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Why do we
allow the States
to tax the taxes we pay Uncle Sam?
of the most opaque facets of America's tax system is the covert manner
in which the 50 States tax the federal consumer taxes (i.e., exise taxes)
we pay to the federal government. Yes, that's right. Our taxes are taxed
and nobody seems to notice. We've
been paying State taxes on a large portion of the federal taxes we pay
for so long as that the media industry apparently considers these billions
to be so trivial that its not worth their effort to raise the specter
that there may be something wrong with the States taxing the taxes we
pay to Uncle Sam.
don't realize that tariffs (i.e., taxes on imports) and various excise
taxes are still levied on consumer durable goods if those items are considered
to be unessential "luxuries." Those luxuries might include what
all of us view as essential necessitieslike cars, refrigerators,
air conditioners, ranges, dishwashers, billfolds, purses, belts and, one
of the least luxury items we ownleather shoes. Other "unessential"
things are tires for your unessential car and, if you're a betting person,
the winnings you receive at the race track.
and excise taxes are exempt from "double-dipping" taxation because
Uncle Sam collects them at the same time Uncle Gomer collections his at
State level. When you stop at the neighborhood one-arm bandit (i.e., gas
station), you pay the federal gasoline taxes and the State gasoline taxes
at the same time. However, any federal tariffs assessed on foreign oil
at the refinery are double, or perhaps, triple taxed since the refinery
pays a tariff. The direct import tax on a barrel of crude going to the
refinery is 3%. This is the first tax assessed to the barrel of oil when
it "lands" here.
it simple and say that barrel of oil costs $100.00. The refiner pays $103.00
for the crude. Now there is a VAT (value-added tax). This is the excise
tax assessed on consumer durable goods. (As of last November, the VAT
was 12%. The 12% surcharge isn't assessed to the original price, it is
assessed to the price of the product delivered to the refinery, or in
this case, $103.00. The VAT is $23.60, bringing the cost of that $100
barrel of crude to $123.60. Interestingly, Uncle Sam just taxed their
own $3.00 direct import tax with an additional 36¢ tax. That is a
federal tax on a tax. Usually the tax-on-tax is a State tax on a federal
tax. But Uncle Sam is an "equal opportunity" tax agency. The
federal government will tax their taxes whenever they can.
imagine for a moment that oil stays over $120 barrel, or goes even higher
(a reality). And, then let's imagine that Sen. Hillary Clinton
[D-NY] somehow manages to eke out a primary victory over Sen. Barack
Obama [D-IL] (not likely), and then let's assume she manages to win
in November even
though she cannot constitutionally seek the office of President (less
likely than Obama winning). Then suppose she imposes a punitive
windfall profits tax on the oil industry (an absolute certainty). What
happens? Who pays the tax?
it. The consumer does. Every tax levied against any corporation in
the United States is rolled into its cost-of-doing-business, increasing
the wholesale price of the product and passed directly onto the consumer.
Since windfall profits taxes are assessed to the oil companies before
the refined gasoline ends up in the pumps, the States have an opportunity
to tax the federal tariffs and excise taxes. (Gasoline is one of only
a few products exempt from the State's ability to tax a federal tax since
each tax is computed into the retail price at the pump.) But, there are
tons of other opportunities for government to double dip since tariffs
and excise taxes are generally buried into the price of the consumer product
to keep the consumer from finding a way to avoid paying it. The best example
of this is cigarettes and other tobacco products.
talk about the Bill Clinton-engineered settlement against the tobacco
industry. On June 20, 1997 the tobacco industry agreed to settle all of
the lawsuits against the industry for $368.5 billion. The proceeds were
to be paid to the State treasuries over 25 years. What most Americans
didn't know was the tobacco industry was allowed to pass 100% of the judgment
directly to the consumers who could still afford to smoke or who were
so addicted to cigarettes that they couldn't stop. Although the settlement
made it clear that no government official was a party to the settlement,
three Senators attempted to create legislation to make the settlement
GOP presidential nominee Sen. John McCain proffered S.1415 to track
the settlement agreement and make sure the industry paid the assessment.
Senators Orrin Hatch and Edward Kennedy offered S.1530 and
S.1492, respectively, to create a compensation package for the "victims"
of cigarettes. The average tax on a pack of domestic cigarettes on Nov.
1, 1996 was $1.96. The average cost of a pack of domestic cigarettes on
May 14, 2008 was $4.18. New Yorkers pay $5.82 per pack of which $2.11
are taxes. Arizona smokers pay $5.62 a pack, with $2.69 of that price
in taxes. Alaska smokers pay the most. They pay $6.17 a pack; $2.39 of
the price is to pay the taxes. The cigarette industry's "factory
price" (less taxes) for a pack of cigarette is $2.28.
tax on a pack of cigarettes is 39¢. The distributor and retail markups
range from 42¢ (Indiana) to $1.50 per pack (Alaska). Washington State
tacks on the stiffest tax package at $2.78 per pack. In terms of carton
prices, $27.80 of the price of a carton of cigarettes in Seattle are taxes.
The Washington State sales tax is 6.5¢. In that State, communities
may tax consumer products as well, with local taxes ranging from 0.5¢
to 2.4¢ per dollar purchased. In a worst tax scenario, a Washington
State consumer buying a carton of cigarettes will pay an additional tax
of $2.47 on the $27.80 in taxes. More taxes on taxes.
unlike producer durables, are construed to be products that are not used
to create other products since they are purchased by individuals for personal
use. For example, while industrial use computers are construed to be producer
durables, computers that target consumer: Compaq, Gateway or Acer, and
the low priced "consumer use" Dell, or the serious computer
geek, the Apple iMac are considered to be consumer durables. Buried in
the wholesale price of these consumer products is an excise tax. When
you go to Circuit
City, Radio Shack, Computer City or Walmart and buy one, you are paying
a State sales tax on the federal excise tax. Taxing taxes.
Prior to 2003
excise taxes were found on passenger cars ("gas guzzlers" are
still taxed), boats, furs, jewelry and private use airplanes. "Nonessentials"
such as certain vaccines, sporting goods and fishing equipment, all forms
of fuel, telecommunications equipment and telephonic services, tickets
for ocean cruises and international air travel (this is an excise tax
created by Bill Clinton to be paid to the United Nations). There are even
excise taxes on black lung benefits and some pension plans and Individual
Retirement Accounts. If you purchase life insurance from an insurer outside
the United States, the benefits received by the US recipient will be affected
by an excise tax. (Insurance benefits from domestic insurance companies
are tax free.)
are aware of the excise taxes on cigarettes and other tobacco products,
distilled liquor, wine and beer, guns and ammunition. And, they understand
about tariffs on foreign goods. Or, at least, they think they do. Tariffs
are the least understood taxes in the world. While sometimes a considerable
part of the price of the consumer product, tariffs are never seen on the
sales receipt with the sales tax. If you asked, most consumers would likely
be inclined to assure you that tariffs ceased to exist when NAFTA was
enacted by Congress and signed into law by Bill Clinton. They are convinced
of this because NAFTA created the swinging door that allows cheap American-branded
goods, made in Mexico or Canada, back into the United States tariff-free.
Of course, they know that Chinese goods, Indonesian goods, Pakistani goods
and US branded goods made elsewhere in the world are funneled into the
United States through Mexico to avoid costly tariffs that will make these
goods less desirable to American consumers.
excise taxes have always been promoted by government officials as a tax
on the rich. That's why they were called luxury taxes. And, until the
1960s, they were added point-of-sale. But when consumers began to see
the cost of a new gas or electric rangeor a new pair of leather
shoesincreased by 10%, they stopped buying those consumer products.
When the merchant princes demanded the revocation of all excise taxes,
Uncle Sam made the tax invisible by adding it to the wholesale price of
the product and providing the States an infinitesimal profit by allowing
them to tax those tax. To the taxmasters, it was one of those win-win
situations. Only the consumer lost because, contrary to the expectations
of the Constitution, they were no longer allowed to see the tax they were
obligated to pay.
In their website, the State
of Ohio notes that "The Federal government and the State of Ohio
impose excise taxes which, depending on their nature, may or may not be
included in the total amount (price) subject to Ohio sales or use tax.
The revision of this release eliminates reference to the federal luxury
tax, which ended January 1, 2003." (Revision to Ohio tax code,
the item sold is subject to Ohio sales or use tax, the amount attributed
to an excise tax imposed on the manufacturer, distributor, wholesaler,
or retailer (someone other than the final consumer) by the federal government
or the State of Ohio is part of the "price" used for calculating
sales or use tax. This applies even if the tax is separately stated on
the invoice. For example, the State of Ohio imposed an excise tax on cigarettes.
This tax is required to be paid by the wholesaler before the cigarettes
can be sold to retailers. Each pack of cigarettes upon which the tax has
been paid by the wholesaler is marked with a tax stamp. Because this tax
is imposed on the wholesaler and not directly on the consumer, it becomes
part of the "price" for calculating sales and use tax."
Excise taxes, like tariffs,
are indirect taxes. When our nation was formed these were the only types
of taxes that could be levied. Since excise taxes were "add-on"
taxes, you could avoid taxation simply by not purchasing the items that
carried excise taxes. For that reason, taxation in colonial America was
theoretically voluntary. However, since many of the items taxed were essential
for the colonial family to live, they really weren't "voluntary"
because not having the products you needed to survive was the price for
avoiding the tax. However, when the tax or tariff becomes invisible, it
is no longer a voluntary tax. It's mandatory.
When taxes are concealed
in the wholesale cost of the goods sold, and sales or use taxes are assessed
to the services or goods, people are doubled taxed, and pay taxes on taxes
on the same item. Samuel Adams, one of the more radical Founding
Fathers, described excise taxes as a ploy of government to levy unnecessary
taxes on the people. Excise taxes, if properly assessed on truly nonessential
items, would become a tax on discretionary spending. It would also truly
become a tax on those who could afford to pay it, and not on the poverty
class that buys only those things essential to live. Nonessential items
might be things like golf clubs, boats, hunting or other sports equipment,
computers, TVs, stereo equipment, Jacuzzis, Jenn-Air ranges, induction
cooktops (rather than traditional gas or electric cooktops) or any other
nonessential item that people can comfortably live without. Excises taxes
should be removed from all essential goods, leather shoes leading the
list. Baggy hip-hop pants that guarantee the crack in your butt, or your
dirty underwear, shows should carry a punitive excise tax. Not only are
they not essential, they are in bad taste.
Even more, States or national
governments should not be allowed to covertly levy and hide ideological
excise taxes ostensibly designed to fight pollution that are, in reality,
global taxes levied nationally, but used to fund the phony, philosophical
on global warming" (since global
warming and cooling are cyclic events caused entirely by solar storm cycles);
nor should they be allowed to assess carbon taxes on gasoline or fossil
fuel electric generating plants, and bury those taxes in the wholesale
or retail price of related products and/or services and then let the States
tax those taxes which have been disguised to look like the goods or services
the consumer is buying.
The far left in Canada,
led by Liberal leader Stephane Dion, is fighting to implement what
Dion calls a "revenue-neutral" carbon excise tax that
theoretically will help eliminate carbon dioxide. The carbon excise tax
would be levied on gasoline consumption and also on the electric bills
of Canadian consumers to fight global warming by cutting carbon dioxide
emissions. Revenue neutral carbon taxeswhich will be offered by
the industrial governments as a means of stopping the jobs transfer of
their industries to third world countries where carbon dioxide pollution,
strangely, does not appear to pollutewill allow those nations to
buy carbon credits from the third world rather than lowering carbon dioxide
emissions by curbing manufacturing. What the carbon tax really amounts
to is a global tax on the working class of the industrialized nationsparticularly
the working class of the United States that the world believes is too
affluentunder the guise of "buying" unused carbon credits
from the underdeveloped countries. It is merely a UN tax to generate funds
for the UN's societal programs in the third world.
Ben Franklin told us that
"...[i]n this world nothing is certain but death and taxes."
He was right. But what he failed to tell us the myriad ways governments
find to tax us to death, and how easy it is for any bureaucracy to find
new ways to take our money. But absolutely nothing is more devious that
the ploy of burying taxes and making them appear as part of the price
of the consumer goods and services we buy, and then taxing those taxes
with a sales or use tax.