Peter Callaghan of the Tacoma News Tribune has a great column today on the increasing strategy of businesses trying to carve out exemptions from the crushing burden of taxes they face. While I find no fault with these employers for trying to make doing business in Washington more palatable, the answer is not discriminatory tax relief, but instead universal tax relief for all employers and individuals in Washington.
From Peter's column:
"If cities like Tacoma and states like Washington are willing to offer tax breaks and other public funding to keep big employers, DaVita would be silly – even financially irresponsible – not to grab them.
DaVita didn’t create the atmosphere that allows companies to set up bidding wars. That was begun years ago, ironically by a business that has been deemed by federal courts to be a nonbusiness, exempt from antitrust laws. That would be Major League Baseball, which wrote the textbook on getting ladles of tax dollars.
All sports franchises had to do was threaten to move a beloved team elsewhere (and persuade the people who run those elsewheres to play along). In nearly every case, it worked.
But while pro sports leagues created the technique, The Boeing Co. brought it into the private sector and perfected it, at least around here.
First, the aerospace company won $60 million in tax breaks from Chicago and the State of Illinois to move a few hundred corporate office folks.
It then launched a second round of civic bidding with its competition to site the assembly plant for the 787. Washington won – or perhaps bought – that race. The Legislature gave up $3.2 billion in future tax collections to keep the plant in the state. The state also paid for road improvements, a $30 million dock that turned out to be unnecessary, and a training center.
That worked out so well for Boeing that it has begun to set the stage for a third contest – this one to host the plant for the jetliner that will eventually replace the mid-sized 737.
Russell Investments must have learned from the Boeing example. Not just that there is money to be had but that seeking it can lead to bad feelings among taxpayers. Boeing looked greedy by asking, so Russell escaped that by not really asking. It continues to act as though it doesn’t even realize that cities and developers are drooling for a chance to host the company.
Altogether, Tacoma, the state and the feds have developed a package worth $140 million. But Russell has declined to comment throughout the competition, so no one knows if it will be enough.
Now comes DaVita. Russell employs 1,100 people downtown with promises of hundreds more if it stays. DaVita employs 850 and also predicts expansion. Russell jobs pay more, while DaVita is a solid employer of workers in its billing, accounting, information technology and government reporting sections.
DaVita has the city’s interest. But who’s next?"
It’s past time for elected officials to address the business climate (tax relief) on a universal basis and stop using the tax code to reward those employers deemed worthy of relief by the government. No more exemptions and subsidies, instead one flat universally low tax rate. Same goes for individual taxes. No more sin taxes or special exemptions (except for maybe food and medicine). If government wants to raise taxes, they raise taxes on everyone and if the tax rate is too high (which it is) they lower taxes for everyone. No more tax code winners and losers determined by the power and force of government influenced by he with the strongest lobbyist.
On April 15, 2008, former Comptroller General of the U.S., David M. Walker, provided the keynote address at our Government Reform Conference. The title of his presentation was "Learning from the Past and Creating our Future." Here are excerpts from Walker's speech:
". . . I am here to tell you, our Republic is at risk. Washington is out of touch and out of control. I’ve had the good fortune of going to 26 states and 40 cities as part of the 'Fiscal Wake-Up Tour' during the last two years. I’ve been to a number of other states, and many more cities in my capacity of the role as Comptroller General of the United States, and now in my capacity as President and Chief Executive Officer of the Peter G. Peterson Foundation . . .
Frankly, I’m not just concerned about the sustainability challenges we face. I’m concerned about how far this nation has strayed from the solid foundations that our Founding Fathers provided for us in 1789. And let me mention just a few examples.
First, the size of government. The Founding Fathers believed in limited government. In 1789 the federal government was 2% of the economy. Today it’s 20% and is scheduled to get a lot bigger.
Second, the composition of government. At the beginning of our republic, the federal government focused on things that realistically only the federal government could do. Responsibilities like national defense, foreign policy, treasury, postal service, Congress and the Executive Office of the President of the United States. Today, the 38% of the budget that is deemed to be 'discretionary spending' contains every major express and enumerated responsibility envisioned by the Founding Fathers for the federal government. Every single one. What happened to the provision written by the founders: that any role or function not expressly reserved for the Federal government belongs to the states and ultimately to the people? We have lost our way . . .
Let me touch briefly on a few sustainability challenges then wrap up and go to Q&A. Firstly, our federal fiscal challenge. It’s not our current deficits, and it’s not our current debt levels that are the problem. Yes, the deficits are larger than they should be. Yes, our debt levels can hardly be justified given the principles our founders established, and frankly, America’s history, up until the 1970s. When we incurred significant debt because of wars, whether it was the Revolutionary War, whether it was the Civil War, whether it was World War I, or World War II, our nation had a tradition of paying down that debt as quickly as possible so we did not encumber future generations with burdens that they should not be expected to bear. But since the 1970s, that tradition has gone by the wayside, and it’s time that we think about bringing it back over time.
We have large deficits and debt levels, but the real problems are off-balance-sheet obligations. As per the latest federal financial statements, we have over $44 trillion (there are 12 zeros to the right of that 44) in off-balance-sheet obligations, primarily in the form of unfunded Medicare and Social Security obligations. Adding this number to our nation’s current net liabilities means that our total federal fiscal hole was about $53 trillion as of September 30, 2007. That unfunded hole is getting bigger by $2-3 trillion a year by doing nothing. If you balance the budget tomorrow, which we’re a long way from doing, that hole would still grow by $2 trillion-plus a year. $2 trillion-plus a year!
Now, what is $53 trillion? It’s $455,000 per American household. What’s median household income in America? Less than $50,000 a year! Therefore, based on our present policies and programs, the typical American household has an implicit mortgage of over nine times their current annual income, but no house to back that mortgage. That’s the big sub-prime crisis . . ."
Great letter ("What hurts? Not a square inch hasn't been squeezed") in The Seattle Times today by Teresa Holland, a small business owner, on the frustrating levels of taxation generated by state and Seattle city policymakers. She correctly hits the nail on the head about short-sighted taxation policy that is depressing (or at least frustrating) small business development in Seattle.
A recent study by the Washington Research Council highlights Seattle's dubious taxation policies and an older study by WPC addresses the over-regulation of some of the city's industries. Teresa's letter should be considered by policymakers as a real-world testimonial by a small business owner on the impacts of taxation policy run amok.
A centerpiece in Boris Johnson's campaign to unseat the incumbent mayor of London, Ken Livingstone, was the mayor's proposal to expand the city's congestion pricing scheme.
Livingstone implemented a £25 charge on high polluting vehicles, entering the city. The CO2 fee is on top of the £8 congestion pricing fee. Using an exchange rate calculator shows the charge for someone driving an SUV into London is about $65. For someone who worked downtown everyday, the charge amounts to about $17,000 per year!
Boris Johnson ran on the platform of reforming the congestion and CO2 charges. This from the BBC:
Once installed at City Hall, Mr Johnson will be able to start his plans to
reform the congestion charge, another high profile part of his election
Locally, the Seattle Times recently ran a story highlighting a new study that claimed widespread congestion pricing could reduce congestion. And other notable policymakers are on record supporting such a scheme here.
But with 42% of the vote, Johnson defeated the incumbent (36%) Livingstone. This stunning reversal demonstrates that congestion pricing and CO2 fees are not popular with voters, who only have so much tolerance for higher tax burdens.
When the Washington State Climate Advisory Team began its work last year it had only one rule: no discussion of the science of climate change. The only question was how to address the crisis.
Maybe they should have eliminated even that rule. This note appeared recently on the Department of Ecology's web page on climate change regarding the CAT's January report:
"Errata for the HB1303 Interim Report:A Comprehensive Assessment of the Impacts of Climate Change on the State of Washington (Last updated: 1/24/2008) 3. Key Findings: Page 3, paragraph 1. “Based on results from a number of Global Climate Models (GCMs), we can expect annual temperature to increase approximately 0.5°C, or roughly 1.0°F, per decade over the next 50 years.” This statement should be revised to say, “Based on results from a number of Global Climate Models (GCMs), we can expect annual temperature to increase approximately 0.3°C, or roughly 0.5°F, per decade over the next 50 years."
In other words, the estimates of temperature increase, and the risks associated with that increase, were exaggerat!
ed by 100 percent. Earlier this year we noted that the new projections for sea level rise in Puget Sound had been exaggerated in a previous UW report by 300 percent.
It still makes sense to take responsible steps to reduce CO2 emissions encourage energy efficiency. These numbers, however, make it increasingly difficult to justify many of the dramatic and expensive proposals currently being offered by the environmental community.
One year ago, I wrote a piece arguing that the environmental community doesn't really care about climate change. How else to explain the many counterproductive policies some advocate? I wrote that "In Washington state, green power advocates actively oppose our largest source of renewable energy that emits no carbon – hydro power. While they claim that no new sources of significant hydro power exist, they added additional barriers by classifying major hydro as non-renewable in the renewable energy initiative passed last year."
More evidence of their disdain for clean hydro appeared today.
An op-ed in the Seattle Times, written by two environmental activists, argues for tearing down the Snake river dams. They argue, without a hint of irony, that "Climate change makes removing the dams even more important, because the salmon and steelhead that will be saved are more likely to survive warmer temperatures."
The dams provide more than 1,000 Megawatts of average power. According to the BPA, we would need to install more than 2,000 wind turbines to make that up. The Stateline wind project, by way of comparison, will produce only about 100 average MW.
Washington state has one of the lowest rates of per capita carbon emissions in the country. Hydro power is the key reason for those low emissions. Undermining that clean energy source with the hope that we can replace the capacity with a massive, and expensive, wind power project is sheer folly. Wind power can be a good source of future energy, but some environmental activists want to dig a hole in the hopes that wind power will dig us out. That strategy can only undermine efforts to reduce CO2 emissions.
Presidential candidates John McCain (R) and Hillary Clinton (D) are proposing a federal gas-tax holiday to alleviate the pain Americans are feeling at the pump. Barack Obama (D), however, is correctly rejecting this unsound voter pandering but is instead unwisely proposing a "windfall profits" tax on companies that invest in oil production.
The Tax Foundation has a good write up on the folly of these proposals here.
As for the current debate on temporarily suspending the federal gas-tax, a better course of action would be to eliminate the federal gas-tax and return that taxing authority to the states to use. Rather than send our gas-tax dollars to Washington D.C. only to have to beg to maybe have them returned back to the state with numerous strings attached, we could keep all those gas-tax dollars here and use them on our priorities instead of having them earmarked for a bridge to nowhere or for an interchange no one asked for.
There is already a proposal in Congress to do this.
This means that if we increased our state gas tax by say 15 cents, the federal gas-tax we pay would be reduced by 15 cents so the overall tax burden would not increase but those gas-tax dollars would stay in the state for our transportation priorities – no federal strings attached.
The goals of the STATE Act are:
Free state transportation dollars from federal micromanagement, earmarking, and budgetary pressures;
enable decisions regarding which infrastructure projects will be built, how they will be financed, and how they will be regulated to be made by persons best able to make those decisions;
eliminate the current system in which a federal gasoline tax is sent to Washington and through a cumbersome Department of Transportation bureaucracy;
prohibit the federal government from forcing unwanted mandates on states by threatening to withhold transportation money; and
achieve measurable congestion mitigation and infrastructure preservation and safety in a cost effective way subject to available resources.
It would be interesting to see what the presidential candidates think of the STATE Act and whether or not they support the goal of returning transportation taxing and decision making authority to the states.
As I mentioned in an earlier post, the cost for China to build a 22 mile, 6 lane bridge was $1.7 billion. That translates to about $12.8 million per lane mile.
The cost per lane mile for the 6 lane, 6 mile 520 bridge replacement is about $122 million. That means China is able to build one lane mile of bridge for 950% less than Washington officials can.
Consider the following chart, which shows the cost differences (inflation adjusted) between three major projects. The green bars represent the cost of the original structure and the red bars represent the estimated cost of a new structure.
There are generally two drivers of
costs in transportation projects: natural and non-natural. Natural cost drivers
occur as a result of basic economical principles. They include inflation,
material expenses, and higher costs for new technologies.
Unnatural costs are governmentally
created policies that artificially inflate costs on transportation projects.
These policies do not occur naturally and are implemented for reasons that are
not necessarily required to fund a project. These non-natural cost drivers include
prevailing wages, imposing government-to-government sales taxes, apprenticeship
requirements, inefficient permitting, onerous regulations, and setting aside
money for public art.
These policies are valuable and
serve important political interests. But as we have seen, they can significantly drive up
Green energy will create jobs one way or the other. The environmental blogs at Sightline and Grist just aren't sure if it is because we'll keep money here or send it overseas.
On it's "Up in Smoke" energy counter (we've highlighted the problems with this before), Sightline has long argued that by keeping money here we create jobs here.
"Virtually every dollar spent on oil and gas by residents of Washington, Oregon, and Idaho gets siphoned out of the region's economy. We produce little natural gas and absolutely no petroleum. So spending our money on fossil fuels means that there's less for local residents and businesses." - Leigh Sims, Sightline Institute Daily Score blog, August 20, 2007
And what will we do with that money we now have? Buy local cars! (Darn those Japanese made hybrids!)
Now, Grist and Sightline argue that sending money overseas is good because that creates local jobs.
So, if we stop paying for oil and gas we'll keep money here which will create jobs here, even if those jobs are people offloading wind turbines (instead of oil and gas) bought with money we sent out of the region, which creates jobs.
Those who advocate green energy often try to say that not only will we be more "green" but we'll have more jobs. The problem is that the economics simply don't work out and they often end up contradicting themselves in an effort to prove the unprovable. They can argue that renewable energy mandates are better for the planet. They can't argue that they are better for jobs and prosperity.
The first 520 bridge had a cost of about $225 million in inflation adjusted dollars. That means we could build about 20 of the current 520 structures for the same cost WSDOT estimates the new version will cost today.
The New York Timesreports today that New York taxpayers could save $1 billion a year through consolidation of government services and requiring government employees to make more contributions to their health insurance plans.
The recommendations come from a special commission formed last year to help identify ways to address New York's growing budget deficit of more than $5 billion and to help ease the state's high property tax burden.
According to the Times:
With the worsening state financial picture as a backdrop, the commission, headed by Stan Lundine, a former lieutenant governor, made many recommendations to eliminate layers of government and bring more consistency and efficiency to those that remain, in part by eliminating duplications like garbage pickup and tax collection. The report also suggested working toward a single, state-run jail system.
The commission identified thousands of local government entities distinct from county, city, town and village governments, including a profusion of “special districts” created to provide water, library and other services to the state’s sprawling suburbs. Those entities are studded with appointive jobs and many can levy taxes, helping give New York “arguably the most complex property tax system in the nation,” according to the commission’s final report.
The report’s recommendations were endorsed by Governor Paterson, a Democrat, who said that some of the local boards had become “patronage mills.” He called the changes an essential step toward bringing down New York’s high property taxes and coping with an economic downturn.
Succinctly summing up the tax and budget situation, commission member Howard Weitzman said:
“Taxes are high because governments spend money. And therefore, the less government we have, the less money we’ll be spending.”
While NY is looking at government consolidation to address its budget deficit, no details have been made public on how Washington elected officials plan to address our self-inflicted $2.5 billion forecasted deficit. In fact, rather than reduce spending in th!
e face of the projected deficit, state officials increased spending this year.
This spending increase coupled with the Senate Majority Leader's lawsuit to help make it easier to raise taxes indicates Washington state officials plan to close the deficit with tax increases, not spending reductions.
Many who favor heavy-handed government approaches to reducing greenhouse gas emissions argue that such efforts are needed because people won't adjust on their own. One recent example of this argument is that we need to have extremely high oil prices or gas taxes to reduce CO2 emissions.
At a recent forum at Town Hall, an energy economist who advocates efforts to reduce carbon emissions was shocked when more than one person in the audience called for $400 per barrel oil. In response to my recent piece about carbon prices, one comment on the Sightline blog entry about the proposal asked "what if the carbon price needs to be $300 or $500 a tonne or more as some economists say?"
First, no economists say $300 or $500 a ton. The gurus of climate doom, Al Gore and Nicholas Stern call for $100 a ton. Most economists call for something much lower than that.
Second, as with so many debates, while government decides what to do, market forces are already at work. A recent report finds that the price of small cars and trucks are climbing because demand for fuel efficient vehicles is increasing. The US News article notes that "Last year U.S. consumers bought a record 2.8 million of them [small cars], and with sales up 4 percent in the first quarter this year, the record almost surely will be shattered." This is more permanent than changes in driving behavior. It is an every-day improvement in fuel efficiency for years to come.
These numbers are more evidence that while some believe only the government can steer us toward energy efficiency, millions of individuals working through the market respond more quickly and effectively.
In this oped from the Sierra Club in the TNT, Mike O'Brien and Bliss Moore suggest its time for a little
The public debate on transportation is now in the “messy” stage. With
RTID’s failure at the polls last November, we threw out highway
expansion as the answer to our congestion problems.
Note to the Sierra Club: RTID only comprised between 10%-30% of Prop 1....so referring to Prop 1, as RTID is misleading and a veiled attempt to protect Sound Transit. Furthermore, Prop 1 did not fail because of the roads piece. Polling shows that Prop 1 failed because of costs and it didn't relieve congestion.
As long as policy decisions are made on spin and delusional assumptions, voters will continue rejecting packages that don't link spending to congestion relief.
I was on KIRO radio yesterday to talk about climate change and the issue of air pollution came up. Phil the News Junkie read a quotation from the American Planning Association saying that as a child the author never saw brown clouds around Mt. Rainier but now sees them regularly.
But the good old days weren't nearly as good as people like to remember them and a quick look at the data show the recollection is likely incorrect. The graph here is from the EPA noting that a composite look at six air quality indicators shows that air pollution has dropped by at least 57 percent in the last 27 years. What's more amazing is that this has occurred at a time when population, energy use, vehicle miles traveled and economic growth were increasing. Technology has made it possible to be prosperous and improve air quality.
Remember also that Seattle's air quality is dramatically better than the national average.
We hear these claims from time to time but they are usually based on anecdotes (like the one above) or using surrogate statistics (E.G. asthma rates are rising, therefore air pollution is increasing) that imply a correlation that is inaccurate. Such claims are usually attempts to justify certain political policies (like spending more on "planning") and have less to do with the actual data.