Safe for Another Year

Australian Green Bag (Photo credit: Wikipedia)

I live in Bowie, Maryland which is part of Prince George's County.  PG County, like a large portion of the state, is heavily controlled by the Democrats.   Like all good Democrats, county officials never met a tax they didn't like.  Locally, they have been pushing a 5-cent per bag on any plastic bags consumers get from the store when they do their shopping.  Their reasoning for pushing for a bag tax was to help curb litter, encourage the use or reusable bags, and to raise money for environmental projects.

Needless to say, I am against any new taxes being imposed on me.  Most of the time, I do try to use reusable bags when I do my weekly grocery shopping.  One of the reasons that I use them is that my local grocery store gives me a discount of 5-cents for every reusable bag that I use.  To me, that sort of reward is more apt to get the type of desired behavior than the punishment of paying a tax.  It also makes sense for the grocery store because it helps reduce their expense of providing bags.

In the past, I have forgotten my bags at home, or left them in the car.  The one thing I have found is that I usually end up with a lot more plastic bags on those occasions than the number of reusable bags that I would use.  I will use about 4 or 5 reusable bags on a shopping trip, whereas I would use at least 10 plastic bags for that same trip. The plastic bags just do not hold as much product as the reusable bags do.  Sure an extra 50 cents or so per shopping trip doesn't sound like much, but it adds up, especially if you are a lower income person living paycheck to paycheck.

The bag tax measured did manage to pass through the county council.  Something that I was not aware of, is that any new law for the county has to be approved by the state general assembly.  Since the state assembly is heavily Democratic, and a similar measure has been in place in neighboring Montgomery County, I figured it was a done deal.  Surprisingly, the measure was defeated in the state Senate by one vote as the county did not show with enough specifics how the measure would improve the environment.  I fully expect it to come back like the proverbial bad penny next year.

While us PG County resident have dodged that particular tax burden this year, that is not to say our tax worries are behind us.  Governor Martin O'Malley has been pushing for more and more tax increases.  He has been pushing for an increase in the state income tax with a surtax for higher earners.  He continues to push for an increase in the gasoline tax.  At one point, he was asking to have the state sales tax apply to gasoline on top of the current flat gas tax.  Now he says he would consider raising the sales tax from 6% to 7% in lieu of the gasoline tax.  He says he is flexible.  Yeah, as long as he can raise taxes, he is flexible as to the form of the tax.

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The Now Annual Year End Tax Drama

Image via WikipediaOne year ago at this time, I was concerned about whether or not Congress and President Obama would keep the George W. Bush tax rates in place.  It was a particular concern for me at the time because I was weighing my health insurance benefit options at the time.  My portion of my health insurance was going to be going up 23% over the previous year.  Having a tax increase at that time would have been a tremendous hardship for my family at the time.

Thankfully, they were able to agree that during the tough economic climate, it was not a wise idea to let the tax rates expire.  In addition to extending the existing tax rates, in an effort to stimulate the economy and to give an additional tax break for middle and lower income folks, Obama asked for and Congress passed a 2% payroll tax holiday.  All told, that small tax break ended up being just enough to cover my increased health insurance costs.

Overall, the tax break did little to stimulate the economy.  As I said, for me personally, the tax holiday just about covered my additional health care expense.  Couple that with higher food and energy prices, and my purchasing power probably dropped a bit.  I am sure most people in my income bracket experienced similar results this past year.

Unfortunately, the tax holiday is set to expire at the end of the month.  Currently, both parties say that they want to extend the tax holiday, but of course they do not agree on how to do it.  Obama, of course, wants to raise taxes on higher income earners, while the Republicans want to cut other spending.  I don't know if extending the payroll tax holiday will help the economy or not.  I do know that if it isn't extended, that it will hurt my own financial situation and that of others I know, which definitely won't help.

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Rick Perry's 20-20-20 Plan

Image via WikipediaToday, Rick Perry finally unveiled his plan to help spur the economy.  Perry's plan is called the "Cut, Balance, and Grow" plan but could also be dubbed the 20-20-20 plan, which like Cain's 999 plan would be easy enough to remember.  Perry calls for a 20% flat tax, a 20% corporate tax rate, and a balanced budget by 2020.

Most opponents of flat tax plans are quick to attack them on the basis of the liberal view of "fairness."  However, the Perry plan addresses this potential argument by allowing taxpayers to have a deduction of $12500 per person per household.  A family of four earning $60000 per year, would have a deduction of $50000 and would pay a 20% income tax on $10000, or a total of $2000 which works out to a tax rate of just over 3%.

In addition to the generous standard deduction, taxpayers who make less than $500,000 per year would also get to keep some favorite deductions.  They would still be able to deduct mortgage interest, state and local taxes, and charitable deductions.  This lowers the total taxable income even further, allowing middle and lower income earners to pay a much lower rate than the 20% rate.

Like Cain's 999 plan, I would be concerned about how such a tax plan would impact me personally.  The unknown on the Cain plan would be how much of my total income would be taxed on the 9% sales tax.  I had no such issue with the Perry plan.  Looking at my tax return from this year, I would actually fare significantly better under the Perry plan vs. the current tax structure. 

I should also add that I make well under $100,000 per year, so I am hardly one of the dirty rich that opponents of the flat tax say would benefit from the flat tax at the expense of lower and middle income folks.  My own example should be enough to help dispel that faulty argument, but those on the left will continue to claim that only the wealthy will benefit from Perry's plan.

Another aspect of the Perry plan is to lower the corporate income tax rate from the current 35% to 20%.  This would help to make the United States more friendly towards corporate investment.  It would be expected that would increase investment here leading to economic growth.  With growth, would increase the tax base in the country.

The third 20 in Perry's plan is to balance the budget by 2020.  He calls for spending to be capped at 18% of GDP.  This would put spending at levels that were maintained during the Clinton era.  It also calls for a balance budget amendment.

I heard a couple of commentators being interviewed about the proposal earlier today.  Both thought that the plan had merit, and would definitely lead to economic growth.  One of the commentators, though, pointed out that Perry's plan lacked a lot of specifics.  One had interviewed Perry and said that Perry had admitted that they had not necessarily costed out the proposal, nor did he have details on the spending cuts needed to balance the budget.

For the most part, Perry has been floundering since entering the race for the Republican nomination.  His performances in the debates has been, to put it mildly, less than stellar.  Consequently, his poll numbers have been dropping steadily.  It is good to see him come out with a plan that we can look at and analyze.  It will be interesting to see if he can get any kind of bump from his latest proposal and get back in the game as it were. 

Herman Cain's 999 Plan

Image by Gage Skidmore via FlickrI first heard of Herman Cain in 2007 when Neal Boortz's book "Somebody's Gotta Say It" came out.  I read Boort's book and started listening to his radio show on the internet in my office.  Cain was a frequent guest and substitute host on Boortz's show.

Herman Cain has been a big proponent of the FairTax as advocated by Boortz.  In the past, I have generally been a supporter of the FairTax plan, though I do have some questions regarding some of the assumptions and the transition to the FairTax.  Cain's support of the FairTax is one of the reasons he intrigues me as a potential Presidential candidate.

Under the FairTax, all payroll (FICA) and federal income tax withholding is eliminated, along with eliminating the IRS.  You get to keep your entire paycheck.  You also get a prebate each month based on the size of your household.  Taxes are collected through a national consumption tax of 23% embedded in the cost of all goods.  It is designed to be revenue neutral.

During the recent GOP Presidential debates, Herman Cain has introduced his 999 plan to help the economy.  The plan imposes a 9% income tax on everybody, a 9% tax on business, and a 9% national sales tax.  It eliminates  the payroll tax for everybody.  Cain's 999 plan is designed to be a transition to the FairTax by, as he put it, bringing the supporters of the FairTax together with the supporters of the Flat Tax.

I heard Cain yesterday on the Sean Hannity radio program discussing the meat of his plan.  On the surface, I liked the general premise, however, the more I think about it, the more questions that I have.  I would like to see some sort of calculator similar to the FairTax calculator to ascertain whether or not the plan would negatively impact me financially.  I always do a little better under the FairTax than under the current system.

With the elimination of the payroll tax and the flat 9% rate on income, I would lower my combined tax burden considerably.  The remaining question would be whether or not the new 9% sales tax would in the end cause my total tax burden to increase or not.  It could be close.  Still, Cain is one of the few people out there with specific plans and proposals as opposed to making general statements of "we need to reform the tax code." 

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My Hard Working Man

Image via WikipediaWe went to the mailbox today to discover a W2, for my son from his new school.  For 2010, he earned a big $4.61 and had $.07 taken out for Medicare and $.29 for social security.  My son now has a job working in one of the vocational programs at the school.

Our nephew graduated from this school last spring.  After the graduation, his case worker handed my wife a locked cash box that contained the money he had earned from his jobs.  One Christmas, the school took them shopping.  He selected gifts for family members and used his own money to pay for them.

Currently, my son is working in the Industrial Training Department at the school.  He assembles bottles by putting tops on them and placing them in a container.  He is paid based on the amount of work he completes.  The school also has jobs in a car wash, school kitchen, nursery, cleaning service, among others.

As my son progresses, he will have opportunities to work in other areas.  He receives a paycheck every two weeks for his work.  The class then goes on a field trip to a bank in the community to cash their paychecks.  Then they can go to the store to purchase things.  My son has used some of his money to buy some potato chips.

There are many reasons that we wanted our son to go away to this school.  The vocational program is one of those reasons.  They are helping kids with special needs to become productive members of society.  I am proud that my son has earned his first paycheck, and I am happy that they are teaching him valuable life lessons.

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American Oppose "Fat Tax"

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I mentioned in a post last month about the DC Soda Tax Proposal how more and more jurisdictions are considering taxes on sodas, candies, and other foods that could contribute to obesity.  These proposed taxes are offered as proposals to help fight the obesity epidemic in this country.  There is no doubt that too many people in this country are too heavy.  I know I could stand to lose a few pounds myself. 

However, usually these taxes are simply a way to try to raise revenues, not really to help curb problems.  I am not a smoker, and am no fan of the tobacco companies, however, between the states and federal excise taxes on cigarettes, the government makes more money on the sale of a carton of Marlboro than the Philip Morris company does.  If you ever get the chance to visit a duty free store, compare the price of cigarettes there to the price at your local convenience stores.

Today I was reviewing some stories in one of my industry news emails that I get at work.  The folks at the Harris Poll released the results of a survey that revealed that the majority of Americans are opposed to so called "fat taxes" on sugary drinks, fast foods, and candy.  What a shocker.  NOT!  Only 31% of those surveyed were in favor of implementing these taxes

All of the demographic groups that they broke the survey results into were opposed to the taxes.  However, there were definitely some groups that were more inclined to favor the taxes.  Those in the eastern part of the country were the most likely to support while those in the south and midwest were most opposed. Similarly, younger people, higher educated, and higher income people had a higher percentage of respondents that supported the measures.

I don't think any of these are real shockers.  I think lower income folks are more inclined to go towards higher calorie products because it is more affordable.  It would have been interesting to see the breakdown of responses based on the political leanings of those surveyed.  My guess is that more liberal people would be in favor of the fat tax, where conservatives would not.

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Unintended Consequences

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Sometimes I wonder if politicians operate in a vacuum.  They pass legislation with one particular goal in mind with little to no regard of the potential consequences of what that legislation brings.

Let's take, for instance, the idea of sin taxes.  Governments pass taxes on things like alcohol, cigarettes, and now, more and more, candy and sodas.  The goals of such taxes are usually twofold.  One, to try to discourage consumers from using the products that government has determined are harmful.  Second, the government uses these taxes as revenue to fund various projects.  Unfortunately, these taxes are regressive in nature, impacting lower income consumers disproportionately.

Earlier this year, the federal government increased the federal excise tax on tobacco products in order to fund the State Children's Health Insurance Program (SCHIP).  The results of this tax increase are that tobacco sales have declined and there is not enough revenue to cover the cost of program. 

Not only does the federal government pass these taxes, but also the state governments.  Each state has their own tax rates for tobacco.  No surprise, but those states that have tobacco as a major crop, have lower taxes on cigarettes.  In July, the state of Florida increased their tax on cigarettes by $1 per pack.  The results of this tax has led to a decrease in cigarette sales of 28% from last year.  So in one respect, the goal of reducing tobacco consumption would appear to be successful.

Unfortunately, like most legislation, there are consequences that were not considered when the legislation was passed.  First, for those folks that live on state borders where there are lower taxes, some are buying their smokes across state lines. That actually increases the revenues of the neighboring states and decreases the revenue for your own state.

More importantly, is the consequences for those businesses that rely on cigarette sales for their profit.  In the state of Florida, most cigarettes are sold in convenience stores and account for up to 34% of sales.  Those sales help pay the salaries of the store's employees.  When you lose that large a percentage of your sales, you can no longer afford to pay the same salaries you were previously.  Those businesses will either be forced to lay off employees or reduce the number of hours those employees work.  Neither are good for those employees or the economy in general.

Candy or Food?

Image by clevercupcakes via Flickr

I got my first job when I was 15 years old. It was for a local convenience store. For all but 4 or 5 of the 33 years since that first job, I have been involved in some way, shape, or form in the retail food industry. For many of those years, I worked first hand in the candy category. Plus before I ever started working, I ate a lot of candy. So, I thought I knew what would be considered "candy" and what was not.

One of the subjects discussed in the health care debate, is the issue of obesity in this country. Several states are passing taxes on those foods that are major contributors to the obesity problem. Foods that are under consideration are things like soft drinks, candy, and other high sugar products. For years here in Maryland there has been sales taxes on "non-essential" foods like candy, so this is nothing new for me. However, the state of Illinois has a new tax on candy and other products that goes into effect next month that is going to cause a lot of confusion for consumers.

The new law taxes candy at a sales tax at 6.25%, and food items have a sales tax of 1%. The potential confusion comes in how the new law defines defines candy, or more importantly, what isn't considered candy. Several items that logic or common sense would lead you to think that an item is candy can now be thrown out the window thanks to the logic of our government in action.

All my life, I have always thought that Twizzlers licorice was candy. Not so. Twizzlers contain flour and therefore, under Illinois law is considered a food product and not a candy item. Similarly, a Hershey's Cookies & Cream bar is considered food, but a Hershey's Milk Chocolate Bar is candy. A chocolate covered raisin or nut is considered a candy, but a chocolate covered pretzel is considered food. Peanuts would normally be food, but if they are honey roasted they are candy. Very confusing, but what else would you expect from the government.

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