TaxWatchSummer 2004 Making Sense of the Presidential Tax Plans When voters head to the ballot box make it clear to the taxpayer who and what this November, one factor infl uencing is being taxed, and for how much. their decisions will be the tax packages 3. Stability and non-retroactivity: Tax law proposed by candidates. should not change continually. Good eco- That is, if they are able to comprehend them. nomic decisions require stable “rules of the Presidential tax plans are notoriously game,” and that includes predictable taxes. complex, with political sound Taxpayers should be able to rely on the law bites and tax jargon obscur- as it exists when they enter into Message from ing their impact. Given their transactions, and not be penal- the President 2 complexity and vagueness, ized by subsequent tax changes. how should the average voter 4. Neutrality: The purpose evaluate candidates’ plans? of taxes is to raise revenue, Jock Taxes One way is to start with a few not “socially engineer” the Keep Spreading 3 simple rules of “sound taxa- economy with subsidies and tion,” and then compare plans penalties. Taxes should aim to minimize economic distor- Wacky Taxes; to these criteria. While this alone won’t tell whether a tax tion, favor broad tax bases Tax Bills to Watch; 4 plan is good or bad, it offers a and low rates, and should Tax Foundation simple, objective way to com- not attempt to micromanage economic outcomes. in the Media pare plans across candidates. Over the years, economists 5. Growth-promotion: Taxes from Adam Smith to Milton should promote economic Putting a Face on Friedman have offered their growth, and not interfere with America’s Tax Returns 5 own lists of principles that trade or capital fl ows within should guide good tax policy. the U.S. or across borders. At the Tax Foundation, our Taxes should consume as small Making Taxes economists have narrowed them down a portion of national income as possible Simple 7 to fi ve simple rules, which are applicable to fund legitimate government programs. to a wide range of tax proposals. They With these rules in mind, let’s have a are as follows: look at the candidates’ tax plans. Support the Tax Foundation 1. Simplicity: The tax system should be The Bush Plan 8 as simple as possible. Complexity makes The Bush administration’s main tax tax compliance needlessly expensive proposal in their 2005-2009 budgets is a and punitive. Taxes should be easy to call for Congress to make the 2001 and understand and comply with. 2003 temporary Bush tax cuts perma- 2. Transparency: A good tax system re- nent, rather than expiring between quires informed taxpayers. Tax plans should continued on page 6 Message from the President: Welcome to Tax Watch I’m thrilled to introduce you to the fi rst issue of the Tax Foundation’s newest publication, Tax Watch. Since 1937 our mission has been to inform Americans about the true cost of government. The aim of Tax Watch is to present our research in a simpler, less technical way. Look forward to Tax Watch continuing our tradition of telling the truth about taxes. This year, our economists are working on several new projects. I’m sure you’ve heard repeatedly that the Bush tax cuts benefi ted the rich at the expense of low-income taxpayers. But did you know that the cuts knocked more than 7 million low- Tax income families off the tax rolls? Three years ago, we launched a program to provide facts like these to Watch counter “class warfare” arguments against tax cuts. We call the program Tax Watch is published four times per year Putting a Face on America’s Tax Returns, and you can read this issue’s install- by the Tax Foundation in Washington, D.C., ment on page 5. Through it, our economists are helping paint a picture of the a nonprofi t, nonpartisan research organiza- actual taxpayers behind the political slogans. tion that has monitored tax policy at the A second project is our State Business Tax Climate Index, which provides an federal, state and local levels since 1937. objective measure of how business-friendly each state’s tax system is. The aim Joseph O. Luby, Jr. Chairman, is to show state legislators that complex and punitively high taxes can have Program Committee severe long-term effects on their state’s business climate. Michael P. Boyle Vice Chairman, Program Committee Last year we released our fi rst annual Index, and it had an immediate impact Scott A. Hodge President on tax debates, especially in America’s most populous state of California, where Arnold Schwarzenegger publicized our results during his run for governor. William Ahern Communications Director During the past 67 years, the Tax Foundation has earned the respect of the J. Scott Moody Senior Economist media, policymakers and taxpayers because we have stayed true to our mis- Andrew Chamberlain Staff Economist sion to tell the truth about taxes. Thank you for your support, and I hope you Sumeet Sagoo Staff Economist enjoy the fi rst issue of Tax Watch. Alicia Hansen Staff Writer and Circulation Manager Sincerely, The Tax Foundation is a 501(c)(3) nonprofi t organization that relies on tax-deductible Scott A. Hodge contributions for support. Annual subscriptions are $15. Please send all correspondence to: Tax Watch, 1900 M Street N.W., Suite 550, Washington, DC 20036. Visit us on the web at www.taxfounda- tion.org or call (202) 464-6200. © 2004 Tax Foundation 2 • TaxWatch “Jock Taxes” If state tax collectors have their way, we ment for a couple of months are subject may all be “jocks” soon. to the tax as well.” That’s the finding of a new report from Jock taxes are advertised as “soak-the- Continue the Tax Foundation that explores the rich” taxes. But in reality, the jock tax growth of “jock taxes”—taxes requiring nails everyone traveling with teams, visiting athletes and other team em- including middle- and low-income Spreading to ployees to file tax returns in every state trainers, coaches, and staffers with sala- where games are played. ries ranging from $18,000 for scouts to Non-Jock “The jock tax began with California trying $112,000 for team doctors. to get back at Michael Jordan and the Chi- The report was released July 9th to cago Bulls for beating the Lakers in 1991,” coincide with Major League Baseball’s Professions said David Hoffman, adjunct scholar with All-Star Game in Houston, Texas. the Tax Foundation and co-author of the Texas is one of the few states with a new report. “Illinois fought back with a professional sports team that does not retaliatory tax the next year. Since then, have a jock tax—along with Washing- many other states have joined in.” ton, Tennessee, and Florida—resulting Today, of the 24 states in thousands of dollars of savings and with pro teams, 20 have reduced tax-paying complexity for play- enacted jock taxes, along ers from around the country. with a half dozen cities. The study gives three major reasons the The study finds that rev- jock tax is ill-conceived: enue-hungry state trea- • The tax is poorly targeted. Originally suries are extending their aimed at athletes, it has spread to income taxes to more people with moderate incomes, such and more nonresidents as trainers and scouts, and other pro- who just work a few days fessions. a year in their states. • The tax is arbitrary. Professionals in Jock taxes were first other occupations with comparable aimed at a tiny number incomes over their working lives, of wealthy athletes, but such as doctors and corporate execu- the study shows they are tives, are not penalized by a “doc tax” now beginning to spread to salespeople, or “exec tax.” newspaper reporters, lawyers and others, “Jock taxes were forcing non-jocks to pay as well. • The tax imposes an administrative burden on people who have to file more first aimed at New Jersey has begun taxing visiting than a dozen state income tax returns. attorneys, Cincinnati has levied a tax wealthy athletes, on touring skateboarders, and several “Texas is one of the few states without jurisdictions have begun taxing travel- a jock tax, so that’s good for players,” but they’re now ing entertainers. said Scott Hodge, president of the Tax Foundation, “but those tuning in to this “First, it was just Michael Jordan and spreading to year’s All-Star Game from the road on the Chicago Bulls, then all professional business better watch out. To state tax athletes, and now trainers, scouts, law- collectors, they may be ‘jocks’ too.” other traveling yers, and even amateur skateboarders are being taxed when they leave their The full “jock tax” report is available at professions— www.taxfoundation.org or by calling home state,” said Hoffman. (202) 464-6200. salespeople, Last year Patrick Hill, spokesman for the California Franchise Tax Board made the home builders, goal of the jock tax clear: “The tax isn’t just on professional athletes. Even people reporters with more-pedestrian lifestyles…are sub- ject to this tax. A tradesman coming to and more.” build a building, or a reporter on assign- Summer 2004 • 3 Key Tax Bills to Watch Wacky Taxes H.R. 3184—“Streamlined Sales and Use Tax Act” Taxes may be a fact of Sponsor: Ernest Istook (R-OK) life—but they don’t always What it does: Forces Internet and catalog com- have to make sense. Some panies to collect state sales taxes from customers of history’s more bizarre in other states.