Taxes? We Don’t Need No Stinkin’ Taxes!

David Williams

January 11, 2012

Montgomery County, Maryland ushered in its new 5 cent bag tax on January 1, 2012.  The goal is to change consumer behavior and raise money for the county.  Montgomery County follows the neighboring District of Columbia who instituted a bag tax in 2010 in trying to squeeze more money out of an already tax-weary public.  D.C.’s experience has been a complete failure.  According to a report by Americans for Tax Reform and the Beacon Hill Institute, “the bag tax will result in the elimination of more than 100 local jobs and precipitate a $5.64 million decline in aggregate disposable income for 2011. The majority of this income would have been spent in the District and, as a result of the bag tax, D.C. will now needlessly forgo an additional $108,340 in sales tax revenue and will see investment drop by $602,000, with the bulk of the loss occurring in the retail sector.”  The obvious scenario is that people will shift their purchasing behavior to patronize stores that are outside the geographical area of the tax.

The bag tax should come as no surprise to folks around the country who have been bombarded with all types of taxes to justify the expansion of government.  Taxes are also a way to avoid cutting spending to balance state and local budgets.  Besides the growing popularity of bag taxes, federal, state, and local governments are obsessed with usage and consumption taxes on telecommunications, tobacco, and alcohol (check out the Tax Foundation’s list of state sales, gasoline, cigarette, and alcohol taxes here)

Wireless taxes are a result of the success of the private sector and its ability to create new products that appeal to more and more people.  Elected and non-elected officials look at increased wireless usage as the goose that laid the golden egg to balance their budgets without any fiscal discipline.  According to, tax rates in the 50 states range from a high of 18.64 percent in Nebraska to a low of 1.81 percent in Oregon (the U.S. weighted average is 11.21 percent).  These taxes do nothing to enhance wireless usage; they are only used to fund bloated bureaucracies.  The Federal Communications Commission (FCC) has been critical of some states and how they have handled the 9-1-1 tax (read previous blog posting here).

The Federal Communications Commission (FCC) created the Universal Service Fund (USF) in 1996 to “promote the availability of quality services at just, reasonable and affordable rates for all consumers; increase nationwide access to advanced telecommunications services; advance the availability of such services to all consumers, including those in low income, rural, insular and high cost areas at rates that are reasonably comparable to those charged in urban areas;  increase access to telecommunications and advanced services in schools, libraries and rural health care facilities; and provide equitable and non-discriminatory contributions from all providers of telecommunications services to the fund supporting universal service programs.”  In essence, USF was designed to provide subsidies to build the infrastructure and provide telephone service to high cost areas.  Over the years the USF has taxed cell and land line phone service to provide these services.  The cost of the USF has doubled from $4 billion to $8 billion over the last decade, and is set to double again in the coming years if nothing is done to cap or reduce the fund. This year, universal service “fees” hit a new high – a full 15.5% of consumers’ long-distance charges.

Tobacco taxes are immensely popular because they can be justified as an attempt to modify behavior when in reality it only serves to fill state and federal coffers while disproportionately hurting the lower and middle class.  In a strange twist of ridiculousness, there was a push in 2007 to raise tobacco taxes to fund children’s healthcare.  In effect, the government wanted more people to smoke in order to raise more money for healthcare.  Now, globally, the World Health Organization (WHO) is proposing a universal tax on tobacco to fund healthcare around the world.  WHO is pushing this idea despite the potential economic impacts of such a move.  An official WHO document states that, “Do not allow concerns about employment impact to prevent tobacco tax increases” and “Do not allow concerns about the inflationary impact of higher tobacco taxes to deter tax increases.”  Translation:  raise tobacco taxes even if it means killing any sort of global recovery.

Alcohol taxes have long been a target for states.  According to a January 9, 2012 article in the Washington Post, “Last year, [Maryland] lawmakers approved $250 million for school construction during the current fiscal year under the state’s capital program. An additional $47.5 million was earmarked from an increase in the state’s sales tax on alcohol.”  Maryland’s new motto might be, “Drink More Booze for the Kids.”

These taxes didn’t just appear overnight.  There was a deliberate process by elected and non-elected officials to pass these taxes one by one.  After one state successfully passes a tax increase, other states take notice and try the same thing.  The lesson here is that one state’s tax increase can easily become another states tax increase and that states should work together to stop any tax increases.  Federal, state, and local government budgets should be balanced by cutting spending and increasing the tax base by cutting taxes rather than raising taxes.

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