Posts Tagged ‘Tax’

Kevin Rudd’s Tobacco Tax Hike

April 30, 2010

In seeking to justify his regressive 35% tax hike on smokers (an additional $2 per pack, on top of some of the highest tobacco taxes internationally), Prime Minister Rudd put forward two primary justifications. Firstly, that the revenue from this great big tax will help fund his healthcare power grab. Secondly, that it will reduce the rates of smoking.

Considering the severely deleterious economic effects of such a tax, it is worth investigating these two claims in greater detail, and not simply take them on face value. After all, this will cause serious harm to Australia’s economy. It will cost jobs, hurt working families, and affect Australia’s economic growth. The reason for this is rather simple: tobacco products will cost consumers more, meaning decreased consumption (not necessarily on tobacco, but overall as they have less disposable income), and will hurt retailer revenue, forcing many small businesses to reduce costs through cutting down hours of employment, hurting their employees. Some small businesses may even shut their doors. The potential economic consequences of this are significant. Indeed, the one thing all economists – irrespective of political stripe – say is that you do not under any circumstances raise taxes in the midst of a global economic downturn. Yet this is precisely what Kevin Rudd is proposing to do. Actions have consequences. Taxes have wide-ranging effects. We must not forget this.

So let us examine his justification, and see if it is worth it. Firstly, will it really lead to increased revenue for the government? A lot of empirical evidence from overseas suggests not. This is not because people will quit smoking. Rather, it is through the rise in counterfeit tobacco, and internet purchases.

According a 2009 study by Americans for Tax Reform,   only 29 percent of the cigarette tax increases in the United States over the past decade actually met revenue projections. Let us just look at a few examples.   In 2007 New Jersey raised its cigarette tax by 17.5 cents per pack in an attempt to raise revenue. They predicted the tax would raise an additional $30 million: it actually came up $52 million short – a net loss of $22 million. Washington, D.C. experienced the same predictable phenomenon. After last year’s 50 cent per pack cigarette tax increase, the city saw a net revenue drop of $7.6 million, and Arkansas will face a $10.3 million drop in tobacco tax collections for fiscal year 2010 starting July 1 after their tax hike.The list goes on. Hence, we can not rely on this as a revenue raising tool. So on that front, Prime Minister Rudd’s argument fails.

Prime Minister Rudd also argued that this is worth it if it will decrease smoking rates. Yet, once again, the evidence is just not there. The most comprehensive longitudinal analysis of the relationship between smoking rates and tobacco taxes in the last decade comes from Canada, where HEC Montréal recently released a report examining the effects of a 1994 Canadian tobacco tax reduction on smoking rates. The report is based off of the largest study examining the effects of decreased tobacco taxes in the country to date. Through statistical analysis of the cigarette consumption of ten Canadian provinces, five of which lowered taxes with the 1994 tax reduction and five of which did not, the report concluded that decreasing excessive tobacco taxes does not increase smoking rates, even among the youth.

The reason for this is simple. People will not quit smoking, rather, they will substitute retailed cigarettes for other tobacco products, and will begin to purchase either counterfeit or smuggled tobacco, a trend that with the internet and cheaper international shipping costs, shall surely increase. So, on this second ground, Prime Minister Rudd’s argument fails also.

The evidence is pretty clear. Tax hikes on tobacco products do not achieve their stated objectives. Rather, they are enacted either simply as a tool of social control and reshaping society, or as a media smokescreen to divert attention from a week of backflips, embarrassments, and other failures.  At the same time, they seriously hurt our economy.

For these reasons, this tax grab must be opposed.

U.S. Taxpayer to Face Higher Top Marginal Tax Rate Than Communist China Or Cuba

July 20, 2009


RNC Chairman Michael Steele compared President Obama’s proposal for government-run healthcare represented socialism. He’s wrong. He doesn’t go far enough. This has gone beyond mere socialism. In fact, this is beyond even communism.

If Obamacare is enacted, then the American taxpayer will face a higher top marginal tax rate than either communist China or Cuba.

This is not a joke.

We have already commented on how, if enacted, President Obama’s proposal would result in the U.S. having a top marginal tax rate of over 50% – higher than France, Germany and Italy. A recent state by state analysis, however, reveals how truly frightening a prospect we have in front of us.
Thirty nine states would have a top marginal tax rate of over 50%, and in some it would be as high as 57.5%. That’s right, 57.5% – almost three-fifths of everything you earn. In fact, if you live in Oregon, you will have the distinct pleasure of having the second highest top tax rate in the in the world (second only to Denmark). Even if you live in lowest taxing states – the states without an income tax – this proposal will still have you paying a top marginal tax of 47.5%.

The People’s Republic of China has a top marginal tax rate of 45%, and Cuba has a top marginal tax rate of 50%.

This means that every single state would have a higher top marginal tax rate than communist China. Over two-thirds of all stateswould have a higher top marginal tax rate than communist Cuba.

Allow me to stress this point: under these proposals, the top tax rate in the supposedly capitalist U.S would be considerably higher in the supposed capitalist U.S. than in the last remaining bastions of dogmatic Marxism. Words genuinely do fail me.

In any event, it any surprise that the top 5 taxing states have an average unemployment rate a full 1% higher than the national average, and we have calculated that if enacted, Obama’s taxes will total over $4 trillion, or $4,000 per household.

Similarly, is it surprising that the Washington Post today reported that support for Obama’s health care plan has plummeted, with disapproval almost doubling in the last month, particularly independents in particular, where a clear plurality now disapproves of President Obama’s handling of healthcare. Rassmussen polls give President Obama a disapproval index of -7%, (in January, it was at +30).

Whether it be in the plummeting poll numbers, or in the hundreds of thousands marching at tea parties, the message is loud, clear, and unambiguous. The American people will NOT stand for this fundamental violation of the principles our Republic was founded upon. As the rest of the world embraces economic freedom, we can NOT descend into establishing a tax burden even higher here than in the heart of world communism.

President Obama and Congress should take heed. Enough really is enough.

Tax Poetry

February 12, 2009

While nowhere near as good as my analysis of the California Budget crisis in alliterative verse, here’s a poem on taxes:

Tax his land, tax his wage,
Tax his bed in which he lays.
Tax his tractor, tax his mule,
Teach him taxes is the rule.

Tax his cow, tax his goat,
Tax his pants, tax his coat.
Tax his ties, tax his shirts,
Tax his work, tax his dirt.

Tax his chew, tax his smoke,
Teach him taxes are no joke.
Tax his car, tax his grass,
Tax the roads he must pass.

Tax his food, tax his drink,
Tax him if he tries to think.
Tax his sodas, tax his beers,
If he cries, tax his tears.

Tax his bills, tax his gas,
Tax his notes, tax his cash.
Tax him good and let him know
That after taxes, he has no dough.

If he hollers, tax him more,
Tax him until he’s good and sore.
Tax his coffin, tax his grave,
Tax the sod in which he lays.

Put these words upon his tomb,
“Taxes drove me to my doom!”
And when he’s gone, we won’t relax,
We’ll still be after the inheritance tax.

Henry Tax Review

January 13, 2009

The Australian Libertarian Society is preparing it’s submission to the Henry Tax Review, and there’s some good discussion on their blog on this matter.

My rather spur-of-the moment thoughts would be:

1)Immediate increase of the tax-free threshold to $12,000 – this would still be significantly less than it would be if it were indexed to inflation, but the immediate benefits regarding effective marginal tax rates for unemployed persons entering the workforce would be particularly useful in our current economic climate, and would push many people off welfare (particularly students) – I recall writing a paper for ALSF on this some time ago.

2)Index all marginal tax rates to inflation. I know some people, like Mitch Fifield, argue that this reduces the impetus to cut tax rates, but particularly in the current climate, I think that the benefits of indexing outweigh that risk

3)Gradually reduce the top rate of income tax to equalize it with the corporate rate of tax at 30% (and then obviously keep reducing it to 0 :-p). In reply simplify the deduction system (aka get rid of a lot of deductions)

4)Allow the states to levy income taxes

5)Personally, I don’t know enough about Terje Peterson’s submission that the Estonian Model of corporate tax (where profits are taxed when paid as dividends rather than when first realized in accounting terms) be adopted, so I can’t comment on that but thoughts would be appreciated.

I’ll put more thought into it but comments/suggestions welcome!

Update: By the way, I specifically didn’t mention the abhorrence of stamp duty, but that’s simply as it’s a state not federal tax, and so is outside the perview of the review (0r so I think at least)