Tax Analysts Blog

Bad State Tax Ideas Abound – Nebraska, Virginia, and Missouri

Posted on Jan 21, 2015

I am going to periodically call out bad tax policy ideas as they are introduced in the states. Here are three:

1. Legislators in Nebraska would like to cut property taxes and allow local governments to impose a local option income tax to replace the revenue. This is a terrible idea. Although citizens tend to hate the property tax, it remains the best way to fund local government services. Local option income taxes exacerbate intergovernmental competition. The proposal in Nebraska is worse because it targets agricultural property. The measure, by Sen. Al Davis, would reduce the percentage of agricultural land value that school districts can tax from 75 percent to 65 percent. It would impose a local income tax of 19.4 percent of a person's state income tax bill, but districts would have the option to increase it to 30 percent with a supermajority vote or by putting the question on the ballot. If we know one thing in 2015, taxing mobile tax bases, like wages, doesn't work.

2. One of the most cynical and asinine ideas is to tax cigarettes and use the proceeds to fund education. But Virginia Del. Rob Krupicka (D) would do just that. He wants to raise Virginia's cigarette tax from 30 cents a pack to $2 a pack to fund education. Someone should ask Krupicka whether he thinks education is important enough that it should be funded by broad-based taxes on income, sales, and property. Perhaps he thinks it is only important enough to be funded by a minority of poor, addicted residents. And what the heck kind of message does that send? We need to keep smoking because our education system needs the money?

3. Anti-gun Rep. Brandon Ellington (D) of Missouri is proposing legislation that would impose a special 1 percent sales tax on guns and ammunition and dedicate the money to pay for police body cameras. All special taxes on guns and ammunition are driven by political agendas.

Special taxes -- those on narrow bases -- should be imposed sparingly and only for good reason. The best reason is to pay for externalities. But unlike, say, cigarettes, 99 percent of gun purchases produce no externalities. So they should not be subject to special taxes -- unless you really hate guns, gun owners, and the guys from Duck Dynasty. I am all for police body cameras. I think every officer should wear one. But we should ask whether they are important enough to pay for with real, broad-based taxes.

A correction: Last week, I erred when writing about the Michigan sales tax referendum. I said incorrectly that all of the increased sales tax revenue would be earmarked for roads. What actually happens is that the sales tax increase triggers an increase in the state fuel tax -- which would be used for the roads. An astute reader brought that to my attention. I regret the error.

Read Comments (10)

emsig beobachterJan 21, 2015

David:

If you're going to continually point out screwball tax policy ideas, you'll
never find time for anything else. To spare yourself all the stress and
aggravation of pointing out the follies of our policy makers, note only good
tax policy proposals. You will have much more time for productive work.

Jeff WeberJan 21, 2015

As to Virginia, I am not with you on that one. People will not stop smoking,
tax it heavily and use the money for education. Better than taxing property,
sales, and income. They are the base for too many taxes.

david brunoriJan 21, 2015

Mr. Weber, Thanks for the comment. Your views are similar to a majority of
Americans. But I do not think imposing a regressive tax on a minority of
addicted people is a fair or just way to pay important services like education.
Using cigarettes (or other narrow taxes on minorities) reflects the fact
Americans want more government than they are willing to pay for.

emsig beobachterJan 21, 2015

Jeff: Several studies have found that teenagers are sensitive to price changes
for tobacco products. Taxing this product more heavily could potentially reduce
future demand for cigarettes.However, I disagree with you that special excise
taxes should be used to fund education. For one thing, the revenues would not
be sufficient; and (2) education generates large positive externalities and
should be funded through broad-based taxes. Cigarettes are probably overtaxed
with regard to the negative externalities they generate.

jeff weberJan 22, 2015

At the risk of displaying my ignorance, I must say that I have no idea what you
are talking about when referring to positive and negative externalities. I
didn't even know externalities was a word.

emsig beobachterJan 23, 2015

Jeff: You should have taken my Econ 101 classes. Examples: negative externality
(I used this in a class setting when a student voiced the same
non-understanding of externality). I lit a cigarette, blew the smoke in his
face, and when the ash was longe enough, flicked itinto his palm. An example of
a positive externality is if I own an apple orchard and a beekeeper sets up
operation next door (this is an example of mutual externality)

edmund dantesJan 23, 2015

I, for one, want much less government than I am willing to pay for.

jeff weberJan 25, 2015

emsig: How did you know your student wouldn't think that was positive?

emsig beobachterJan 27, 2015

Jeff: Economists make assumptions all the time. This time my assumption was
correct. In addition, I asked him if he smoked cigarettes and his answer was no
so i assumed he would not appreciate tobacco smoke being blown in his face.

A positive externality can be found in David's blogs. Where else can people
engage in some meaningful conversation; or, just vent, for so little cost?

Edmund Dantes: Will Rogers, the great American philosopher said we should be
thankful we don't get all the government we pay for.

emsig beobachterJan 27, 2015

Jeff: If the student believed it was a positive externality, the example would
have been a success as well. I'm flexible

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