’s business tax burden as a percent of personal income is 3.42% compared to 3.43% for other western states.
10. “This is just a small tax increase, just a couple of pennies per day. No one will notice.”
Taxes accumulate, and even small tax increases matter. The SL has largely given up on massive tax increases (except for the Jones-Mascaro Tax) and is relying on numerous small increases to accomplish its goals. This is called incrementalism. Initiative 1, the 1/20th of a percent sales tax increase for so-called “open space” is incrementalism as a camel’s nose under the tent to bribe hundreds of local entities to come to the Quality Growth Commission (Newspeak at its best) for some “free money” if they will agree to match the state money with new local taxes and spending. Collectively, the new local taxes and spending will be enormous, though stimulated by a statewide “small tax increase.”
Utahns bear the 3rd highest state and local tax and fee burden in the nation8. While much of this burden is attributable to Utah’s unique age demographics, blame can also be placed on incrementalism. Taxes need to reduced, not increased. However, when taxpayers insist on tax cuts, the SL argues that the proposed cut is too big (government can’t afford it) or too small (no one will notice.) The SL justifies small tax hikes and opposes small tax cuts.
11. “We need to shift responsibility for roads and water to the local level.”
Local taxpayers and state taxpayers are the same people. Increased reliance on local taxes to compensate for decreased reliance on state taxes must be offset by reductions in state taxes otherwise this is a tax increase masquerading as a tax shift. Increased reliance on local taxes should not be used as an opportunity to “free up” state revenues for other purposes.
12. “We need to rely more on fees.”
Fees are a form of taxation. While fees are frequently a preferable way of funding certain services (water, transportation, etc.) in order to avoid subsidizing overconsumption, increased reliance on fees must be offset by reductions in general taxes. Higher fees should not be an excuse to free up state revenues for other purposes.
13. “This tax increase will pay for itself by reducing need for government services or by increasing economic growth”
Should we raise taxes every time someone comes up with a “good” idea? The SL often argues that various government programs reduce crime and poverty. While this is undoubtedly true in some or even many cases, it’s certainly not true in all cases. If these programs really did reduce government expenditures in other areas, taxpayers should have been getting tax cuts over the past several years. If additional government spending is intended to reduce government expenditures in other areas such as law enforcement or poverty, then these new programs should be funded by diverting funding from existing programs whose costs are expected to decrease because of the new program.