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Regarding a fractional reserve banking system, the Rothschild brothers once said "The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." I am that rare individual they didn't... More
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  • MD Gas Tax Hits the Poor 5 Times Harder than the Rich 4 comments
    Mar 14, 2012 8:53 PM

    Maryland's proposed gas tax increase of 10 cents per gallon would hit families at the poverty level 5 times harder than the average family within the top 25% of tax payers. This is the epitome of regressive taxation.

    For a family with income of $162,279/year (the average income of the top 25%), the tax would equal a miniscule 0.08% of their income based on typical gas consumption of 1309 gallons per year. A family at the poverty level ($14,710-$18,530 depending on household size of 2 or 3, MD's average household size is 2.6), would pay .38% of their income based on typical gas consumption of 632 gallons per year, that's 4.75 times more than the wealthy household.

    If anyone dismisses the significance of raising taxes almost half a percent on the poor, while not even raising them a tenth of a percent on the rich, they probably have never lived like a poor person. If you haven't run out of gas because you've run out of money, gotten home with the change you scrounged off from under your floor mats to ask for "$1.75 on pump #2 please" paid for with a fistful of dirty pennies and nickels, and suffered the embarrassment of going through the grocery store checkout line with nothing but ramen noodles because you needed to budget for gas, then you probably can't comprehend the significance of taking another half a percent of a poor person's wages, or recognize the flagrant injustice of doing so at the same time you are taking less than a tenth of a percent of a rich person's wages.

    There is little else that would rival the draconian regressiveness of Maryland's proposed gas tax. Perhaps Maryland could choose to tax groceries or heating bills. Perhaps a new tax that only applies to the first $8,500 of income-whoops, they already did that.

    I propose 2 much better alternatives:

    1. Cut spending. Yes, the bulk of MD's budget goes to education, health, and public safety, however:
      1. Half of those employed in education are not teachers. They are "other." It is very possible to cut money from the $13 billion MD spends on K-12 education, without cutting teachers or teacher pay.
      2. MD spends almost 2 billion a year on public safety (to include police and prisons), perhaps tight times are the time to re-evaluate the war on drugs given that about 50% of all police and prison spending is devoted to it.
      3. MD spends another $2.4 billion per year on higher education. Stop subsidizing frat parties and focus the subsidies on online learning.
      4. UMUC (University of Maryland University College) spends only 28% of their budget on instruction. Even adding in research and operations/maintenance, the figure is only 38%. That's 62% of a $300M/year budget spent on administration. Does the university really need to spend $300k on a figure head position that quits for unexplained reasons?
      5. Does College Park really need to spend $7.2M for a new house for their overpaid figure head?
      6. Do away with mandatory art class past elementary school. By 6th or 7th grade, everyone knows who has artistic talent, and who's simply burning through art supplies. Keep it as an elective and spend a more focused, smaller amount of resources on the kids who have talent.
      7. End public pensions. Only 20% of the private sector gets them, why does 80% of the public sector?
      8. Stop overpaying contractors who do state construction projects. Their concentrated benefits are the diffuse costs borne by tax payers, and in the instance of the gas tax, the poor.
    1. A progressive property tax, and/or a progressive vehicle registration fee and/or progressive vehicle sales tax. Such a system is straight from the Wealth of Nations so much so that you could coin it the "Adam Smith Tax."

    Regardless of your ideological preference on the spectrum of tax increases versus spending cuts, we should all agree that taxes that hit the poor 5 times harder than the rich are simply wrong. It is pure cowardice to go after this group that is least able to defend itself. To anyone in the MD General Assembly who is considering this: Grow a pair and either sock it to the rich, or take on the well organized special interest groups who would howl at the spending cuts.

    Sources:

    U.S. Energy Information Agency, gas consumption by income: http://www.eia.doe.gov/emeu/rtecs/nhts_survey/2001/tablefiles/table-a10.pdf

    IRS 2008 tax returns crunched by The Tax Foundation: http://www.taxfoundation.org/news/show/250.html

    The Urban Institute, more gas consumption by income plus commuting habits: http://www.urban.org/UploadedPDF/411760_rising_gas_prices.pdf

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  • John J. Walters
    , contributor
    Comments (5) | Send Message
     
    Just a thought, but is it possible to design a tax on consumption that wouldn't affect the poor more than the rich?
    28 Feb 2011, 11:11 AM Reply Like
  • Josh Dowlut
    , contributor
    Comments (110) | Send Message
     
    Author’s reply » Within certain income bands yes. Above certain bands, when you start considering Warren Buffet income, no.

     

    It would be a progressive, graduated consumption tax. For example, homes with a value over the median area's value could be taxed at a higher rate than homes under it. Cars with a sales price of more than 50k could be taxed at a higher rate than cars under it.

     

    Because gas is almost as much a necessity as food (the Urban study indicates 67% of those at poverty level drive to work), basic shelter, or utilities, and it has a very low price elasticity of demand, it is much more regressive than simply a general sales tax that taxes everything including luxury items.

     

    I read your take on this as well, regarding paying for use. To that I caution against the general soundness of "labeling" taxes. It's how the highly regressive payroll tax has come to be, with a label, and a "lock box" for it. Government should only provide public goods, not private goods. Public goods by their very nature make it difficult to completely and accurately charge all the beneficiaries of their positive externalities. The worker who uses the road is benefiting from their existence, but so is his employer, as well as his employer's customers. Public policy should first decide what are sound public goods and services to provide, and then separately consider what is the most efficient and fair method to pay for them.

     

    The benefits the poor receive from public goods will always be a higher percentage of their income than that of the rich. To try to fee-for-service everything would result in their taxation being a higher percentage of their income as well.

     

    And to that Adam Smith would say: "It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

     

    There's a supply-side specific argument I'm making against the gas tax later tonight....
    28 Feb 2011, 10:54 PM Reply Like
  • John J. Walters
    , contributor
    Comments (5) | Send Message
     
    I see what you are saying.

     

    Perhaps a solution would be to charge different tax rates based on different types of consumption, rather than just price levels. Consider, for example, that some heavy-duty trucks that blue-collar workers buy could put them into the "wealthy" category even though they're just acquiring necessary tools.

     

    Why not put all goods into three categories: need, want, and luxury. Tax the needs as lightly as possible and the luxuries high, with the wants somewhere in the middle.

     

    They could even apply this to the transportation fund quite easily. Kias and Hyundais would fall nicely into the "need" category while Porshe's just as easily into the "luxury." Heck, you could even tax the gas that way too, since we already sell three levels.
    3 Mar 2011, 10:32 AM Reply Like
  • Josh Dowlut
    , contributor
    Comments (110) | Send Message
     
    Author’s reply » Purely speaking in theory, I think some version of a progressive consumption tax would be the most efficient and fair form of taxation. Practical administration of such a program would prove to be a nightmare, with many unintended consequences, the foremost being artificially altering relative prices without precision with regard to consumer tastes, likely leading to a broad loss of utility beyond the tax revenue raised, as well as tax rates approaching levels where tax avoidance becomes a real problem.

     

    Progressive taxation was also favored by Jefferson, and the reason was fairness and equality: "Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise." --Thomas Jefferson to James Madison, 1785. Jefferson was a huge fan of Smith

     

    "That liberty [is pure] which is to go to all, and not to the few or the rich alone." --Thomas Jefferson to Horatio Gates, 1798.

     

    What has been lost by modern Republicans is that their traditional heroes, Adam Smith and Thomas Jefferson, absolutely REVILED aristocracy and sought public policies to limit it.
    3 Mar 2011, 01:14 PM Reply Like
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