May 21, 2015

Maryland Taxpayers Win "Broad Victory" at U.S. Supreme Court

Under a story entitled, "In Landmark Case, Supreme Court Finds Maryland's Tax Scheme Unconstitutional,"  Kelly Phillips Erb, contributor to Forbes magazine, wrote on Monday, May 18:

"Last May, Dominic Perella, argued that the way that the State of Maryland treated tax credits was wrong, arguing, “Maryland’s approach is unfair to people who make money in more than one state.”

"As it turns out, the Supreme Court agrees, holding in Comptroller v. Wynne that Maryland’s tax scheme is unconstitutional because it doesn’t offer credit to its residents for taxes paid in other states.

"This – as it applies both to state and local tax policy – is a big deal. To understand the case, we need to understand the context. How did this case find its way to the Supreme Court? Here are the details:

"A married couple (the Wynnes) reported taxable net income of approximately $2.7 million to the State of Maryland. More than half of that amount represented a share of earnings in an S corporation with operations in several states. The Wynnes claimed a credit on their Maryland tax returns for taxes paid to 39 other states. The State of Maryland denied the credits and issued a notice of deficiency. The Wynnes appealed. At a hearing, the assessment was affirmed, meaning that the Wynnes were stuck paying the tax.

"The Wynnes disagreed with the finding and amended their petition, claiming that the tax credit statute, as written, was in violation of the Commerce Clause of the United State Constitution. That claim was rejected.

"So the Wynnes tried again, arguing this time that the State of Maryland was constitutionally required to extend the credit for taxes paid to other states to the county as well as the state. Their bigger question was whether a state had the unconditional right to tax all income based on residency (they, of course, said no). This time, the Circuit Court agreed with the Wynnes."

Read the remainder of Ms. Erb's story here; there is a link to her 5/28/14 story, which reported tjat SCOTUS had agreed to her the Wynne's case.

A press release from Fagre Baker Daniels is here.

At SCOTUSblog, Bradley Joondeph provides an analysis of the opinion. Here's his "plain English" summary:

"In Comptroller v. Wynne, the Supreme Court invalidated the county component of Maryland’s personal income tax as violating the Commerce Clause because it discriminated against interstate commerce. The Court applied its “internal consistency” test for state taxes: If every state in the Union adopted an identical tax scheme, would commerce that crosses state lines be taxed the same as commerce staying entirely within one state? Because Maryland failed to offer a credit to Maryland residents against the county tax for taxes paid to other states – and Maryland nonetheless imposed the county tax on non-residents earning income in Maryland – the tax scheme was internally inconsistent. Were every state to adopt the same tax scheme, commerce crossing state lines would be taxed more heavily than commerce occurring exclusively in one state."

Meanwhile, at Reason magazine's Hit&Run Blog, Damon Room notes  that Justice Alito wrote the majority opinion, and then adds:

" . . . Chief Justice John Roberts and Justices Anthony Kennedy, Stephen Breyer, and Sonia Sotomayor all joined Alito’s opinion.

"Alito’s sharpest critics proved to be two of his most conservative colleagues, Justices Antonin Scalia and Clarence Thomas. Scalia and Thomas each filed separate dissenting opinions, as did Justice Ruth Bader Ginsburg, whose dissent was joined by Justice Elena Kagan. According to Scalia, the dormant Commerce Clause is a “judicial fraud” that allows federal judges to rewrite state laws according to their own preferences. Thomas, meanwhile, argued that Alito’s take was totally at odds with constitutional history. “It seems highly implausible that those who ratified the Commerce Clause understood it to conflict with the income tax laws of their States and nonetheless adopted it without a word of concern,” Thomas wrote."

At the Tax Foundation's Tax Policy Blog, Joseph Henchman, Vice President, wrote:

"This is a broad victory for taxpayers. Today’s 5-4 decision upholds what should be noncontroversial: state tax powers do not extend to harming interstate commerce by levying multiple taxes on it. This is important not just for one Maryland business, but for anyone who does business in more than one state, travels in more than one state, or lives in one state and works in another. The court also held that these protections apply not only to businesses, but to individuals as well.

"As explained in the Tax Foundation’s brief in the case, state tax practitioners knew these were the rules even though the Supreme Court never explicitly said so. Today, the Supreme Court explicitly said so. Anyone who thought that a state’s tax power extends to all income earned by its residents anywhere in the world, now knows they were wrong."

Patrice Lee, writes at Independent Women's Forum:

"Some 55,000 Maryland taxpayers have in essence been double taxed. One couple learned that the hard way paying an estimated $25,000 in taxation which the Supreme Court now says are not legal. The Wynnes owned half of a homecare and medical staffing company that does business in more than 36 states and reported an income of $2.7 million in 2006.

"The state is nervous; they are on the hook for an estimated $200 million in refunds and interest to taxpayers like the Wynnes. They are also losing an estimated $42 million a year in revenue going forward.

< . . . >

"State officials are balking at the lost revenue, especially in Montgomery County, one of the nation’s wealthiest counties, which stands to lose big from the busted piggyback tax."

Click here for Google's "full coverage" of Maryland v. Wynne.

Given the justices who jointed in the majority opinion, anyone wish to venture how the Justices will rule in the ObamaCare exchanges case?

Congratulations to the Maryland taxpayers for taking this case to the Supreme Court.

May 20, 2015

Some Thoughts on the Size of the Welfare State

"Four years ago I wrote a book about modern American liberalism: Never Enough: America’s Limitless Welfare State. It addressed the fact that America’s welfare state has been growing steadily for almost a century, and is now much bigger than it was at the start of the New Deal in 1932, or at the beginning of the Great Society in 1964. In 2013 the federal government spent $2.279 trillion—$7,200 per American, two-thirds of all federal outlays, and 14 percent of the Gross Domestic Product—on the five big program areas that make up our welfare state: 1. Social Security; 2. All other income support programs, such as disability insurance or unemployment compensation; 3. Medicare; 4. All other health programs, such as Medicaid; and 5. All programs for education, job training, and social services. (emphasis added)

"That amount has increased steadily, under Democrats and Republicans, during booms and recessions. Adjusted for inflation and population growth, federal welfare state spending was 58 percent larger in 1993 when Bill Clinton became president than it had been 16 years before when Jimmy Carter took the oath of office. By 2009, when Barack Obama was inaugurated, it was 59 percent larger than it had been in 1993. Overall, the outlays were more than two-and-a-half times as large in 2013 as they had been in 1977. The latest Census Bureau data, from 2011, regarding state and local programs for “social services and income maintenance,” show additional spending of $728 billion beyond the federal amount. Thus the total works out to some $3 trillion for all government welfare state expenditures in the U.S., or just under $10,000 per American. That figure does not include the cost, considerable but harder to reckon, of the policies meant to enhance welfare without the government first borrowing or taxing money and then spending it. I refer to laws and regulations that require some citizens to help others directly, such as minimum wages, maximum hours, and mandatory benefits for employees, or rent control for tenants. (emphasis added)

"All along, while the welfare state was growing constantly, liberals were insisting constantly it wasn’t big enough or growing fast enough. So I wondered, five years ago, whether there is a Platonic ideal when it comes to the size of the welfare state—whether there is a point at which the welfare state has all the money, programs, personnel, and political support it needs, thereby rendering any further additions pointless. The answer, I concluded, is that there is no answer—the welfare state is a permanent work-in-progress, and its liberal advocates believe that however many resources it has, it always needs a great deal more." (emphasis added)

~ William Voegeli, Senior Editor, Claremont Review of Books, and Visiting Scholar, Claremont McKenna College’s Henry Salvatori Center

Source: Imprimis speech digest, October 2014.

May 19, 2015

Are Flat Taxes Really Flat

At the Tax Foundation's Tax Policy Blog today, Kyle Pomerleau writes. "Several Republican presidential hopefuls have stated their support of the “Flat Tax.” Ted Cruz, Ben Carson, and Rand Paul have all expressed interest in a tax reform plan that moves our current code to a new “Flat Tax.” As a result, there is renewed interest in what a Flat Tax is, what its pros and cons are, and how it could impact different taxpayers.

He first provides a definition of a flat tax, saying:

"When most people hear “Flat Tax,” they usually think a tax system with one, flat tax rate on all income. They also imagine a tax system with little or no deductions or credits. While this is a possible way to design a flat tax, it is not what makes a flat tax a flat tax. The key to a flat tax goes beyond its rates. The key is that it is a consumption tax. You would not call a low-rate tax on all transactions in an economy a flat tax, even though it had one, flat rate.

"A consumption tax is a tax on what people spend, rather than what people earn. Economists like consumption taxes because they are what is called “temporally neutral.” They are neutral with respect to consumption today and consumption tomorrow (saving). Another way to think about a consumption tax is that it taxes, one-time, all the money people spend today plus the money people save, either when they save it, or when they spend it in the future."

Pomerleau then describes the types of flat or consumption taxes. He goes on to explain why economists like flat taxes. He also answers the question of whether flat tax raises taxes on the poor and whether flat taxes reduce revenues. He ends by answering the question can the flat tax abolish the IRS.

For a more indepth treatment, David R. Burton, a senior fellow at the Heritage Foundation has written a "backgrounder" entitled "Four Conservative Tax Plans with Equivalent Economic Results" (No. 2979, December 15, 2014). Here's the abstract:

"The four leading conservative tax reform plans are the Hall–Rabushka flat tax, the new flat tax, a national sales tax, and a business transfer tax. Each is a consumption tax with an equivalent tax base. Except for secondary design choices and the choice of which taxes to replace, each would apply the same tax rate to raise a given amount of tax revenue. They would also have the same economic effects. The choice among them, therefore, rests on non-economic grounds."

In a Cato Institute "policy analysis" paper (No. 536, February 24, 2005), Chris Edwards examines a flat tax, a national sales tax, and a savings-exempt tax. And at the Center for Freedom & Prosperity, among other papers, Dan Mitchell posted a paper April 18, 2014 that compares the flat tax and a national sales tax.

Finally, in a search of about the first 50 'hits' at the leftist Center on Budget and Policy Priorities, your humble scribe found no papers or studies discussing a flat tax. Although I wouldn't expect CBPP to advocate for the flat tax, I expected at least a paper or two criticizing the flat tax.

May 18, 2015

Arlington County Board Jacks Up Parking Meter Rates, the online local news site, reported this afternoon that the Arlington County Board approved an increase in parking meter rates of $0.25 per hour,, which will result in increases ranging from 12 1/2% to 25% per hour.

According to the story:

"The Arlington County Board on Saturday approved a 25 cent-per-hour rise in metered parking rates. The rate increase is expected to be implemented in September and bring in nearly $1 million per year in extra revenue.

"(The increase won’t apply to some reduced-rate meters, currently priced between $0.50-0.75 an hour.)

"The Board unanimously approved the rate increase and also voted unanimously to delay action on a proposed extension of metered parking hours from 6:00 to 8:00 p.m. A public hearing on parking hours is now planned for September."

As if to make good with county residents so they know the county's parking meter rates are the lowest in the region, the Manager provided the following background in their report to the County Board (report for Agenda Item 33, May 16, 2015 Agenda):

"Parking meter rates have remained unchanged since 2011. However, during the four year period, parking pressures have increased and parking operating costs have increased. The proposed increase in maximum rates is $0.25 per hour. On-street parking rates in Arlington lag behind those in the region (rates as of April 2015):

District of Columbia -- $2.00/hour in premium demand; $0.75/hour in remote areas

Alexandria -- $1.75/hour; $1.25/hour at older single space meters

Bethesda -- $2.00/hour on-street; $1.25 in off-street lots

Leesburg -- $1.50/hour on-street

Arlington -- $1.50/hour short term; $1.25/hour long term (Proposed)"

So let's see. When the Board adopted the FY 2016 budget, it was balanced. Consequently the estimated $950,000 from jacking up the parking meter rate wasn't needed to balance the budget. Therefore, it must be a windfall for the county coffers, and will add to the Board's slush fund. Is there a vanity project in the wings waiting for this windfall? Or is the county raising the rate because it hasn't done so in four years?

Alternatively, if the increased rate is intended to more fully recover the cost of providing, administering, and maintaining curb-side metered parking, then why isn't the Manager providing program cost so that Arlington County taxpayers can know and compare the cost and benefits of this program?
The Board also deferred action on extending parking meter hours by two hours, a staff recommendation. You can read the press release here.

Growls readers who haven't recently told members of the Arlington County Board that taxpayers in Arlington County are overtaxed and expect better from a county government that self-identifies itself as a world-class community are urged to take a few minutes to tell the County Board that they and the Manager need to do better. Just click-on the link below:
  • Call the County Board office at (703) 228-3130
And tell them ACTA sent you.

May 17, 2015

A Thought on Tax Fairness

"The government may impose heavy taxes on the rich in the name of fairness, but that “fairness” comes at the expense of the economy and those not yet rich.”

~ John Tamny, page 10, "Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You about Economics”

Source: Barnes & Noble.

May 16, 2015

A Thought on Income Inequality

 “Income inequality in a capitalist system is truly beautiful. It provides the incentives for creative people to gamble on new ideas, and it turns luxuries into common goods. Income inequality nurses sick companies back to health. It rewards hard work, talent, and achievement regardless of pedigree. And it’s a signal that some of the world’s worst problems will disappear in our lifetimes.”

~ John Tamny, page 47, "Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You about Economics"

Source: Barnes & Noble.

May 15, 2015

A Thought on Taxes and Economic Growth

"All taxes are a drag on economic growth. It's only a question of degree."

~ Alan Greenspan

Source: page 36, "As Certain as Death: Quotations About Taxes," 2010, compiled by Jeffrey L. Yablon,

May 2015
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Items in Growls are written by individual ACTA members and do not necessarily represent the views of the Arlington County Taxpayers Association, Inc. Please send comments about Growls to The Growl Meister