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Carrots And Sticks

(Author's Note: This article was inspired by a brief mention at another blog. Unfortunately, while the germ of this piece rattled around in my brain and grew into this, somewhere it lost its link to its roots. To my fellow blogger who I am lifting from, I apologize.)

Government, as has often been noted, does not have any money of its own. It only possesses money that it takes from its citizenry via taxes and other similar structures. And just how it raises its money is at the root of most political arguments.

"The power to tax is the power to destroy." But that power is not absolutely binary; it need not be used to the point of destruction. Indeed, in most cases, it is not intended as such, but rather as a way to guide and shape and direct behavior -- not destroy it utterly. (The incredibly-ill-advised "luxury tax" of the 1990's that almost destroyed the yacht-building industry is the prime example of what can happen.)

But I've noticed a rather odd little dichotomy in the way the two major parties treat taxation that seems to fly in the face of their stereotypical images.

The Democrats -- the "party of compassion," of "caring," tend to use taxation as a club. They tend to prefer taxes that punish behavior they do not approve of. Drive a gas-guzzling SUV? They'll jack up the taxes on gasoline and push for special "carbon taxes" and "low mileage surcharges" and the like. Smoke? They'll tax tobacco -- and say it's "for poor children." Make big bucks? They'll charge you a higher percentage of your income. And if you're a big company, they'll investigate you to see if you make TOO much ("windfall profits") and look into a "special" tax on that.

The Republicans -- the "heartless," the "uncaring" party, though, tends to go for using taxation as a way of rewarding and encouraging behaviors. Save money for your retirement? We'll give you a tax break. Re-invest your company's profits instead of keeping them? That's worth a tax break, too. Choose to expand and create jobs in places that needs it? We'll give you a big break in your taxes if you do that. In general, they prefer to simply take less from you if you act in the way they think you should.

Here in New Hampshire, we were until recently a very Republican state -- and, for the most part, it worked out well. And on the issue of taxes, the conversion is still too fresh to have had much affect. We are still the only state with absolutely no state or local broad-based taxes (no sales tax or income tax at all).

All in all, I think it requires a balance. While an all-carrot approach is certainly pleasant to those on the receiving end, I recognize that the occasional use of the stick is required. "Spare the rod and spoil the child" and all that. But both should be used very carefully and very judiciously, because the "power to destroy" is something that must never -- never -- be used casually.


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Comments (26)

Actually, what is most requ... (Below threshold)

Actually, what is most required is fiscal responsibility in Washington. I used to fear Tax and Spend Democrats, until they invented Tax and Borrow Republicans. At least the Dems had a chance of actually paying off what they started.

The Republicans abandoned fiscal responsibility imposed on the Dems during the Newt years and failed to renew Pay As You Go (PAYGO), so spending wildly, ballooning government, and cutting taxes all at the same time on their watch.

The other major problem with carrot and sticks is that the carrots never end, at least for corporations. It's good to encourage new industry, such as Oil back in the early years of the 1900s, but it's crazy to keep subsidizing mature industries capable of standing on their own two feet today (free market competition is good for the economy, as long as they don't actually have to do it). The same goes for agribusiness and much of the defense industry.

Once on the public dole, it's nearly impossible to pry an industry off of the public sugar teat.

Targeted and time limited t... (Below threshold)
89:

Targeted and time limited tax breaks are good, Rick, as long as they are so predictable that they can be taken into long-term business plans.

As for taxing, what matters to the budget is tax revenue - not tax levels directly. If you cut certain taxes by a certain amount, you can actually increase total tax revenue - but of course other tax reductions will also reduce tax revenue.

"At least the Dems had a ch... (Below threshold)
kim:

"At least the Dems had a chance of actually paying off what they started". Oh yeah?

OT, but since when is the Department of Justice, a part of the executive branch, supposed to be 'independent'? To make it so, those from whom power will be taken, will be deceived.
===================================

Actually, JayTea, when you ... (Below threshold)
Kat:

Actually, JayTea, when you said

We are still the only state with absolutely no state or local broad-based taxes (no sales tax or income tax at all).
I had a very scary thought, which unfortunately goes to show how terribly indoctrinated I am!

I thought, "Well then, how does NH pay for its government services?!"

[hangs head in shame]

I cannot believe I have fallen so low... Well, I suppose it's time to track that attitude down and root it out!

Another is the new and inte... (Below threshold)

Another is the new and interesting ways a government, often state and local, will find to double tax you and get away with it by giving it a different name than tax. Liquor "surcharges" here in Florida were an abomination. We finally, after some 17 years, got it abolished. It was a long an arduous fight.

Retail liquor was subject to the normal sales tax of course. Then the surcharge was added, but only those who sold liquor by the drink had to pay it. Liquor stores were not subject to it.

We had two ways to handle it. Absorb the cost, raise the price of alcoholic beverages or add a line to every customer's check labeled "alcohol surcharge". Absorbing the cost was out of the question. It amounted to thousands of dollars a month in extra taxes for a business. Raising the price of drinks did not make the general public aware of the new taxes we were paying. It just made us look greedy.

Then the restaurant I work for was audited by the Department of Revenue about 4 years ago and they were so determined to collect more from us that upon discovering the "surcharge" line on our guest checks they suggested it was "extra revenue" that we needed to pay a sales tax on.

So now we were now not only double taxed, we were triple taxed back 4 years. The law was written in such a way that we were powerless to fight it.

now we were now not only... (Below threshold)
Proof:

now we were now not only double taxed, we were triple taxed back 4 years.
To me, the idea of paying taxes on other taxes is repugnant, un-American (though we do it all the time) and un-Constitutional.
At the risk of attracting Ron Paul supporters like bugs to a porch light, I'd suggest that this would be a good reason for another Boston Tea Party...

The main difference in the ... (Below threshold)
Steve L.:

The main difference in the beliefs of the two sides is whose money is it. Republicans believe that money belongs to the individual or corporation. The government should only take as much as it absolutely needs to operate. Democrats believe that money belongs to the country (with the government as its designated agent.) The people are allowed as much money to survie as the government deems necessary.

"We had two ways to hand... (Below threshold)

"We had two ways to handle it."

Oddly enough, I followed that with three ways. :)

Well, really two ways; one ... (Below threshold)
kim:

Well, really two ways; one was out of the question. The thinking was sound, the language rebelled.
======================

"now we were now not only d... (Below threshold)
Mycroft:

"now we were now not only double taxed, we were triple taxed back 4 years.
To me, the idea of paying taxes on other taxes is repugnant, un-American (though we do it all the time) and un-Constitutional.
At the risk of attracting Ron Paul supporters like bugs to a porch light, I'd suggest that this would be a good reason for another Boston Tea Party...

6. Posted by Proof | October 17, 2007 8:21 AM | Score: 0 (0 votes cast) "

You mean like the Dukakis surtax? That was the MA tax ON your state income taxes!

BTW: Jay Tea, NH (I once lived there) has sales taxes (it is called a fast food tax, but a sales tax by any other name...) and makes up for no income taxes and otherwise no sales tax with skyhigh property taxes (both home and auto).

FL has no state income tax, and the sales tax is not TOO bad. And if the new governer has his way, the home property taxes will drop considerably. Car property taxes are non existant here as well.

"And if the new governer... (Below threshold)

"And if the new governer has his way, the home property taxes will drop considerably."

That's the state dictating how much tax is paid to individual municipalities. It's opened up a whole plethora of problems for a city's dependence on property taxes for infrastructure, law enforcement and fire departments. City and county governments (I'm in Duval County) are devising a whole host of new taxes to add on to make up for the shortfalls, including but not limited to a possible increase on sales tax. It's not going to save us anything.

"We had two ways to hand... (Below threshold)
charlie:

"We had two ways to handle it. Absorb the cost, raise the price of alcoholic beverages ...Absorbing the cost was out of the question"

Tisk tisk tisk...why that FL beverage surcharge tax was downright confiscatory. A budget busting 3.34 cents/oz of liquor served.

One fifth of liquor yielding 17 1&1/2 oz cocktails would cost the establishment an extra $.85 per bottle on already piddling gross receipts (at $5/well drink cocktail) of a paltry $85 before consideration of the restaaurant's raw material costs of perhaps as much as $20/bottle for well liquor.

The poor widdle restauranteur, after paying $200 for his liquor, would be slapped w/ an extra 85 cents surcharge, thereby drastically reducing his gross revenues of $85 to next to nothing.

How could any would-be entrepreneur in FL succeed in the private market after such near total confiscation of his gross receipts?

In California we have taxes... (Below threshold)

In California we have taxes, (income,sales,property), surcharges, auto, boat registration fees, in addition to city, county and state taxes on just about every utility. Add the federal taxes (gas) and corperate taxes, California is one of the most "taxed" states in the nation.

This over-taxation is one of the main reasons that large corporations have been exiting the Golden State for more "business friendly" real estate.

Cigarette and alcohol taxes are increased (called the "sin tax") almost simi anually by the Rob Rieners and liberal democratic controlled legislature for decades. And our RINO Gubinator has done little to curtail the tax and spend meantality. (Smoking cigarettes is banned in Golden Gate Park (SF), but at a recent free Concert that I attended the "smoke cloud" was prevalent in the form of a different herb.)

addendum: The music was absolutely fabulous right up to the point where the artist stopped perfoming and began their "dixie-chicking" BS.
Can we get a "fairness doctrine" for the music industry? Or maybe a tax on when they open their mouths and something other than music comes out? Ironically it was "Fleet Week" in the Bay Area, and the Blue Angels did a few fly-bys that drowned out the music while I proudly saluted.

Apologies to Jay for straying from the Carrots and Sticks. (Is that Maggie with the "stick" over my head?)

Rov

shpuld read "after paying $... (Below threshold)
charlie:

shpuld read "after paying $20" not $200

Charlie, you putz. First o... (Below threshold)

Charlie, you putz. First of all, it's the entire idea of double taxation, which is unconstitutional. I know that apparently means nothing to you since you so carefully whittled it down to a per ounce cost to give the appearance that it's just a "widdle" unconstitutional tax.

It was intitially an increase in taxes for our restaurant, in particular, in excess of $3000 a month. The last payment I made was in July this year of $1200 only due to the tax being decreased over the years.

It's also convenient that you don't mention the history of this whole tax and how the state was forced to slowly wean themselves off this teat to the "widdle" 3.34 cents per ounce from the initial 10 cents per ounce.

Furthermore, that horrible greedy profit made from the sales paid bills; wages, utilities, rent, maintenance, etc.

You putz. Oh wait, I already said that.

"And if the new governer ha... (Below threshold)
Mycroft:

"And if the new governer has his way, the home property taxes will drop considerably."

That's the state dictating how much tax is paid to individual municipalities. It's opened up a whole plethora of problems for a city's dependence on property taxes for infrastructure, law enforcement and fire departments. City and county governments (I'm in Duval County) are devising a whole host of new taxes to add on to make up for the shortfalls, including but not limited to a possible increase on sales tax. It's not going to save us anything.

11. Posted by Oyster | October 17, 2007 10:08 AM | Score: -1 (1 votes cast)

Note that I did not say it would be a permanent drop in Property taxes. I expect it to be a windfall for a year or two until the counties/cities up someother taxes.

The only thing really helping is that the county I am in has already raised the taxes, and they are prevented from raising that tax for several more years by another law.

I expect them to move trash collection out to it's own bill this year (Leaving the tax revenue unchanged that USED to pay for it.) After all, that is what they did with the fire department last year.

I realize it's a loosing ba... (Below threshold)
CE:

I realize it's a loosing battle, but one more time:

The carrot and stick are two parts of the same thing, not two separate tools. The carrot dangles from the stick to encourage the animal you are riding to keep moving.

[And while we're at it, a cohort is a GROUP not an individual.]

I wasn't really trying to c... (Below threshold)

I wasn't really trying to contradict you, MyCroft. I was just pointing out the repercussions as there are many here who do not hail from Florida and are unaware of the problems that will arise from this. But you're right. Some cities are moving on this faster than others though. I can't speak for everyone in Florida, but the taxes on my property have remained virtually unchanged for four years now. I can only hope that a new garbage tax or increase in sales tax or a combination of new taxes will not exceed any savings we glean from this.

We'll see what other taxes they come up with to compensate and whether there is any savings in the longer run.

Every city is unique and some may fare better than others.

But this one has many Democrats in an uproar because "the poor" will be subject to other taxes that will likely be imposed by many cities to make up for it.

Mycroft does not have a cap... (Below threshold)
Mycroft:

Mycroft does not have a capital "C" in it.

But anyway, always bet on politicians to want more of your money, then you will never be disappointed. The trick is to set them back a ways to allow us to catch up. How far back it sets the local politicians will vary by area/city/county/etc.

What we really need is the politicians to wise up and stop spending some of hte money on useless crap, but I digress.

"the "widdle" 3.34 cents... (Below threshold)
charlie:

"the "widdle" 3.34 cents per ounce from the initial 10 cents per ounce"

Indeed, the original 10 cents per oz would have added a business-killing 15 cents per cocktail, or a $1.70 per gross receipts on a vended bottle of liquor.

Such a prohibitive CODB, on top of the typical minimum wage restaurant payroll, must have sent Florida restaurants into bankruptcy by the droves in the early years of the surtax.

I mean, my god, how could a poor widdle restauranteur possibly have contended w/ the prohibitively steep cost of an extra 15 cents drained from the receipts on a $5 cocktail, apart from the fact that a cheap $5 cocktail in FL is about as scarce as hens' teeth.

As to the double taxation issue, I'll leave that to the courts. If indeed that's what it amounts to, I am surprised the courts didn't tank the tax years ago.

Okay, I take that back, Cha... (Below threshold)

Okay, I take that back, Charlie. You're not a putz. You're an idiot. Arguing with you will serve nothing since you're so hell bent on distorting the issue with hyperbole as you've presented above.

And I will return the compl... (Below threshold)
charlie:

And I will return the compliment, oyster, and add "greedy" as well.

Apparently your shell seedings are really just the rat droppings that abounded in your kitchen.

SO, Oyster, in an attempt t... (Below threshold)
SCSIwuzzy:

SO, Oyster, in an attempt to break it down for the economically impaired, care to tell Charlie how much of that $5.00 cocktail went where?
I see:
wages
insurance
property taxes
rent/mortgage
sales taxes
utilities
soap/cleaning
disposables (napkins,straws etc)
raw materials (booze)
licenses and permits
furnishings
appliances
profit

I know when I used to tend bar, that 5.00 drink would likely yield all of 50 cents of profit, unless it was a busy night (busy night cuts down the per drink cost of labor etc).
A 15 cent cut into the profit is a pretty big whack.

Scuzzy, you forgot costs li... (Below threshold)
charlie:

Scuzzy, you forgot costs like toilet paper & water, esp. if the patrons drink a lot of beer & flush every time that they have to piss.

To the above list, I'd add ... (Below threshold)
Proof:

To the above list, I'd add payroll taxes, corporate income tax, advertising (yellow pages, newspaper, etc), and perhaps uniforms for the employees.

Anyone who thinks they can turn a profit after all of those expenses is certainly welcome to try!

What I really want to know ... (Below threshold)
Veeshir:

What I really want to know is how it became possible for one political party to have raising taxes as one plank of its platform and for it to still have electoral success.
That just seems crazy to me.




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