Tax Guide

Presidential Candidates Tackle Taxes

Andrew B. Einhorn — Tue, 16 Oct 2007 18:55:00 GMT

If you are like most Americans, you may be finding it hard to figure out where the Presidential candidates stand on taxes. Who will raise them? Who will lower them? Who will propose new taxes o tax cuts?

The Tax Policy Center of the Urban Institute and Brookings Institution may have the answers you're looking for. They are keeping close tabs on the tax plans of Presidential hopefuls. Click here to see a spreadsheet of the tax proposals from leading and lagging candidates.

Pennsylvania Woman Sues K-Mart Over 28 Cent Tax

Andrew B. Einhorn — Thu, 11 Oct 2007 00:04:00 GMT

By Joseph Henchman of The Tax Foundation

Some 7,400 jurisdictions in the United States impose a sales tax, and most if not all of those taxes carve out exemptions and exceptions for politically-favored products. Keeping track of what's taxed and what's not in 7,400+ tax codes is a tough job, and if you mess up, you face fines and lawsuits.

For instance, the following items are among those exempt from Pennsylvania's sales tax: wrapping paper, toothbrushes, coal, coffins, horses (but only if shipped out-of-state or used for commercial racing), three kinds of trout (out of twenty), gum, tourist promotional materials, and toilet paper.

Yes, toilet paper—as the K-Mart in Monroeville, Pennsylvania recently learned. Local resident Mary Bach has filed a lawsuit demanding $100 in damages plus court costs because her $3.99 toilet paper purchase was incorrectly taxed (for 28 cents). Ms. Bach is no stranger to such complaints - she heads a consumer task force and led an outcry over grocery coupon rules. This lawsuit takes advantage of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, which allows her, in this case, to seek damages 357 times her actual injury.

With so many exemptions and deductions in our tax code, the real news story should be when someone gets it right, not when they get it wrong. Businesses small and large can suffer as they try to keep up with the ever-changing mess.

High Corporate Taxes in Canada and the U.S. Compared to Rest of the World

Andrew B. Einhorn — Wed, 10 Oct 2007 22:00:00 GMT

An article by Lorne Gunter in Canada's National Post on Monday reiterates what we already know: a higher corporate tax rate will lead to decreased investment and productivity and cause capital outflow as companies move their operations to countries with lower taxes. Gunter had this to say:

While the U.K. is committed to reducing its corporate tax rate this year to 28% -- what [the C.D. Howe Institute] calls the "tax-revenue-maximizing rate" -- "most of the world's major economies rely on corporate rates in excess of 30%."
The irony is that as corporate taxes rise above 28%, tax revenues actually decline. Large companies move their operations to low-tax countries, taking their income and jobs with them. Meanwhile, smaller corporations reduce their investment, which ultimately lessens their productivity and income. Corporate taxes above 28% narrow the tax base and slow growth, lowering -- not increasing -- government revenues from businesses.
By keeping taxes high, Canadian governments are not only discouraging the investment our economy will need to generate the revenue future generations will require for their benefits. High taxes are lowering revenues now and stunting current job creation and economic expansion.

The relative mobility of capital allows corporations to effectively pack up and move when the tax climate is not beneficial to them, which of course will lower tax revenue, all else equal. Both Canada (with a corporate tax rate of 36.4%, the 11th highest in the world) and the U.S. (39.3%, 2nd highest) would do well to take Gunter's advice and start making their corporate tax rates more competitive in the global economy.

As previously mentioned here, something else to consider is that cutting corporate tax rates can help low-income wage earners even more than a general personal income tax reduction.

By Mark A. Robyn of the Tax Foundation