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“Inflation Reduction Act”: Tax Burden to Fall Heaviest on the Poor

From: John Locke Foundation

A newly-released analysis from the bipartisan Joint Committee on Taxation (JCT) shows that the negative impacts of the tax hikes in the “Inflation Reduction Act” would fall hardest on low-income households.

My colleague Paige Terryberry earlier this week exposed how the bill would actually increase inflation, a burden that falls hardest on low-income households.

Adding onto this burden, the JCT analysis estimates that the tax burden would fall disproportionately on the poorest households. Specifically, households with less than $10,000 in income would see their tax burden rise by 3.1%, compared to just 0.4% for those earning above $200,000 in the bill’s first year. Estimates of future burdens yield similar results, with the lowest income households seeing the largest percentage increase in tax burden.

Indeed, taxpayers of all levels would see an increase in their burdens under this bill.

The JCT report most likely attempts to estimate the tax incidence of the bill’s provisions, rather than just a static look at who the new taxes are directly levied on.

The tax incidence evaluates who bears the actual burden of a tax. For instance, the corporate tax increase’s burden will fall on workers in the form of suppressed wages and lost jobs. The tax on crude oil will be passed along to customers in higher gas prices.

At a time when the low income communities are being mercilessly hammered by inflation, the so-called Inflation Reduction Act would both make inflation worse and increase the tax burden borne by those who can least afford it.

 

Rhode Island governor signs legislation benefiting military veterans

From: The Center Square

Through signing a package of veteran-focused legislation Thursday, Rhode Island will no longer tax military pensions, Gov. Dan McKee said.

The Democratic governor announced he has signed legislation designed to support and benefit veterans through a series of budget initiatives.

“As I travel the state, talking with veterans, active duty, guard and reservists, and military families is always a highpoint,” McKee said in the release. “Veterans want to continue to make the Ocean State their home and remain a part of the communities and places that matter to them. Now, when military retirees look at where they want to move after service, Rhode Island will be at the top of that list.”

According to the release, the U.S. Department of Veterans Affairs reports there are 5,252 military retirees making their permanent home in Rhode Island, and 4,845 were paid by the U.S. Department of Defense.

“Ending taxation of military service pensions is not only the right thing to in recognition of the many Rhode Islanders who fought courageously for our freedom, but it’s also an investment in our state’s workforce,” Office of Veterans Services Director Kasim Yarn said in the release. “This change will allow us to retain top-tier talent which can drive Rhode Island’s economy forward. Military retirees bring a wealth of knowledge and backgrounds, benefitting Rhode Island in innumerable ways.”

According to the release, the taxation on military service pension will end with tax year 2023, and is a result of House Bill 7338, sponsored by Rep. Camille F.J. Vella-Wilkinson, D-Warwick, and Senate Bill 2268A, sponsored by Sen. Walter S. Felag, D-Bristol.

House Bill 7714A, sponsored by Rep. Samuel A. Azzinaro, D-Westerly, and Senate Bill 2425A, sponsored by Sen. Roger A. Picard, D-Woonsocket, will make “stolen valor” a crime in Rhode Island, according to the release.

The law, according to the release, makes it illegal to “fraudulently represent oneself as an active or veteran member of the miliary” to obtain money, property, or other benefits.

Reminder that Corporate Taxes Are the Most Economically Damaging Way to Raise Revenue

From: Tax Institute

In the rush to pass the Inflation Reduction Act, which features an ill-conceived tax on the book income of U.S. corporations, it is worth reminding policymakers of a well-established finding in the economic literature: that among all the major ways to raise revenue, increasing the corporate tax is the most economically destructive due to its impact on incentives to invest.

Economists have found in more than two dozen published studies that corporate taxes harm economic growth. An OECD study examining data from 63 countries concluded that corporate income taxes are the most economically damaging way to raise revenue, followed by individual income taxes, consumption taxes, and property taxes. A study on taxes in the United Kingdom found that taxes on consumption are less economically damaging than taxes on corporate and individual income. A study of U.S. tax changes since World War II found that a 1 percentage point cut in the average corporate tax rate raises real GDP per capita by 0.6 percent after one year, a somewhat larger impact than a similarly sized cut in individual income taxes. Based on U.S. state taxes, a study found that a 1 percentage point cut in the corporate tax rate leads to a 0.2 percent increase in employment and a 0.3 percent increase in wages.

While the Inflation Reduction Act book tax is an unconventional way to raise corporate taxes, that doesn’t make it any less economically destructive. In fact, it falls particularly heavy on companies using accelerated depreciation provisions, especially bonus depreciation, that are shown to be very effective at stimulating investment. Economists Eric Zwick and James Mahon found that the bonus depreciation policies in the early 2000s raised qualifying capital investment by 10 percent in the years they were in effect, and then increased investment by 16 percent near the end of the decade when the policy was reinstated and expanded. Economist Eric Ohrn and coauthors came to similar conclusions when looking at the impact of bonus depreciation on the manufacturing sector, finding that the policy increased capital formation by about 8 percent and employment by almost 10 percent, with gains concentrated among production workers.

Furthermore, several studies demonstrate that the corporate tax is borne in part by workers. For instance, a study of corporate taxes in Germany found that workers bear about half of the tax burden in the form of lower wages, with low-skilled, young, and female employees disproportionately harmed.

The corporate tax is also borne by owners of shares, including retirees and others earning considerably less than $400,000. In the short run, the Joint Committee on Taxation (JCT) assumes owners of capital bear all of the corporate tax, yet that includes more than 90 million tax filers earning less than $200,000. In the long run, JCT assumes workers bear a portion of the corporate tax, such that the burden falls on more than 150 million tax filers earning less than $200,000.

While there is always a populist appeal to raising corporate taxes, based on the misunderstanding that the burden is somehow only felt by a small number of rich people, it is the job of economists to remind people of the facts and resist political efforts that have no basis in economic reality. Corporate taxes do not come freely but rather at the expense of more investment, more job opportunities, and higher wages. Raising corporate taxes now at a time of economic uncertainty and a slowing economy as the Inflation Reduction Act does would be particularly irresponsible.

INFLATION CRISIS IS VEXING, BUT TAX CUTS CAN HELP

From: Oklahoma Council of Public Affairs

There’s no easy answer for solving the inflation crisis. It is time for policymakers to admit that and to take a humble approach.

Major economic shocks are rarely predicted. When the housing bubble burst in 2008 it caught most of us by surprise (aside from Christian Bale). No one was anticipating a worldwide pandemic in 2020. Russia’s invasion of Ukraine wasn’t a part of the Federal Reserve’s economic outlook beginning in 2022. There is a reason we describe these as economic “shocks”—they shock the system because no one saw them coming.

Oklahoma is no stranger to these types of events. When OPEC refused to cut production in 2015 oil prices continued to fall, declining from more than $100 a barrel to just under $30. This was the primary driver in the budget shortfalls plaguing the state over the next few years.

The point is that as the world economy becomes more intertwined, the more complicated and harder to predict it becomes. This was highlighted at the federal level with officials backpedaling on “transitory inflation.” Egos in D.C. are legendarily large, but Oklahoma lawmakers have a chance to show they’re different.

An economy grows by entrepreneurs taking risks, investors trying to make wise decisions, and consumers deciding how to spend or not spend their money. Targeted tax breaks and short-term rebates are misguided solutions that imply the government is the guiding hand for the economy. Rather than assume that they know best how to run Oklahoma’s economy, politicians should trust that their constituents know what is best for themselves. Broad income tax cuts put dollars back in families’ pockets and allow them to make their own decisions. Trusting in free markets isn’t about trusting an ideology. It’s about believing in people and admitting that we can’t know everything.

More than half a dozen states have already cut taxes this year. The current special legislative session gives Oklahoma a chance to join that group and not get left behind.

Inflation makes the case for lowering Colorado’s income tax

From: Independence Institute

Inflation hit another 40-year high in June, according to federal inflation data released yesterday. Coloradans have taken the fight against rising costs into their own hands with a citizens’ initiative to lower the income tax rate and put the state on a path to zero.

Last July, as high CPI began to rear its ugly head, CNBC prophetically reported, “Inflation is the silent killer.”

Coloradans have certainly felt its sting.

Someone earning $70,000 per year in January of 2020, would now need to earn over $80,000 to maintain the same standard of living today as then. Many Colorado households and businesses have struggled to keep up.

According to the Bureau of Labor Statistics’ Consumer Price Index (CPI) report, inflation last month increased by 9.1% from a year prior. That’s up from 8.6% in May, reaching the highest level since November 1981.

An astounding $6.3 trillion increase in the U.S. money supply, combined with supply shocks induced by government-mandated economic lockdowns, has largely driven the record CPI print.

The Fed is now combating inflation by crushing consumer demand through higher interest rates and tight money—a move likely to trigger a recession. State lawmakers can do their part to help bring down prices in the Centennial State by rolling back many of their recent policies, which have pushed prices up.

These remedies, however, will take time to work their way through the economy. Meanwhile, the dark clouds of high (and rising) CPI have already brought financial storms over Colorado households and small businesses.

Coloradans need immediate relief.

They can take matters into their own hands with Initiative 31.

The citizen ballot measure will appear before voters this November and if adopted will reduce the state income tax rate from 4.55% to 4.40% starting this year. State analysts estimate the decrease would save Coloradans $382 million or an average of about $120 per taxpayer in year one.

The rate reduction would directly increase household budgets, helping Coloradans to afford the rising costs imposed on them by government, and provide a more effective reprieve than direct government aid.

When the federal government deployed stimulus during the pandemic, they effectively had to print new money. The decision devalued the dollar and created massive inflation.

Like federal stimulus, an income tax cut would put more money in Coloradans’ pockets. But rather than printing new money, the policy simply allows Coloradans to keep more of their own money.

This is the way forward.

The policy will increase incomes and allow families and businesses to absorb increased costs, but its benefits go much further.

More money remaining in the private sector means more investment in our communities and local economies. With it, the economy will grow and catch up with the expansion in the money supply, making it easier for everyday Coloradans to afford the “new normal” prices brought on by government.

The last couple of years have demonstrated that when politicians and bureaucrats have more money and power, they botch it.

As inflation began to exceed historic norms last spring, the Biden Administration and the alleged experts at the Federal Reserve refused to address the problem, calling it “transitory.”

Echoing those faulty conclusions, Colorado’s Legislative Council Staff economists concluded in their June 2021 economic forecast, “Inflation shoots above Federal Reserve target, but is expected to moderate throughout 2021.”

The experts and central planners, with all their wisdom and PhDs in economics, failed to understand that their policies would bring about historic and persistent inflation. And yet they still do not learn.

In response to yesterday’s inflation announcement, the White House’s chief economic advisor, Brian Deese, called on Congress to print and spend more money to bring down inflation.

Policymakers created the mess we find ourselves in now. Reducing the income tax will equip hardworking Americans to clean up after them.

Allow Colorado families and businesses to keep more of what they earn, and they will strengthen the economy.

But we will not get there with Initiative 31 alone.

Denver-based think tank Independence Institute has proposed a Path to Zero, which would gradually reduce Colorado’s income tax rate until we have joined the nine other states that have eliminated their income tax entirely.

This November, voters will have a chance to ease the burden of inflation with Initiative 31. After that, it will be up to all of us to put Colorado on the path to zero.

Consumer Price Index Data Reveals High Wage Areas Are Experiencing Higher Inflation

From: Minimum Wage Facts & Analysis

Inflation continues to rise to historic heights, and rapidly rising state minimum wages appear to be adding fuel to the fire. As employers feel the pinch of operating costs rising on many fronts, Bureau of Labor Statistics (BLS) data shows areas with steeper minimum wage mandates have higher inflation rates for food purchased in restaurants or take-out establishments.

The Bureau of Labor Statistics collects data on inflation through growth in the consumer price index (CPI), which measures price increases for goods commonly purchased by the average consumer. BLS also measures inflation by specific categories of goods, including food prices both “at home” including groceries, and “away from home” which includes various take-out, fast-food dining, and full-service meals.

As the restaurant industry historically employs the majority of minimum wage earners, rising mandates are most likely to affect price increases in restaurant establishments in this “away from home” category.

West Coast states have had notoriously high minimum wage requirements – reaching $15 per hour this year in California and $14.49 per hour in Washington. Despite experiencing similar levels of overall inflation (i.e. CPI increase for “all items”), these West Coast areas have experienced inflation for food away from home as much as 10 percentage points higher than areas that have not raised their mandate above the federal minimum requirement of $7.25 per hour.

While each group (high wage states and $7.25 wage states) each experienced overall inflation averaging 20% from 2017 to 2022, inflation of food away from home was significantly different. The CA and WA regions experienced on average a 25% increase in prices of food away from home, compared to less than 18.7% increases for Georgia and Texas regions abiding by a $7.25 minimum wage and a $2.13 tipped wage.

Looking at inflation over the last decade reveals this trend is not a recent fluke. California’s state minimum wage has risen by 88% since 2012, and Washington state’s rose by 60% over the same period. Inflation in these areas is up to 20 percentage points higher for food away from home since 2012 compared to states mandating the federal minimum wage.

This finding concurs with existing economic research on the link between minimum wage mandates and inflation cycles.

One review of the existing economic literature on the inflationary effects of wage hikes finds a 10 percent minimum wage increase raises prices by up to 0.3%. Another study by the American Enterprise Institute found the same wage hike could cause more dramatic inflation in the southern U.S. – up to 2.7% increases in price. A Stanford University economist also found raising the minimum wage drives the largest price increases for the poorest 20% of families.

 

The best US states for freelancers

From: Tipalti

The pandemic gave workers the opportunity to step back and reflect on their careers with many of them reevaluating their priorities, quitting their jobs and going freelance. Workers are now less willing to stay in jobs that they don’t find fulfilling and self-employment gives people a chance to take control of their professional lives, making their jobs work for them by allowing for greater flexibility and higher wages.

So which countries around the world and which US states are the best for freelancers? We’ve delved into the data to find out, analyzing the number of freelancers and coworking spaces, the cost of living, broadband and mobile speeds and costs and the demand for freelancers to find out.

The best US States for freelancers

Texas 8.2/10: Texas can be crowned the top state for freelancers in the US. Freelancers in the state are in high demand as it ranks in the top 3 for annual searches. The Lone Star State also has one of the fastest broadband speeds in the country, ranking in the top 10.

Tennessee 7.2/10: Next up is Tennessee, scoring highly in the index thanks to its low cost of living. The Volunteer State ranks in the top 10 for this factor. It also has a high proportion of self-employed workers, ranking just outside the top 10.

Georgia 7.1/10: Georgia ranks third, thanks to it placing in the top 10 for 3 factors. Georgia places in the top 10 for the lowest cost of living so freelancers won’t have to be worried about their finances. Demand for freelancers is also high in the state, placing in the top 10.

Number of self-employed people (per 100,000 residents)

Montana 8,600: Taking the top spot for the highest proportion of self-employed workers is Montanna. Agriculture is the largest industry in The Treasure State, and self-employment in agriculture is commonplace creating the largest proportion of self-employed workers in the US.

Maine 8,400: Self-employment means you are fully in control, setting your own hours and following your passion. Nobody knows this more than workers in The Pine Tree State as Maine takes second place with 8,400 self-employed workers per 100,000 people.

Vermont 8,200: Vermont is one of the most entrepreneurial states on our list with 8,200 self-employed people per 100,000. Most of the self-employed citizens of The Green Mountain State have jobs in the construction industry, followed by jobs in real estate.

The Monthly Cost of Living

Mississippi $4,401: Taking the top spot for the lowest cost of living is The Magnolia State. Rent and land prices in the state are lower than the other 49 states by 37% and the ease of shipping means prices for goods are kept low.

Arkansas $4,442: In second place is Arkansas with a monthly cost of living of $4,442. The low average salary in the state means the cost of living is lower across the board and property taxes are some of the lowest in the country.

Oklahoma $4,447: Up next is Oklahoma, ranking third as one of the US’s most affordable states. Housing and rent prices are nearly half that of the national average, thanks to a large amount of affordable land. Utility bills are also roughly 8% lower than the national average.

Number of coworking spaces (per 100,000 people)

Colorado 2.4: One of the most important benefits of coworking spaces is the motivation they provide by getting rid of distractions and increasing productivity. This is important to the self-employed workers in Colorado as they top the ranking for the most coworking spaces per 100,000 people.

New York 1.9: The Big Apple ranks second for this factor, with many self-employed New Yorkers thriving in coworking spaces thanks to the flexibility they provide and their communal atmospheres. The state has 1.9 coworking spaces per 100,000 people.

California 1.6: Next up is The Golden State with 1.6 coworking spaces per 100,000 people. Coworking spaces have flourished in the state thanks to the high commercial rent prices making office spaces less affordable for smaller businesses.

DE’s Legislative Session: Partisan Rule Leaves Delaware Taxpayers Out!

From: Kathleen Rutherford, Executive Director, A Better Delaware

As America enters a recession and inflation reaches a 40-year high, one might think Delaware would take some of its $1 billion budget surplus to ease the burden on taxpayers and small businesses. If you ask a legislator, they might point to the one-time $300 “relief check” they graciously returned to each Delaware taxpayer. But the reality is, every opportunity the General Assembly had to provide meaningful relief that would incentivize growth and create economic opportunity — they met with inaction. That’s in stark contrast to 24 states which, during the same period of time, enacted lasting tax cuts.

According to the Tax Foundation, ten states enacted individual income tax rate reductions, six states enacted corporate income tax rate reductions, and two states permanently exempted groceries from their respective sales tax bases.

Though meaningful tax relief didn’t happen, there were a few good bills that made it across the finish line. Senate Bill 188, for example, increases the $2,000 pension exclusion otherwise available for military pensioners under age 60 to $12,500, providing an incentive for military retirees under age 60 to locate in Delaware. The bill passed in both chambers and awaits the governor’s signature.

Yet, there were numerous bills that would have helped struggling taxpayers that never saw the light of day. Consider House Bill 358, a bipartisan bill introduced by Rep. Bill Bush, D-Dover, that would have cut the realty transfer tax by 25%. Delaware currently has the highest realty transfer tax in the nation. The realty transfer tax is levied on the purchase price of the home and is usually split between the buyer and seller. According to Zillow, the median price of a home sold in Delaware as of June was $356,744. Had it passed, HB 358 would have reduced the transaction cost for the sale of such a home by more than $3,500 and collectively saved homebuyers an estimated $83 million in its first year. According to the National Association of Realtors, realty transfer taxes are regressive because the tax burden is higher for lower-income households. Additionally, increased closing costs on the transfer of existing residential property are likely to reduce the ability of new and current homebuyers to purchase a home, the association notes. “As a result, these taxes have a negative impact on housing purchases and therefore economic development.” Even if the bill passed, Delaware’s transfer tax would still be higher than most: Only Delaware, the District of Columbia, New Hampshire, New York, Washington, and Pennsylvania, have transfer taxes above 1%. Unfortunately, the bill was assigned to the House Revenue & Finance Committee where it never received a hearing.

House Bill 191 would have cut each personal income tax bracket by 10%. The bill was assigned to the House Revenue & Finance Committee in May 2021 and never received a hearing. The bill would have also cut the corporate tax rate from 8.7% to 6.1%. At the same time, West Virginia’s House of Representatives passed a bill to cut each income tax bracket by 10%.

House Bill 445 would have cut Delaware’s gross receipts tax by 50%. Gross receipts taxes are viewed as some of the most economically damaging, as they are assessed at each stage of a supply chain rather than at the final point of sale. This leads to tax pyramiding, which causes prices to rise as the cost of taxes is often shifted to the consumer. Reducing the gross receipts tax would have allowed small businesses to be more competitive and created a tax environment that benefits both businesses and consumers. Some refer to the gross receipts tax as “Delaware’s hidden sales tax” because it is applied to the business rather than the consumer. Inevitably, though, that cost is passed on to the consumer. 45 states have repealed the gross receipts tax.

Charlie Copeland, director of Caesar Rodney Institute’s Center for Analysis of Delaware’s Economy & Government Spending, writes, “In short, during bad economic times, Delaware’s hidden sales tax, [also known as] the gross receipts tax, ensures that Delaware small business owners pay among the highest personal income tax rates in the nation – taking money out of the business at the exact moment the business most needs that money.”

The bill was assigned to the House Revenue & Finance Committee where it never received a hearing.

With the state consistently bringing in hundreds of millions in surplus funds, now is the time to give taxpayers the chance to thrive, not to burden them with additional economic baggage.

Most importantly, voters must look beyond the $300 checks and realize how much of their hard-earned money Delaware’s government is keeping — not giving back — and keep that in mind in the upcoming elections.

275 Young People to be Employed Through Bank of America’s Wilmington Youth Career Development Program

From: WilmToday

Wilmington’s 2022 Youth Career Development Program (YCD) helps young Wilmington residents form professional skills and prepare them for their careers. YCD recently received a $100,000 grant from Bank of America to aid in employing 275 young professionals across a wide range of career paths and internship opportunities this summer.

Bank of America also provides Better Money Habits financial literacy lessons to all YCD participants. The Better Money Habits program is run by Bank of America employees and uses interactive and fun methods to teach financial topics like budgeting, borrowing, investing, and building credit.

Wilmington Mayor Mike Purzycki gave his thoughts, saying “The continued financial commitment over the past seven years and financial literacy programming from Bank of America has been impactful for the program and our teens. We appreciate Bank of America’s generosity and continued support of the future of the City of Wilmington and our residents.”

Recipients of the grant were chosen based on their commitment to addressing basic needs and workforce development. This is a part of Bank of America’s philanthropic efforts in local communities.

Chip Rossi, President of Bank of America Delaware, commented that “The City of Wilmington’s Youth Career Development program is a long-term commitment by investing in our future workforce and working to create opportunities for youth to help them thrive. The city is advancing racial equality and economic opportunity in our community and having a tremendous positive impact on the next generation.”

Read more WilmToday blogs by clicking here.

Deadlines and Licensing Are a Recipe for Disaster

From: Libertas Institute

Most people face arbitrary deadlines in their daily lives. Whether you had a school assignment due on an odd date or had to complete a chore in a certain time frame, these deadlines can become cumbersome.

Unfortunately, arbitrary deadlines implemented via increased government regulation are keeping Utahns out of the labor market. This comes at a time when Utah desperately needs employees to fill essential roles, like those in healthcare left vacant by recent labor shortages. Without these roles being filled, Utah’s labor market will be prohibited from growing at a pace necessary to meet consumer demands.

Often those attempting to become licensed face arbitrary deadlines buried within licensing requirements. These deadlines dictate that a license’s education and experience requirements must be completed either within a certain number of years or no earlier than a certain amount of years.

This time frame unfairly burdens individuals who may have low incomes or large extraneous time commitments. For example, a low-income individual or a mom with multiple kids may need more time to complete the requirements due to not being able to pay for or take time off work for the education requirements within the timeframe.

Under the current system, Utahns could be barred from licensure because they were one minuscule requirement short of meeting licensure requirements in an established given time frame. Would giving this individual another month or week to complete that last hour really harm citizens? Absolutely not.

On the flip side, individuals who do have the means to meet licensure requirements in given time frames are also being punished by this system. If a highly motivated individual wanted to complete a license in an amount of time below the required years to obtain a license they would also be blocked from doing so. The result of this is this individual loses out on the income they could’ve accumulated in their new profession. This can result in monetary burdens that are completely avoidable.

Clearly, unnecessary time restrictions must be done away with. Those hoping to contribute to their communities by entering the workforce must have the flexibility to obtain licenses in a way that does not unfairly burden them. Only when this happens can Utah’s economy and consumers best be served by the workforce.