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Federal funding: far from free

Recently, the Tax Foundation released a study showing which states rely most on federal aid and what percentage of their budgets come from these federal dollars.

States receive a significant amount of assistance from the federal government in the form of federal grants-in-aid. In fact, when averaged together state governments relied on federal money for almost one-third of their general revenue in 2014.



This dependence diminishes local priorities in favor of national special interests, incentivizes unnecessary spending at the state and local levels, mandates burdensome regulations, and leaves states vulnerable to future federal spending crises. Simply put, these dollars aren’t free – and the economic, social and financial costs are passed along to taxpayers.

Sutherland Institute wrote an article a year ago about the negative consequences of federal aid in an op-ed in the Daily Herald titled The Myth of Free Federal Money:

“No such thing as a free lunch.”

“If it sounds too good to be true, it probably is.”

“You don’t get something for nothing.”

We know all this. Yet the allure of “buy one, get one free!” “no money down!” and “get 6 months free!” still draws us in.

We see this natural impulse at work when “free” federal money is offered to our elected officials. With billions of tax dollars dangling in front of state and local governments, the sales pitch of better schools, stimulated economies and improved roads usually proves too enticing to turn away.

Unfortunately, this promise is based on a misconception. Federal funding isn’t free at all. In fact, according to new research, it costs Utah taxpayers hundreds of millions of dollars per year.

A new study from Economics International (EI) reports that each additional dollar of federal grant money to the states is associated with an average increase of 82 cents in new state and local taxes.

In Utah, the extra tax burden from every dollar of federal funding is 72 cents. To illustrate, a hypothetical 10 percent increase in federal grants to Utah ($560 million) would be associated with approximately $400 million more in spending from state and local government — an additional tax burden of about $140 per Utahn.

That’s slightly below the national average, but it is cause for genuine concern. It means Utah’s elected officials are being manipulated by the federal government into increasing the financial burden on Utah taxpayers in ways they wouldn’t do otherwise.

We encourage the public and policymakers to reread this op-ed and reject federal funding’s empty promises.

Our generous presidential pensions

presidential sealU.S. presidents make a lot of money when they leave office, both in their private endeavors and in terms of government pension and expense reimbursements. Private wealth among presidents was never uncommon, but no post-presidency pension existed until 1958, when Congress passed the Former Presidents Act, providing a yearly salary equal to that given a current member of the Cabinet (currently about $200,000), as well as providing for office, travel and personnel expenses.

While there had been talk of creating a presidential pension for some time, the impetus for passing it in 1958 was President Harry Truman’s financial struggles after he left office. In his final year in office, President Truman earned $100,000. The next year his income dropped to $34,000, and then to $13,000 the year after that. That is a precipitous drop in annual income. However, adjusted for inflation, $13,000 would be roughly equal to $114,000 today, putting Truman in the top 10 percent of earners of his day. He certainly wasn’t destitute. To his credit, Truman had numerous offers for executive positions and membership on boards of directors, but he turned them down because he didn’t want to profit from the office of the presidency after his term was over. Instead, he focused on building his presidential library, and in 1953 he sold his memoirs for what amounts to $4 million in today’s dollars.

There are four living ex-presidents today, each participating in the Former Presidents Act pension and expense reimbursement program. None of those ex-presidents is in dire financial straits. All were wealthy before assuming office, and all have remained so after leaving the White House. President Clinton, for example, made over $100 million between 2000 and 2007. Yet all former presidents ask for and are given their full $200,000 pension each year. And that’s not all. Taxpayers also pick up the bill for travel, rent, telephone, postage, and various other expenses incurred by ex-presidents, amounting to about $3.5 million a year. In all, since 2000 taxpayers have spent $60 million (adjusted for inflation) on presidential pensions.

Public office should be public service. While there are some expenses presidents incur after they leave office that are unavoidable and a direct result of their public service, why should taxpayers be footing the expensive rent bills of multimillionaires? Especially when those multimillionaires left taxpayers with a $17 trillion debt while they were in office?

Want to know more? Dig deeper here at Utah Citizen Network.

Where your tax dollars are going … and what you're (not) getting in return


A reminder of where your federal income tax dollars are going … and what you’re (not) getting in return.  Happy tax day.

Graph courtesy of this Cato Institute policy report.

Filing taxes? Utah’s burden is 2nd highest among Mountain States

This time of year, most Utahns’ minds turn toward thoughts of … their state and federal income taxes.

state local tax burdens

During the joyful process of filing a tax return, it is natural (and healthy for the sake of freedom) to be a bit concerned about with how much time (e.g. filing taxes) and money it takes to fund government. And it’s natural to wonder whether government elsewhere requires a smaller bite of your income, even if you have no intention of moving.

Enter the Tax Foundation’s “Annual State-Local Tax Burden Ranking.”

According to this year’s Tax Burden Ranking (based on 2011 data – the most recent data available) Utah had the 28th highest state and local tax burden in the country, at 9.4 percent of income. This reflects the conservative lean of Utah policymakers relative to the rest of the nation, to the benefit of Utah taxpayers.

When compared only to its Mountain States neighbors, on the other hand, Utah’s state-local tax burden comes in second out of eight.

Read more

Utah through a taxpayer’s eyes

MoneypileAccording to a recent Salt Lake Tribune article:

  • Utah residents pay the 14th lowest taxes in the nation, or the 10th lowest if adjusted for cost of living
  • The average Utah taxpayer pays $6,069 in taxes (state and local)
  • The average tax bill in Utah is 13 percent less than the national average
  • Unlike some states, Utah has no local income taxes
  • Utah’s property taxes are 11th lowest in the nation
  • Republican states like Utah have lower taxes, on average, than Democrat states

To see the report from which these facts were taken, click here.

The lowdown on Social Security

walletMany politicians talk of a Social Security trust fund, some even calling it a “lockbox.” This evokes images of a giant vault full of money stacked to the ceiling, or perhaps a huge savings account holding onto cash for when it’s needed. But what is this trust fund, what’s in it, and what do the answers to these questions portend for federal policy discussions?

Many of us assume our Social Security taxes are held by the federal government, and then when we retire the money is given back to us. This is not the case. Social Security functions like so: People currently working have money taxed from them, and this money then goes out as payment to people currently retired. It’s strictly a pay-as-you-go system with no funds held for any one person. The fact that we don’t own our Social Security taxes or future benefits has been confirmed by the Supreme Court. Workers aren’t being taxed for their own future benefit, and retirees aren’t simply getting back the money they put in.

For years, there were lots of workers compared to the number of retired persons, so the program brought in more taxes than it paid in retiree benefits. This surplus is what is called the trust fund. However, over the last few decades the ratio of workers to retirees has declined significantly. In 1955 there were 8 workers for every retiree, while in 2010 there were less than three, and the ratio is projected to fall to two and then one.

As the worker-to-retiree ratio has fallen, the amount of the current taxes hasn’t been enough to cover benefits paid to current retirees, so Social Security administrators have dipped into the accumulated surpluses. This situation has happened periodically over the years, but always quickly rebounded to surpluses. However, in 2010 the deficits became permanent. Every year since then, and every year for at least the next 75 years, the Social Security program will be running a deficit.

So the question then becomes: Didn’t all those years of surpluses get saved in the trust fund so there’s enough money to cover current shortfalls? The answer is: sort of.

Click here to read more at Utah Citizen Network.

To start with a basic explanation of what Social Security is in the first place, and why it was started, go here.

Dwight Howard, the Lakers, the Rockets and state tax policy

Los Angeles Lakers center Dwight Howard (Licensed AP Photo/Mark J. Terrill)

Los Angeles Lakers center Dwight Howard (Licensed AP Photo/Mark J. Terrill)

The Wall Street Journal highlights yet another example of how state policy (in this case, tax policy) has real implications. Los Angeles Laker big man Dwight Howard is the NBA’s most prominent free agent this off season and is being courted by five teams, with most prognosticators narrowing that list down to the Houston Rockets and the Lakers.

While Howard can certainly find pros and cons for joining each team, one significant factor could be each state’s tax policy. Texas has no state income tax; California’s is tops in the country. Also, cost of living is second-lowest in Texas and fourth-highest in California.

How does this all shake out for Howard’s bottom line? Even considering NBA labor agreements which allow the Lakers to offer $117 million over five years but limits the Rockets to $88 million over four years, Howard is better off financially heading to the Lone Star State. A lot better off. Like $8 million better off. From Harry Graver’s Wall Street Journal article:

[A]s Tony Nitti has noted in Forbes, this picture looks a lot different once the tax man cometh: “Howard would pay nearly $12 million in California tax over the four years if he signs with the Lakers, but only $600,000 in state tax should he sign with Houston. This means that a four-year deal with Houston would actually yield an additional $8 million in after-tax income.”

While Utah’s business policies are lacking in some areas (see yesterday’s blog post), Utahns are fortunate to live in a state with overall sane personal and business income tax rates and policies. Now if the Jazz could only find a premiere center looking to leave a high-tax state for a low-tax state….

Take a look at the taxman’s tax map: How does Utah compare?

How do Utah’s income tax rates compare to those in neighboring states, or states in other regions? Is Utah’s sales tax burden higher than other states’? What kind of tax (sales, income, property, etc.) does Utah government rely on the most?

If you don’t know the answers, then keep reading.

The Tax Foundation – a nonpartisan national think tank that publishes information concerning federal, state and local taxes – regularly publishes “tax maps” that compare states across the nation on areas like tax rates, tax burdens, and how heavily states rely on different kinds of taxes.

For the sake of encouraging a more informed public dialogue on taxes in Utah, we collected a variety of these maps to post on our blog. If you want to see the full list of available tax maps from the Tax Foundation, click here. Enjoy!

Tax Burdens – Sales and Income Taxes



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What a liberal ‘economic recovery’ feels like

money_mattersTechnically, the so-called “Great Recession” ended in June 2009. So does it feel like an “economic recovery” to you? Fortunately for many Utahns – in part due to the generally conservative public policies put in place by Utah policymakers – the answer is “yes.”

But if you are one of those who answer “no,” then you’re like the rest of the country.

According to a recent Pew survey, 83 percent of Americans view the national economy as “fair” (43 percent) or “poor” (40 percent). By contrast, only 16 percent describe the economy as “excellent or good.” Additionally, 71 percent say either that “the economy is not recovering yet, but will recover soon” (31 percent) or that “it will be a long time before the economy recovers” (40 percent).

Further, more people say that they expect economic conditions will be worse a year from now (32 percent) than better (25 percent). What’s more, these numbers have declined dramatically since last year (44 percent “better,” 14 percent “worse”), meaning that people have become more pessimistic about the economy the longer the current “recovery” has gone on. Read more

Utah tax revenue leans heavily on income, consumption

According to a new Tax Foundation analysis of Census Bureau data on state and local government tax revenues, state and local governments in Utah rely more on individual and corporate income taxes and sales taxes, and less on property taxes, than the rest of the nation, on average.

According to the report, state and local government tax revenues in 2010 broke down as follows: 35 percent property tax, 34 percent sales tax, 20 percent individual income tax, and 3 percent corporate income tax (other taxes and fees represent the remaining 8 percent). In Utah, on the other hand, the breakdown was 27.6 percent property tax, 37.5 percent sales tax, 25.3 percent individual income tax, and 3 percent corporate income tax (other taxes and fees were 6.6 percent). Presumably, a primary reason why the property tax portion of tax revenues in Utah is lower than rest of the nation is due to the state’s Truth in Taxation law, which requires an advertised public hearing whenever an increase in property tax revenues is proposed.

This seemingly academic question on the structure of tax revenues in a state has real impacts on Utahns’ lives. According to economic research on this issue, different forms of taxes impact economic growth differently, and thus the ability of Utahns to get a good job and earn the income they need to support their families. The results of this research suggest that the tax that harms the economy the most (and thus jobs and incomes) is corporate income taxes, followed by individual income taxes, sales taxes, and property taxes.

There is no single answer to the question of what the best structure/mix of tax revenues is, and there are non-economic factors that should be considered, and perhaps take precedence (e.g., fairness) concerning this policy question. But knowing what Utah’s tax structure is and how that likely is impacting economic growth and prosperity is a critical component to making good tax policy decisions for Utahns.