Ari Armstrong, Governor Polis, Politics, Taxes, Uncategorized

Armstrong: Polis wrestles with the income tax

Democratic Governor Jared Polis surprisingly claimed before the Steamboat Institute that Colorado’s income tax “should be zero,” as the Gazette (among others) reports. Wow. Few Republicans would propose so bold a move. I guess Polis is trying to bolster his libertarian street cred.

Conservatives and libertarians were thrilled, of course. “These remarks were met with cheers from the conservative crowd,” the Denver Post reports. Stephen Moore, an advisor to Donald Trump, Tweeted, “A Democratic governor said what? . . . I guess they [Coloradans] want the economic success of Florida and Texas.” David Boaz of the Cato Institute and Nick Gillespie of Reason magazine also Tweeted glowingly about Polis’s remarks. Conservative pundit Mary Katherine Ham said, “I have many more wtf I love Jared Polis now moments than I ever expected to have.”

Unsurprisingly, Polis’s proposal was less popular among Democrats. The left-leaning Post ran the subhead, “Remarks at conservative conference highlight gulf on fiscal policy between Polis and fellow Democrats.” Scott Wasserman of the Bell Policy Center Tweeted the classic image of the dog enjoying coffee in a burning room.

I’m less excited about Polis’s proposal than you might predict. Basically, to eliminate the income tax, we’d have to either dramatically cut government spending or else increase other taxes. A document from the legislature shows that, at least as of 2018, the individual income tax provided the lion’s share of the general fund. Polis wants to increase other taxes, but he doesn’t have a good sense of how that might work.

What Polis had to say

Polis’s remarks on the matter start at around the 10-minute mark of the Steamboat Institute’s video. Arthur Laffer, who gushes praise for Polis’s economic policies, saying he’s “done an exceptionally good job,” sets up the issue by encouraging Polis to eliminate the income tax.

Here’s how Polis replies: “Dr. Laffer and I have had this discussion before. It’s obviously easier said than done. But, in effect, when you tax something, you penalize it. And there [are] things you actually want to penalize in society, like pollution might be one of them. I would argue that smoking might be one of them. Cigarette taxes, sin taxes, if there’s an applicable cost to people. So, if we can move away from taxing income, which is something that you don’t want to discourage—because we want everyone to make income, we want companies to make income, that’s a great thing—two, basing it on taxing pollution or carbon or something that we fundamentally don’t want, you’ll have a more pro-growth tax structure that gets the right incentives in place to help grow what you want to grow and penalize things that are negative externalities.”

Clearly here Polis, who emphasizes the “if,” is speaking theoretically and not making a concrete proposal.

Quite a bit later in the conversation, around the 29-minute mark, Hadley Heath Manning, the moderator, asks Laffer again about the “appropriate rate” of income tax. Zero, he reiterates. Then Manning throws the question back to Polis.

Polis brags about Colorado’s relatively low overall tax burden. Then he says, “Yes, we would be very interested in finding out, in a revenue-neutral way, how to go from taxing income to taxing something we don’t like, and I usually put the word pollution or carbon emissions in there, and I think that that’s probably the right way to go. But it would be a very pro-growth policy. . . . I don’t think you should put more on to sales or property, I would go a different direction, probably, as I said, pollution or something else that we want to discourage.”

Again, Polis is speaking hypothetically in response to pressure from Laffer and Manning. Manning pushes: “So what do you think the state income tax should be?” Polis replies, “Oh, it should be zero.” This is the line that generates applause and cheering.

Polis quickly follows up, “And, by the way, it’s not all or nothing. Progress in that direction is also good. We cut the income tax rate already. It’ll go down to 4.5% next year” from 4.63%. Polis refers to Proposition 116, which reduced the rate to 4.55%. The Post notes, “Conservative groups plan to petition to put yet another cut, down to 4.4%, on the 2022 ballot.” No one is seriously proposing the elimination of the income tax.

The problem with carbon taxes

Polis generally is right that you get less of what you tax. But he fails to see that a tax on fossil fuel use is essentially a tax on fossil-fuel using businesses and personal activities. If you raise the cost of doing business, you get less business.

There’s another huge problem with Polis’s proposal: If Colorado shifts to carbon-free energy over the coming decades, as Polis expects, then making Colorado government dependent on fossil-fuel taxes is at best a short term strategy. I was interested to see that Xcel is making a move to possibly expand nuclear energy in the region; it’s also trying to expand solar and wind energy.

Ironically, making state government dependent on fossil-fuel taxes would give state politicians and bureaucrats a powerful incentive to block or discourage non-carbon energy development to keep the fossil-fuel taxes rolling in. Polis is right to look at incentives, but he doesn’t follow them all the way through the system.

Get rid of sales and property taxes instead

There’s no magic painless tax. If we cut state spending we can cut taxes, of course, but that’s pretty hard to do politically. If we want to cut types of taxes in a revenue-neutral way, I’d rather eliminate property and sales taxes instead, even if that means higher income taxes.

Property taxes basically mean you never truly own your property. If you fall on hard times and cannot pay the taxes, eventually government will drag you forcibly from your house or other property and sell the land. I realize that property taxes are tightly bound up with school spending, so they would be hard to unwind, but I think it would be a worthwhile effort.

I loathe sales and use taxes, mainly because they’re a gigantic pain in the ass. Sure, they work okay for physical stores that sell everything from one place. Beyond that, such as for shipped goods, they’re a disaster. I’ve discussed some of the problems previously. Many Coloradans don’t know what the tax law says and are technically criminals for not paying sales or use tax. Most people don’t even know, for example, that, if you don’t otherwise pay sales tax on some good, you’re supposed to pony up a “use tax,” or that you’re supposed to collect sales taxes even on yard sales and the like.

Just reducing the types of taxes, even if we kept the overall tax burden the same, would help a lot in terms of reducing paperwork and compliance costs and making the tax laws easier to follow.

I appreciate Polis at least entertaining the idea of getting rid of some type of taxation. But he doesn’t really have a serious proposal. Perhaps the rest of us can keep the discussion alive. Maybe the only things certain are death and taxes, but we might be able at least to kill off more-onerous forms of taxes.

Ari Armstrong writes regularly for Complete Colorado and is the author of books about Ayn Rand, Harry Potter, and classical liberalism.  He can be reached at ari at ariarmstrong dot com.

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