Senator Pete Domenici was speaking to a group of journalists. He was talking about simplifying the federal tax code by getting rid of special categories and deductions.\u00a0 It was about 1993.<\/p>\n
During the question period, a young man stood up and in a strained voice said a new deduction is badly needed: the cost of child care.\u00a0 He argued forcefully about the burdens on young families. \u00a0Senator Domenici sidestepped diplomatically by saying that was something to consider.<\/p>\n
The irony was not lost on me \u2013that\u2019s why I remember it so vividly:\u00a0 Domenici was proposing getting rid of the myriad special-case carve-outs that complicated the tax system and his first questioner was asking for a new complication!<\/p>\n
The current national talk about a \u201cflat tax\u201d is nothing new.\u00a0 If legislation is seriously considered, there will be howls of protest throughout the land.<\/p>\n
We have not yet heard howling from one vital interest group: state and local governments, with respect to bond issues.\u00a0\u00a0 Bond issues finance the construction and repair of everything from sewer systems to senior citizen centers.\u00a0\u00a0 They are used extensively by the state, by cities and counties, school and community college districts, and the numerous obscure special-purpose districts such as irrigation, flood control and the like.<\/p>\n
These bond issues are approved by voters.\u00a0 Then they have to be funded.\u00a0\u00a0 Government bonds are sold to investors, who are in effect lending money to that government.\u00a0 The bonds pay very low interest and are attractive to investors only because they are virtually risk-free investments (at least they were until Harrisburg, Pennsylvania, declared bankruptcy in October) and because the income is tax deductible.\u00a0 The federal government is subsidizing state and local governments by not taxing the income.\u00a0 New Mexico bonds are also New Mexico tax-exempt to encourage New Mexico taxpayers to buy them.\u00a0 \u00a0The bonds are paid back to investors over time through local property taxes.<\/p>\n
Without the tax exemption, governments would have to pay higher interest rates to attract investors \u2013 at least when markets are functioning normally.\u00a0 There goes the cost of updating your local roads or public library.<\/p>\n
A commercial web site that lists bond issues for investors (municipalbonds.com) \u00a0shows 190 current bond issues for New Mexico and its subdivisions, from Clayton to Lordsburg, Hatch to Dulce, Lea County to San Juan County.<\/p>\n
Local governments have no difficulty getting the ear of their representatives in Congress.\u00a0 If this flat tax talk gets too serious, at some point they will raise this issue.\u00a0 The government bond tax break appears to have been working well for a long time to accomplish a worthwhile purpose.\u00a0 In pursuit of simplification, should be it fiddled with?<\/p>\n
Arguments continually resurface between the general and the special: the desire to influence behavior or affect outcomes through tax policy.\u00a0 Sometimes, with the most noble ends in mind, the argument goes too far.\u00a0 New Mexico saw this recently with the attempt to make only healthy foods exempt from gross receipts tax.\u00a0\u00a0 Not surprisingly, it floundered over specifics like the definition of a tortilla. \u00a0\u00a0Had that change been enacted, the regulatory details would have been mind-boggling.<\/p>\n
And \u2013 let\u2019s face it \u2013 people get emotional about their special deals.\u00a0 I have spoken with taxpayers who would rather have a special break for their interest group than lower taxes for everybody.\u00a0\u00a0 If the flat tax is ever enacted, that guy who wants the deduction for child care will be back. Somebody in Congress will listen to him, and the flat tax won\u2019t stay flat for long.<\/p>\n
Personally, I\u2019m in favor of an almost flat tax; perhaps you could call it the slightly lumpy tax.\u00a0 It will be rid of all the special exemptions except the ones that benefit me.<\/p>\n
Triple Spaced Again, \u00a9 New Mexico News Services 2011<\/p>\n
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Senator Pete Domenici was speaking to a group of journalists. He was talking about simplifying the federal tax code by getting rid of special categories and deductions.\u00a0 It was about 1993. During the question period, a young man stood up … Continue reading