Burnt Orange Report

Consider the following hypothetical, which should appeal to anyone in business (pardon the "economicese"):

In a ceteris paribus free market environment, market forces dicatate that capital flows to two different businesses in quantities sufficent to produce equal amounts of social utility.

Now, one of these businesses is more real property intensive than the other, thereby skewing market conditions. Now, capital flows unequally towards one business, creating an lesser amount of aggregate social utility. In sum, a property tax is inefficient.

In income tax is the only tax that provides a de minimis amount of market distortions, while retaining the ability to raise the kind of revenue needed to maintain acceptable levels of public infrastructure.

Chew on this... Channel 5 in Dallas is reporting that we spend $16k per inmate versus $7k student.

That should say $7k per student.

Great post. Good to see a few cracks in the unholy machine down there.

Ummmm...I'm missing something.

How is a "Payroll Tax" different from a "State Income Tax", and how is it more regressive?

Are they talking about taxing only the first $80K of earnings, like FICA, or what?

If not, even a flat income tax is more progressive than the best sales tax.

A payroll tax is more regressive than an income tax because payroll taxes, like FICA, are usually only applied on the first $X of earnings, but not on nearnings above $X. For example, the current cap on payroll income taxed by FICA is, I believe, the first $58,000. Also, capital gains, dividends and other investment earnings are not subject to payroll taxes.

That makes a payroll tax more regressive than ordinary income taxes.

Oh yeah, a flat tax is, in a sense, more regressive because it guarantees that income is taxed regardless of how you use it.

A sales tax or VAT taxes consumption, and, if applied to luxuries, has to prospect of being progressive.

THe problem, of course, is that a VAT in Texas would be a retail boon to Oklahoma and Louisiana, because Texans could save large amounts of money buying non-registered luxuries in Shreveport, Alexandria, and Ardmore .

The proposed payroll tax -- regardless of what you think of it -- is nothing like an income tax. A payroll tax is paid by the employer, who can deduct it as an ordinary business expense. There is no liability on the employee.

The plan that was removed from the House bill today would have placed a 1.25 percent wage tax on each employee and assessed it on the employer, with a maximum per capita tax of $500 per year. The employer would pay the lesser amount of 1.25 percent a quarter or $125 per employee.

It has some inequities, like all taxes. But for fairness -- broad base, low rate, little tax avoidance, etc. -- it beats the shit out of the current business tax, which only one in six businesses pays. Reasonable folks should at least look at a substitute for the ridiculous, nearly voluntary franchise tax -- and the payroll is a new concept and worth exploring.

House members had an open mind on the payroll tax. Governor Perry chose not to even take it seriously, so the House returned the favor. They sent up his plan, and voted it down 126-0.

The payroll tax may not be the solution, but it had a lot more than zero votes, Governor.

OH, I understand.

Only a tax on the first $50,000 so earned.

No tax on unearned income.

Yeppers, very regressive.

How about a 1% tax on income ABOVE $75,000 with no deductions?

You'd raise at least as much money, and for people in the 75+K tax range (like me), it's not going to hurt me.

I guess I didn't explain it very well.

There is NO tax on income. It's an employer-paid warm body tax. A heartbeat, not the amount earned, is the basis for the tax.

Sorry if I didn't make that clear.