The Leaflet: Some States Still Await Tax Freedom

Published April 28, 2016

Tax Freedom Day (TFD) fell on April 24 in 2016. As the Tax Foundation explains in its annual report on TFD, “Tax Freedom Day is the day when the nation as a whole has earned enough money to pay off its total tax bill for the year.” The report explains the gravity of the rising tax burden: “Americans will pay $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes, for a total bill of almost $5.0 trillion, or 31 percent of the nation’s income.”

Five states, including Connecticut, Massachusetts, New Jersey, and New York, will not celebrate Tax Freedom Day until May. Louisiana, Mississippi, and Tennessee reached tax freedom at the beginning of April.

David Brunori, a contributing writer for Forbes, argues in a recent article the annual report is an important tool. “The Tax Freedom Day report focuses our attention on the costs of government,” said Brunori. “It tells us that as a nation, we are working until late April to pay the bills. Actually, if you include the debt, we’re working until sometime in May. Right now, the Tax Freedom Day report is the only indicator of what government costs that is presented in a way that most people understand. That’s why it matters.”

Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, argues in a recent article Tax Freedom Day doesn’t even represent the full amount Americans owe. “If you included annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur 16 days later, May 10,” said de Rugy. “That shouldn’t come as a surprise, because from 2002 on, the federal government has consistently spent more than it collects in revenue. It’s also worth noting that for a few years after 2009, the deficit was over $1 trillion – and though it’s lower now, it is scheduled to rise again starting this year.”

John Nothdurft, The Heartland Institute’s director of government relations, argues sound tax reform should adhere to four basic principles: “Taxes should be applied to a broad base, kept at a competitive and low rate, be open and transparent to taxpayers, and not distort the economic choices of consumers and businesses.”

To find out more about sound tax policy, check out The Heartland Institute’s Ten Principles of State Fiscal Policy.

What We’re Working On

Budget & Tax
Research & Commentary: Return of the ‘Unfair’ Tax
The Illinois General Assembly is once again considering moving the state away from a flat tax system to a progressive tax system. Proponents say the new tax system, which they label the “fair tax,” will move the tax burden away from low- and middle-income taxpayers to higher-income households, who they say are not paying their “fair share.”

In this Research & Commentary, Senior Policy Analyst Matthew Glans examines the progressive tax and a major tax proposal that would use the new progressive tax to hike taxes and place a heavier burden on Illinois taxpayers. “The fair tax is anything but fair: It increases taxes for most taxpayers, increases the burden on small businesses, and enables the rampant growth in spending that is already crippling the state,” wrote Glans. Read more

Constitutional Reform
Article V Convention Opponents Run into Stiff Headwinds Amid Increasing Support
Kyle Maichle, project manager for constitutional reform, writes in Somewhat Reasonable about the growing successes of the Article V movement: “Many opponents of an Article V convention are now running into stiff headwinds. Organizations in support of a convention are becoming better at responding to their falsehoods. Together, these developments have led to numerous legislative successes in statehouses across the nation in 2016 for the Article V movement.” Read more

Research & Commentary: Create an Education Marketplace to Save Detroit Public Schools
On April 9, The Detroit News published a commentary in which Detroit Public Schools (DPS) was labeled a “financial train wreck” and in which the author suggested DPS should be dismantled in its current form. The commentary reflects a troublesome truism of the current handling of DPS and how significantly it is failing. In mid-April, a DPS report estimated the school district’s total debt is $3.9 billion, with over $1 billion in unfunded pension liabilities. From 2000 to 2015, DPS closed 195 schools and student enrollment declined by 71 percent.

In this Research & Commentary, State Government Relations Coordinator Lindsey Stroud wrote, “The City of Detroit is currently in a position in which it can develop and reform DPS, and it should do so by bringing fiscal sanity back to the city and expanding school choice options to parents, which will create an education marketplace that will foster competition and make available a high-quality education to all the students of Detroit.” Read more

Energy & Environment
Study Shows High U.S. Nuclear Power Costs Are Due to Excessive Regulation and Design Decisions
Kenneth Artz, news reporter for The Heartland Institute, writes about a new study published in Energy Policy that concludes the high and continually rising costs associated with building nuclear power plants in the United States were not inevitable and were largely the result of government regulations. The study, Artz notes, “compared construction costs of plants built in Canada, France, India, Japan, South Korea, the United States, and West Germany over the past 50 years.”

Artz reported the study’s authors also determined other countries build nuclear reactors cheaper than companies in the United States. Construction costs in some countries even declined over the examined period. One of the things other countries do differently than those in the United States is they use a standardized design, which is important because producing large numbers of identical units is cheaper than producing one-off nuclear plants, each with individualized designs. These other nuclear countries also build multiple reactors at a single site, spreading the overhead costs, such as costs for a control room, security, transmission, and emergency planning, across multiple power-generating units. Read more

Health Care
Research & Commentary: Are Maintenance of Certification Programs a Money Grab?
In this Research & Commentary, Senior Policy Analyst Matthew Glans examines a new problem in the health care industry that has placed an unnecessary burden on doctors, along with a battery of additional testing and programs – known as “maintenance of certification” (MOC) – required by medical boards. Glans argues, “These certifications were intended to ensure physicians are educated on the latest health research and methods, not to act as a profit center for medical board organizations. While a certain degree of certification will always be necessary, physicians should not be required to pass through a quagmire of costly and expensive tests that may be unnecessary. Oklahoma provides a model other states can follow to end MOCs completely.” Read more

From Our Free-Market Friends
Pioneer Institute  Releases Study Discussing Ridesharing Regulations
The Pioneer Institute’s Matthew Blackbourn, a research and operations associate, and Brendon Murphy, a research and outreach intern, published a recent study, titled “Important Considerations for Regulating Ridesharing in Massachusetts, arguing Massachusetts should reform its taxi medallion system to approve a class of cab permits that would provide to new market entrants flexibility and low start-up costs. The Massachusetts House recently approved legislation to create a new Ride for Hire Division within the state’s Department of Public Utilities. The new division will regulate Transportation Network Companies (TNCs), such as Uber, Lyft, and Fasten. The legislation offers fair and sensible protections for TNC customers, but Blackbourn argues, “[It] goes too far to protect the outdated system of taxi medallions controlled by government regulators.”

The bill would require the Massachusetts Growth Capital Corporation create a Ride for Hire Sustainability Program to support smaller cab firms and dedicate “not less than 10 percent of the capital committed by the corporation” annually to provide financial assistance, working capital, and lines of credit to bolster cab companies. TNCs would not be eligible for this assistance. Read more