MA Ballot Question: Tax Repeal

One of the questions on the ballot for 2008 in Massachusetts is a question to repeal the state income tax. I think a lot of people have gut reactions to such a thing, but I’m still undecided.

There’s the standard arguments — big government vs little government. Some people will approach the ballot with certain biases. But above and beyond that, there are unique issues with the income tax. There are a couple reasons why the state income tax is no great shakes:

  • Income tax requires massive privacy loss. Income tax requires an exhaustive accounting of your personal life. It allows the state to make what you do for a living, who you live with, and how much money you earn its business.
  • Processing is inefficienct. The bureaucracy involved is staggering. The processing of the complicated forms costs money. The IRS budget last year was $11 billion. The sheer complexity of even filling out the forms means that you’re bound to do it wrong and under- or over-pay. Of course, this downside could be alleviated with a much simpler tax code, like the FairTax.

And a couple reasons why, in my mind, this ballot question is not a great idea:

  • The state is not the enemy. MA state income tax is paltry compared to the federal government. MA takes roughly 5% I think. The fed takes roughly 25%. And what the state does take goes to much more useful things than the federal government. It goes to pay for roads you use, schools you attend, communities you live in. The federal money goes towards wars in the Middle East and Big Oil (as well as some useful stuff, but a much smaller percentage).
  • This particular plan is not gradual. I would have liked to see this ballot provide an alternative funding source (raising gas tax or sales tax) or gradually reduce the income tax. Massachusetts’s credit rating will sink and projects will be dropped midway through (or we’d just go into crushing debt).

I’m certain there are points I’m not thinking of. The libertarian in me really wants to vote for it, but I’m not certain it is the wisest course.

5 thoughts on “MA Ballot Question: Tax Repeal”

  1. The FairTax comes with its share of privacy loss. Since it calls for the federal government to send a check to you every month, they have to know where you live at all times. In the same way that the Social Security Act gave everybody a number that effectively became a unique form of identification, the FairTax would probably justify a national ID card or something similar. After all, if the government is giving you money, they want to make damn sure you’re who you say you are and that you’re a legal citizen. You could forgo the rebate to retain your privacy, but as the rebate would be at least $200 a month, only people richer than I am could reasonably afford to. Which almost makes it worse.

  2. What Dav said. My argument isn’t so much being against repealing the MA State income tax (which I am) but against the Flat Tax.

    Current propositions include a new enforcement department dedicated to finding states, stores, companies, and individuals who are evading the tax. In order to do this, they will need powers to investigate individuals much more thoroughly, looking specifically into how they are spending their money rather than how much money is coming in. This seems much more intrusive to me. While standard, individual paperwork would be reduced, if you’re one of the unlucky few targeted by the auditors, things get messy.

    The revenue-neutral numbers given by Fair Tax supporters replace the income tax, but not the payroll tax*. As such, the government would still be aware of how much you make, and what you do for a living. The IRS doesn’t care who you are living with unless you are married, in which case the government would already need to know that for purposes of marriage certificates, Social Security benefits, etc.

    In short, I don’t think the Fair Tax meets either of your stated goals: simplification of tax forms, or increased privacy.

    [*] http://www.opinionjournal.com/extra/?id=110010523, editorial in the Wall Street Journal by Bruce Bartlett, an economist under Reagan and Bush the elder. Skip over the Scientology rant to get to the numbers.

  3. My reference to the FairTax was a throwaway example of a simpler tax code. I don’t know why you both thought it was an endorsement. Additionally, you both argued about why the FairTax is also a privacy loser. That was in a compeletely different bullet point from the point I was making about FairTax! No one likes strawmen.

  4. Looking at my comment again, I didn’t mean to be harsh. I only meant that this post was about the ballot question, not the FairTax. I didn’t mean to make a statement on the FairTax, on which I don’t feel strongly.

    With respect to payroll taxes, sure they also allow similar information to pass to the government. That doesn’t mean income taxes aren’t also a privacy issue. If you don’t like the one, you don’t like the both. But you have to start somewhere. Plus, the state at least may not have any payroll taxes besides income withholding, which would go away if no income tax.

  5. All right, to address the two specific bullet points used in the context of the discussion of whether or not MA should get rid of its income tax:

    * Privacy loss: The data is still being passed to the Federal government. Eliminating the MA Income tax will not keep information out of the government’s hands, and it will still be accessible via requests from law enforcement. Unless simultaneous action was taken to eliminate the income tax at the Federal level as well, this ballot initiative passing does not significantly increase your privacy.

    In additon, the specific ways listed that the state income taxes reduce privacy are already obtained by the government in other ways. The only reason income taxes care who you live with is if you are married (in which case you need a marriage certificate), or have children (who arguably have been signed up for school, received a birth certificate, or are claimed as a dependant on your Federal processing). What you do for a living is already registered with payroll taxes, as is how much money you make. Neither of these would be changed by the passing of this initiative.

    * Inefficient processing: The collection of any taxes will require paperwork. Your number given for the IRS’s budget ($11 billion) is a very small fraction of the results it produces ($2,500 billion via 168,808,955 processed returns in 2006, according to wikipedia). That’s less than half of a percentage point in overhead. Also, the IRS is reporting marked reduction in costs as more individuals switch over to electronic filing. Tax forms have a reputation as being complex, but errors are checked for by the online services, and the IRS itself. As this is a subjective argument, and I cannot give concrete numbers to back it up, I will simply let it pass.

    You have touched on the simplest and most powerful argument for voting against the ballot initiative: there is nothing in place to replace the revenue. A plan is not presented* explaining where the $11 billion in lost revenue will come from. In fact, the organization behind the initiative is proud of this fact**.

    [*} Correct me if I’m wrong on this point.
    [**] http://www.boston.com/news/local/articles/2007/11/24/4_ballot_petitions_clear_1st_obstacle/

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