Senator Chuck Schumer (D-NY) has proposed a federal excise tax on customer service operations that use non-U.S. call centers. The AP article describes how it would work:

The [tax] would be 25 cents for calls transferred to foreign countries. There would be no [tax] for a domestic call center. Companies would have to report quarterly their total customer service calls received and the number relayed overseas.

“If we want to put a stop to the outsourcing of American jobs, then we need to provide incentives for American companies to keep American jobs here,” Schumer said last week. The New York Democrat said the excise tax would “also provide a reason for companies that have already outsourced jobs to bring them back.”

In a survey of American economists in 2006, Robert Whaples found nearly 90 percent agreed the U.S. should eliminate remaining protectionist tariffs and trade barriers, like the new one Schumer is proposing, that there are lower costs and a net gain from free trade. Most also agreed the U.S. should not restrict American employers from outsourcing work to foreign countries.[…]

The measure would also require telling U.S. customers that the call is being transferred and to which country.

Excise taxes are sometimes imposed on “bad” behaviors that politicians want to discourage, but there can be differences of opinion on what’s good and bad.

(Hat tip: Hit & Run)

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Martin A. Sullivan writes in Tax Analysts (subs. required):

Though many have tried, nobody can defy the iron law of budget gravity. It states:

Deficits = Spending - Taxes

When Paul, Hayworth, Rubio, and Angle proclaim that they want to balance the budget and reduce taxes, they are implying gargantuan reductions in federal expenditures. As explained previously, just to achieve President Obama’s goal of reducing the deficit to 3 percent of GDP will require spending cuts and tax increases inconceivable in today’s political climate. In the tea party fantasy world, we are talking about spending cuts equal to at least 6 percent of GDP. That’s about $900 billion in today’s terms. To get there you would, for starters, have to take drastic measures like eliminating all Social Security benefits. Or how about zeroing out the defense budget?

…Tea party activists are right that it is time for ground-shaking change throughout our government….Taking a hard line on tax increases will no doubt help control the size of government. But it does not follow that it will help address the larger problem of controlling the federal deficit.

He speaks some truth.  Without decreasing spending, cutting taxes is inimical to reducing the budget deficit.  And while there is reason to fear both high taxes and large deficits, one can’t coherently rail against both without giving spending the same treatment.  Sure you might see anti-spending posters at tea party rallies, but it is unlikely that many of those protesters could stomach the drastic cuts it would take to actually balance the budget.  And starving the beast doesn’t work when the beast can print or borrow its own food.  We saw during the Bush years that cutting taxes did nothing to stop a lot of spending for a couple of wars and the expansion of Medicare.

It is appropriate for the deficit to be included into one measure of the size of government.  So wanting to cut taxes (or not raise them) without biting the bullet on war spending or education spending or entitlement spending doesn’t shrink government—it ignores its true size.  For those in favor of smaller government, maybe focusing on cutting spending instead of cutting taxes would better serve their cause.

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Back in March, we noted that the District of Columbia faced lower cigarette tax revenues than expected after its recent its recent cigarette tax rate increase from $2 per pack to $2.50 per pack. That downward trend has continued:

Cigarette tax collections continue their stunning collapse in FY 2010, down 23.6 percent between October and April compared to the same period a year earlier. The $15.9 million in tobacco tax collections through April are off $4.9 million despite a region highest $2.50 per pack tobacco tax. The tax rate, 50 cents higher than it was in 2009, took effect Oct. 1.[…]

[W]hen the council agreed to hike the cigarette tax last summer, [it projected] a $9.7 million bump in tobacco revenues. [Instead], it created a $15 million-plus hole in the budget.

D.C. Chief Financial Officer Natwar Gandhi admits that smokers probably went elsewhere for cigarette purchases. (Maryland’s tax is $2 per pack; Virginia’s is 30 cents per pack.

More on cigarette taxes here.

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In this week’s Tax Policy Podcast, Josh Barro, the Walter B. Wriston Fellow at the Manhattan Institute for Policy Research, discusses his recent report examining the effect of Massachusetts’ Proposition 2.5, a property tax cap, on the quality of state education. Barro suggests that Massachusetts’ success at limiting property tax growth without necessitating other tax increases or sacrificing educational performance could serve as a good example for New Jersey, which is considering a similar property tax limit, “Cap 2.5.”

When Proposition 2.5 was enacted in 1980, Massachusetts had the second highest property taxes in the country and second highest state and local tax burden in the country. Since then, real-dollar property tax growth from 1980 to 2007 in Massachusetts was just 22 percent, compared to 68 percent nationwide and 102 percent in New Jersey. Despite decreased property tax collections and decreased education spending in Massachusetts, however, Massachusetts public school students outperformed New Jersey in both reading and math in grades four and eight as measured by the National Assessment of Educational Progress exams administered by the U.S. Department of Education - across a number of demographic groups.

Read the full paper: Manhattan Institute Civic Report No. 62, “Do Property-Tax Caps Work? Lessons for New Jersey from Massachusetts.”

Listen to the full podcast here, or check out all of the Tax Foundation’s Tax Policy Podcasts.

More on Massachusetts and New Jersey.

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