The Tax Foundation With Jared Walczak
Hosts & Guests
Jared Walczak, from Tax Foundation
The Tax Foundation with Jared Walczak
Meredith [00:00:02] Welcome to SALTovation, this alteration show is a podcast series featuring the leading voices, Insult, where we talk about the issues and strategies to help you make sense of state and local tax. Hello, everyone, and welcome to another episode of the television podcast. Today, we are joined by Jared Walzak, vice president of state projects at the Tax Foundation. Tax Foundation is the nation's leading independent tax policy. Five agencies, three nonprofit. It's nonpartisan. Trust analysis of tax policies from federal, state and local to global policy is a key resource for understanding what is happening with tax. Jared, thank you so much for being with us here today.
Jared [00:00:41] Well, thank you for having me. It's great to be with you.
Meredith [00:00:43] And of course, SALTovations. Judy Vorndran. Hello. Hello. All right, Jared, as we were putting together all of what we wanted to talk to you about, the questions and topics kept coming, as you can see kind of in our shout out to you. So we're going to dove right in, but we definitely won't be able to get to everything. But first, how did you make your way to the Tax Foundation?
Jared [00:01:05] Some people come to think tanks from other policy organizations for or for academia. I took a different route. I landed here after a number of years working in a state legislature. I met some people, some Future Tax Foundation colleagues at a legislative conference and they reached out for the easiest job application, job interview anywhere that I've ever had. They just asked me if I wanted a job. It was great. I wish all job searches were that easy, but I love the path that I had because, well, it's different than some people. It served me well. It gives me an appreciation of how legislators approach issues and consume information. I've had a seat at the table in legislative negotiations. So now when I'm looking in on that, on the other side, I think I have an appreciation for how that works that not everyone in the policy community has,
Judy [00:01:45] and that you think, why is that? They asked you to join. They must have sensed that about you.
Jared [00:01:50] I'd like to think that.
Judy [00:01:51] Yeah, you don't just get an interview and a job offer that quickly without having some skills. I'm just saying.
Meredith [00:02:00] Well, so then, though, how did you? So it's like backtracking state tax on a state legislature. How did you get to that state, the legislature in the first place?
Jared [00:02:08] That was my first job out of college. I always knew that I wanted to work in policy and somewhere in the intersection of politics. And I had much more of a role to state than to federal policy, because you can immediately have an impact if you work at the right place in state legislative functions and you really have an impact on legislation that it can take some time on the Hill to get to.
Judy [00:02:30] How did you know that as a young college grad?
Jared [00:02:32] I mean, I've always been a political junkie, for better or worse. I certainly had an appreciation for state legislatures for many years.
Judy [00:02:38] And so my son is like that. He's thirty three. And he wanted to be a politician. He wanted to be the president. He was very politically oriented. So I remember thinking, what is wrong with you? I mean, I don't mean wrong with you. I mean, what do I think
Jared [00:02:53] about him a couple of times?
Judy [00:02:54] I mean, he would read I called him Alex Speccy when he was growing up. I mean, he won a suit when he turned thirteen. I'm like a date. I said, Alex happens.
Meredith [00:03:08] So then what have you been focusing on as part of the [00:03:14]Tax Foundation? [0.3s] You know, obviously you're away from federal focus like you're in the state niche. But obviously there's state is huge, right? There's at least 50 of them plus D.C. So what do you focus a lot of your efforts and your energy on?
Jared [00:03:29] We are a team in many respects of generalists. We work on a wide range of issues on state and local taxation. So there's not one single focus, but some areas that are clearly coming into focus over the last year and into the next year. [00:03:43]We're spending a lot of time helping states understand the taxation of remote work and how they can have a more taxpayer and remote, work friendly regime. We've worked on a lot of conformity issues lately because we've seen some see changes in taxation the way their decision, the Carers Act, all of these have significant implications for state tax and the latter to the federal ones. Federal lawmakers weren't really thinking through those implications a great deal for the states. So we spent a lot of time working with policymakers on that. In addition to all of the normal work we do, we have a lot of publications. I'm sure we'll get into some of those a lot of research we do that helps guide policymakers. You know, we're always writing on a wide range of issues, whether it's digital, digital advertising, taxes or stock transfer taxes or the old standbys, what it means to change your income tax rates or what some of the economic effects of some of the policies that are always on the table can be. [57.5s]
Meredith [00:04:40] So how big would you say is like the kind of state tax team within the foundation just to kind of give a high level overview of like there's so much stuff that you can talk about. So how many people are like really running the ship and making sure we all know what we're doing as consumers of the data and the access and the information that you all put out?
Jared [00:05:02] We are a small team. I'd like to think we punch way above our weight hiring right now to fill an open position that will be number five for our team. We also bring in some research. Assistance system, some interns and assistance, but we are basically a team of five people and we've been very effective at that. But of course, we're always looking to grow. So I think we have a lot of opportunities in the state tax base. As you say, there are a great many issues that we can be engaging in. And we spent a lot of time in the States, at least in normal years, going and testifying and having meetings and working directly with lawmakers. And this all takes time in addition to resources. So we would love to be a much larger team, but we're very happy with what we've been able to accomplish as a team.
Judy [00:05:44] Many also say the bigger the team, the more I mean the disjointed. You can be very tight. I have a smaller team and we're tight and we can collaborate and we're sharing information and we can disseminate best practices to one another and rally around our strengths. So I'm not sure sometimes bigger isn't better. If you're going to be tactical and smart about how you approach, you can be just as efficient in my mind until you're just not. But also there's passion around it. Like you clearly have passion for the area. So you're motivated. It's not a job if it's passion for you.
Jared [00:06:17] Yeah. We have a team where we really like each other. We like working together. We love what we do. We love the relationships we have with lawmakers and with policy organizations across the country. And you're absolutely right that you can get big and institutional and not have that. But on the other hand, I think I did twenty four presentations to groups in November and December alone. I would love to have a few more people.
Meredith [00:06:41] Yeah, yeah, yeah. We kind of say the same thing. We're small but we're mighty between all of us. We've got from a SALTovation perspective, we've got over one hundred years of experience between the five of us, five and a half of us. So yeah, bigger isn't always better. So then kind of going back to what you had mentioned about pushing out research studies and whatnot. [00:07:05]So the foundation does publish each year a number of studies and indices, including the state business tax climate index and taxes and growth model in general. What is the fund like? Where does the foundation gather the data for analysis and how is the foundation structure to cover all those fifty states? [18.2s]
Jared [00:07:24] It is time consuming work, I have to tell you. I mean, the index is essentially a structural measure. [00:07:30]We're looking at not the how much but the how of state taxes and revenue. [4.4s] So we are spending a lot of time looking through the statutes. There are now one hundred twenty five variables, I believe, in the index and we have to look at the statutory provisions surrounding those in each state, every single year as we update the index. So it's very research intensive, but it's a valuable process because it provides that comparison of how well states are structuring their codes for simplicity and growth and neutrality and all the things that I think most of us care about. And it becomes a great resource not just for the rankings, which do get a lot of attention. The media likes to say, hey, our state ranks here, and I think policymakers sometimes grab on to that. But all of those variables are in tables. [00:08:13]We have appendices where a lawmaker who actually wants to improve the tax code can say, OK, on this provision, here's how we do it. And oh, look. Forty two other states do it differently, better. Maybe we could do something with that. And we see it as a diagnostic tool. It is worth the effort because it's been a very effective diagnostic tool to help policymakers evaluate where their tax codes are and then the taxes and growth model that is run out of our federal team. [24.6s] There's actually a dedicated modeling team over there. [00:08:41]This is an economic model that is able to look at basically the economic impact of the GDP impact, the jobs impact, distributional effects of any major tax change that you want to model. [14.0s] So we've done that with, say, the two hundred twenty sixteen candidates' plans. We've done it with President elect Biden's plan, done it with all kinds of different policy proposals out there. In fact, we're putting out a new edition of what we call our options book, where we look at about 80 different tax proposals that have been discussed on the Hill and we show what they would do for jobs, investment, GDP and distributions.
Judy [00:09:18] How do you consume that data? I mean, even reviewing tax law changes without track changes their words. How do you know the words changed? How do you guys know that?
Jared [00:09:27] A lot of research and a lot of time. I mean, I don't know what to tell you other than I really
Judy [00:09:33] anybody what it was. And here's track changes. And like, that's how hard it is to see law change. You have to look through all the history angles and say this tiny word, change instead of a and and and now I'm like, whoa, that totally changes the character of the language.
Jared [00:09:49] Maybe this is where a legislative background comes in handy. I used to draft legislation. I used to review it. I spent a lot of time in it. So for the index in particular, it comes down to getting my money's worth out of our Westlaw subscription and drinking way too much soda at night, late at night.
Judy [00:10:04] Interesting, because I was just even for me, I'll look at regulatory changes and then I like what we're changed. So without track changes, I'm like, what? So then I go. Screw it, I don't care, I'm going to look at what it says now and then go. This is what I think it's going to do when I provide testimony. So, wow. I mean, that's a mentality to be doing that I, I find that very challenging as a practitioner to manage the intent and what the language says. Because what I think happens to my mind when I am asked to speak to the legislators, I say, yeah, those words are going to get what you thought. You're going to get this because people don't get this stuff. Even people like I'm a lawyer, I read law, I get it. But people are lay people. They don't get the law. Just tell me the practical effect of what this rule says. Yeah, interesting. I just wondered how you guys consume so much and you got it out so fast.
Jared [00:10:56] Well, we do have to be quick on the draw on some of this. Actually, I was testifying in Wyoming in late twenty nineteen and I was testifying on a corporate income tax bill. They don't have a corporate income tax currently. And there was a substitute completely changing the entire bill drafted right before the committee hearing. It was not provided to anyone. I got there. I was ready for my hour of testimony based on the existing language, which was one source of change. And they said, we've got a new one and we don't have a copy for you yet. So the chair and members were reading out sections to it. And I ended up being like two and a half hours on the stand saying, well, the way that's written, I don't think it's going to interact properly with this provision in your existing code or I think your sourcing rules are a little different than how most states do. So we sometimes have to do these things on the fly, but we've gotten pretty good at it.
Judy [00:11:42] Oh, my goodness. That is brain power. A.I. doesn't replace that, does it? Wow. OK, I just found this really interesting, Jared. I did not realize how talented all you guys are, how much more talented than I thought you were going.
Meredith [00:11:58] What's interesting about that too is when you look at the legislation and the people who are elected officials writing these policies, they are not accounting people. They are not tax people. So they don't understand a person. I'm not talking crap about our legislators, but it's just there. That's not their area of expertise. [00:12:16]But they're the ones that are assigned to put all of these things that all the taxpayers and constituents have to follow. And so I would imagine then that's where you all come in and governments rely heavily on you all. Who are the tax experts and who understand the nits. [15.9s] And that's what all those words mean, because in theory, yes, this is a great thing. Let's lower taxes, but let's have more money. But it doesn't work that way. So [00:12:47]you're there to kind of be that extra check, [2.3s] it appears.
Judy [00:12:50] Well, it just feels like political points get pushed out. And then they don't realize, like our president tweets, that a tweet, a law change. And then how do you make that actually happen? I think people who don't understand the legislative process think it could just be done. That's not how it works. A tweet doesn't become a law. And so I think there's a disparity between the public perception of the judicial process, the legislative process that is really wildly missing unless you're sort of involved in it. And it's sort of a failing of our system of media to get that out to people properly because the Tax Cuts and Jobs Act, the whole state tax deduction, I mean, that was crushing to people. Ten thousand dollar limit. What kind of baloney is that when you have a nine percent tax rate and many states, that's crazy to take away the entitlement that you are used to because you live in a high tax state. Yeah, I don't think people realize what an impact that had on them personally.
Jared [00:13:49] Certainly a big tax change. We talked a lot about that and what the implications were on both sides of that. But I think that we're unique as an organization. The list of national policy organizations and just about any policy area that has a dedicated state policy seems pretty short. But I love it because speaking to the point that you raised state [00:14:08]lawmakers, they're smart people, but they can't all be experts on every issue. In many cases, they're part time. They honestly usually do not have significant full time staff. [8.3s] What they do is like a legislative assistant up in one. It is not a huge policy research team that they have access to. [00:14:24]So there's this enormous need for serious but also digestible research and analysis. And I think this is a huge difference and we can provide that. We can provide the 50 state overview, we can provide the research and the best practices. We can come and deliver testimony or participate in meetings and have those conversations. And you can really have a huge impact, I think even more than you can on the Hill or federal team does amazing work influencing policy discussions at the federal level. [26.8s] But so many state legislators are really in desperate need of the sort of information that we can.
Judy [00:14:57] Yes, no. And it's been interesting that our task force, which is that we met, brought you in and I thought they knew to call the Tax Foundation. How do they know that? So because I didn't tell them to call you, I'll be honest. It was like we're having the Tax Foundation come speak. And I thought, that's exciting that you got. A resource that I consume is being consumed by a legislative group, and I was very excited to see you come in and give deference and information to them that really opened their minds. And it's but we have I mean, I've been on this task force for four years, and it's taken four years to make a very meaningful change. And we're here on the cusp of it. But it took a long time for people to understand. And now we have a whole new set of legislators on the task force, Great, who have no idea what happened. So we're having to educate them. So we start all over with a fresh set. So interesting.
Meredith [00:15:45] Well, Judy, did you want to give just like a tiny thirty thousand foot overview when you reference the task, the task force, you're referencing Colorado and then where Jared came in to to kind of testify for any people who may not have shown up to date on our podcast.
Judy [00:16:01] I know. Sorry, Governor Argott. [00:16:03]We had a group of people that came together as a grassroots effort. Many small and medium and large businesses came together to say, we just have a problem with our system in Colorado. [7.7s] We have seventy one home rolls. We have one state, we have disparate licensing, different sales tax requirements, taxability decisions. It's just all over the map and people don't even understand how to live here. So certainly people who don't live here selling to our citizens don't understand. [00:16:25]So everybody came together. It was a public private effort and there was a task force appointed by our governor, represented by the cities, the counties, the state, the CPA community, the legal community and the legislative community. And it was a bipartisan Democrat, Republican, both sides of each two for the Senate to form our House. And we all came together to kind of look at our system and see if we could do a better job so that the money gets in the system and it's easier for taxpayers. [26.9s] Bottom line, that was the end goal. And so I've been a part of that process. I've been strumming that drum for twenty six years. I've been doing business and everybody said it couldn't be done. And [00:17:03]we are on the cusp of doing it. [1.5s] Jared, I.B., we are there every day. I think covid didn't hurt. I'm not going to lie. I mean, every city is on board now because guess what? Main Street vendors aren't there anymore. Maybe, I mean a lot of businesses are suffering. Restaurants are providing the revenue, the local sales tax revenue they were bringing in before. We're not getting in and the travel community like we did. So they need the money. And you got to make it better for people to get that money to the government by not having to file seventy two different returns. That's crazy.
Jared [00:17:32] Yeah, especially with remote sellers and the visibility there. And you look five or ten years ago and you've got four states that are huge outliers and I think maybe even some constitutional issues with sales taxes. You've got Arizona, Colorado, Louisiana and Alabama. Yeah, Arizona fixed it. Yeah. Louisiana is getting very, very clean up some issues, but we're working with them. They're getting very close. But Colorado is making amazing progress. We'll still see about Alabama. We'll see about that. But [00:18:02]we are seeing significant progress in uniformity and conformity in the administration, collection of sales taxes. [6.7s] And it's very exciting
Judy [00:18:10] and it's got to make taxpayers happy. I mean, my sense for being a Big four to a regional firm was they just weren't going to do it. I mean, there was an attitude of where we throw our hands up. We can't do it. Big, big for clients. Fortune five hundred, they're complying. So they're taking the burden of most of the compliance in America and the poor small business can't do it, refuses to do it. It's a push pull. And so you're right. And I am certain I remember telling our legislators when I got on, I said, Arizona, everyone's making more money. There's getting more money. How is that not enough? Now, Constitution, nobody can think about money. It's not just about money and legislators' things. But I'm thinking the money's got to drive this because I'm a business woman. So I'm like money drives decisions. But I thought you're going to all have more money, which means we could do a better job for our constituents. Like you said, local politics. State politics. Yeah. Yeah. So your testimony, I mean, costs and you guys like giving us basically an F as a state was sort of like you guys have a problem. We're trying to put it delicately, but you kind of suck
Jared [00:19:14] your words, not mine, but certainly a lot of improvement.
Judy [00:19:17] But you are so political about that Lovegood pretty much saying we suck. All right. Colorado is like the worst day. You know, I just remember you very deferentially making these comments I'm looking at. I'm like, the bottom line is right there. That's a tough one. Like, I don't know if you feel like I want to get people to change. Right. Like, how do you not become an advocate? That's the thing where I struggle. Can you tell I'm not really restrained. I get like, don't you get it changed? But people don't want to do it. They can't do it. They have to move differently. How do you manage that?
Jared [00:19:52] I think we are in a good position in many respects. There are some organizations that are advocacy organizations. They do not do a lot of original research or do a lot of analysis, but they advocate, maybe they even lobby, maybe they even build things into legislators districts. We don't do any of that. On the other side, you have some organizations, the. Amazing research, but it's white papers that often don't see the light of day certainly don't get to lawmakers that are on commissions and committees like the ones you talk about. Yeah, [00:20:20]I think that we have found the right approach where we do education. I don't come in and say that voting for or against the bill is not my responsibility and I can't do that. But what I can do is talk about the importance of different policies. I can talk about issues. So we're an organization where every person on my team is both an analyst and an outreach person. We don't divide those roles. I do research. And then I come into states and I talk about that research with legislators in meetings and testimony and everyone on my team does that. We communicate to the general public through media hits and through outreach. We do it directly. We do the work with legislators, with the business community, with anyone who wants to understand tax policy. And I think it puts us in a very good position that we can work with members on both sides of the aisle because they know we're not going to score them. We're not going to do rankings or mailings. We're not, we don't do the political stuff. We're an honest broker. We obviously think that there are some things that are good tax policy and we're willing to say that. But we are a resource to anyone, wherever they may be, to try to improve tax IQ and to provide the information that policymakers need to work on tax policy issues. [69.5s]
Judy [00:21:31] But, you know, you're right, sometimes your assets I mean, from a personal perspective, like how do you manage that? Like knowing you've done all this research, you know, it's well founded. You know, it's good thinking. It's supported by data. And then you've got someone who says, I don't care, I'm still going to do that. How do you manage that emotional constraint?
Jared [00:21:55] The very first time that I ever testified on behalf of the Tax Foundation, I was thrown into the fire. It was like a month into the job. I agree to testify in a state. And remember, the committee chair was new to this, so I didn't know what this was like. And they said, would an hour be enough? And I was thinking, I would like less. And so I said, yes, an hour would be sufficient and emailed back. We'll make it two hours just to make sure we have enough time. So I got there. I'm testifying. And one of the members who was actually the minority whip, I believe at the time, became majority leader shortly thereafter. But he asked me a question on sales taxes. And we do not believe the business input should be in the sales tax because there's pyramiding that takes place. It's a retail tax at one time. And he knows this about us. He knows our research. He knew we were talking and he said, I know you don't believe business inputs are in the sales tax, but I'm thinking about creating a parallel sales tax. That's just business inputs. Would you help me design that right now, Senator? No, I don't. So we definitely get some things worse. Like, this is clearly a bad idea. Why are you considering this? And we are willing to say that. [00:23:02]But I think we handle it tactfully. We talk about how it may be out of line with the general thinking on tax policy, with how other states handle an issue. We talk about the research on the economic effects or the compliance costs. There are a lot of different competing ideas in tax policy and there are things in tension where there are multiple good and desirable goals that conflict with each other. And people need to decide that balance. [24.4s] And that's why we have elected officials and that's
Judy [00:23:28] why you get therapy and count coaching on how to manage yourself in these meetings. I mean, I you guys got put on the spot and what I've witnessed and some of our legislators are kind of I mean, I thought and really hurtful to these people who are being there voluntarily, maybe not even getting paid to be there. You're just there because that's what you do. But then you kind of get raked over the coals, like how do you get some kind of socialization to say? I needed to say you can act appropriately.
Jared [00:24:00] I honestly don't think of it that way. I mean, a lot of policymakers are very passionate about their positions and their beliefs. And I think passion can be a good thing. [00:24:08]My goal is to be a dispassionate provider of information that hopefully they will evaluate. And I think that for the most part, lawmakers have responded very favorably. [9.1s] That doesn't mean that every one of them at the end of the day is going to agree with us. So that's the nature of things. But I have enjoyed interactions with lawmakers. I have generally found them to be amicable individuals, at least during this. And yeah, you get pointed questions, you get heated debate. But that's part of our system. And at a time right now where some of our system feels like it's falling apart a little, honestly, this is a normal part of it. People are passionate about it. They care about lawmakers getting elected because they want to accomplish something. That's what it's supposed to be. And some of the questions, I maybe wonder where it's coming from, why that's top of mind. But there are a lot of really good ones and there are really probing questions that lawmakers have and they want answers to. And I hope that I can provide good answers to those.
Judy [00:25:02] Yeah, I felt I found that, like, the rules, like, OK, you have to ask the I can't remember who our senator or I think she is a House person. This is how. Terrible, I am. I don't know politics very well, and you have to put your thing on, says Madam Chair, may I ask a question? Right. And then you then get to ask the question, oh, my God, that's so inefficient. And I appreciate that you don't want everybody talking at once. And that's too. But all the extra stuff that goes in front of even saying something is kind of hilarious. May I speak now? Yes. OK, speak. I mean, I guess that's probably a good way to pause, right? I gather your thoughts and then deliver them. But just the order of things is fascinating. I recognize that because they're getting a recording of the conversation and they want to know who's speaking, even though your voice might be transparent and they don't know for sure. We want to know. It's Jarrard speaking
Jared [00:25:55] and legislatures usually operate by Mason's manual. It's kind of a Robert's rule for anchors. And often the other commissioners use at least a modified version of that, too. And yeah, it can be esoteric for some people, but I think it does promote some order in the conversation, in the deliberation. So on the whole, I'm for it and I'm used to it. And what I just have to respond to is every state does some things a little differently. So to the way you're speaking, I often ask what it is like if a lawmaker asked me a question, well, I'm testifying. Do I say, yeah. Senator Jonge, thank you. That's a good question. Or do I say through the chair to Senator, because you hear about those sort of things
Judy [00:26:36] needs to have to go through the chair like, oh my gosh, yeah. Yeah, no, obviously I struggle with that. I don't think I would be good at your job.
Meredith [00:26:48] Do you ever have, like I told you, moments where a state will input something where like we told you not to and then they backtrack, like what I'm thinking of is like Michigan, right? They had the single business tax and then they did the business tax with the gross receipts and then they went back then. Now they're not like a traditional income tax. And that business gross receipts thing lasted like two or three years. You're just like I told you so.
Jared [00:27:12] Yeah. So one example of that in Seattle, we had strongly urged consideration of some of the economic effects of a business head tax. They adopted it. They quickly repealed it. And then a few years later, they came back and adopted something else just about as ridiculous. It is Seattle, after all. But they did roll it back because they realized that the effects were pretty much what we said the effects would be. Often, I think we've been able to get policymakers to consider this before they go the full way. So in Missouri, a couple of years ago, there was a big push by the governor and some legislators to adopt a gross receipts tax in lieu of the corporate income tax. And sure, no one likes corporate income taxes. No one likes paying any taxes. But there is a lot better than a gross receipts tax. And we spend a lot of time trying to get our policy makers out of going down the great route. It's challenging when it's the governor's top issue. And I had some very interesting conversations with his budget office and with his chief of staff and others. But ultimately, we, I think, convinced policymakers that that was the wrong way to go. And instead of doing that, we helped to highlight some other options. And some lawmakers who had wanted to do some other reforms jumped on this. And there's legislators who already have bills ready to go. [00:28:26]And instead of doing a GRT they made significant reforms and rate cuts to the individual and corporate income tax, making them a broader but lower rate and better taxes. So we fixed existing taxes rather than adding a new bad one. [13.7s] And there's a lot of examples like that where hopefully we stepped in before they went that route, but. Right.
Judy [00:28:46] But it's Nevada called, you
Jared [00:28:51] now, Nevada. Obviously, we were very strong. We don't like Rojas's taxes. We think that they are a century out of date, that they're a bad form of taxation that's inequitable and bad for economic growth. Nevada was looking at a two and a half percent gross receipts tax initially. And to put that in context, Ohio doesn't have a corporate income tax. Instead, they have a point to six percent gross receipts tax. Nevada was looking at something almost 10 times what Ohio funds all of its business tax revenue out of. So this was enormous. And we spent a lot of time in the state talking about why this wasn't a great idea of talking about alternatives. Actually, one of the alternatives that we proposed was used to significantly curtail how large the tax is. The base rate of that tax is about maybe one sixteenth of what was initially proposed. So not a victory. I would prefer they didn't have a tax at all. But I think that the research and analysis and testimony that we provided did have an impact on making that a much smaller tax than it could have been otherwise and push them towards some better options for revenue raising. And there's discussion on both sides about people who want to raise the commerce tax, people who want to repeal it, I would hope at least that they don't raise it. But we continue to talk with Nevada about the better ways to buy
Judy [00:30:01] twenty six or twenty four layers of complexity to you. Absolutely. I mean it's like you've got to be kidding me. I mean, Washington, I really feel like Washington's business and occupation tax survives because it's small enough that people just deal with it. That's just not enough to sue over. So we get enough people gonna sue for a thousand dollars of tax or four thousand. It's at some point, like it's just not enough. So I'm mad about it, but I just deal with it. So I throw my hands up.
Jared [00:30:29] Yeah, I think there's a lot of taxes like that where everyone recognizes they're terribly, terribly structured. But if your burden is not that high, you just have to live with you're not going to be the one but Washington. And it can be very high for some businesses. But part of the trade off Washington's constitution, at least implicitly, prohibits income taxes. So in nineteen thirty two, I believe the Supreme Court on the same day said, no, you can't have an income tax based on our Constitution and you can have a gross income tax on businesses. And they actually wrote it's the weirdest opinion. It says basically we're not sure this is constitutional, but there's an emergency. We're in the Great Depression. We're going to allow it for right now. But this probably isn't constitutional and shouldn't last very long. So that was nineteen thirty to forty
Meredith [00:31:16] nine years later. Oh, interesting.
Judy [00:31:19] Well I mean the first sales tax is nineteen twenty two, you know, and people don't even understand that. And we're almost four hundred years from that, you know, like I just think that it has been an interesting experience for me just to see how people don't understand taxes. I mean and I'll tell you kind of what got me to tell you guys however long ago, ten, fifteen years ago, because I did not know you and I work for the big four. I just was a different animal than most of my clients were to say. What should I do there right there everywhere, so but what am I a couple? My clients would say I need to know where to go to do business. I don't want to do business anymore. The taxes are too high. I thought, well, I have no idea what other states are doing. [00:31:58]I found the Tax Foundation's maps and I've been relying on them ever since because it's a way to see that snapshot of America and all the bits and pieces that you guys share. [9.0s] I love your money, but I love the champagne map and the beer taxes map. They are so cute. I mean, they're just such a heartwarming thing and they're fun even though they're relevant to our spending
Jared [00:32:18] [00:32:18]our weekly maps or I think a very popular thing we do every day. We put up a new map. We also have an email newsletter that every Friday gives a digest of all of our research. But we always feature the map as people love the maps and the location decisions. We have a study called Location Matters. We published it only twice, but we're reviving it this year. We published this and this is a multiple firm study. So what that means is we take eight different types of industry and create a model firm and we put that firm in all 50 states and we look at what their tax liability can be in that state. All the incentives that they may or may not be able take advantage of all of the ways that the different taxes, state and local level apply to them so that we can break that down. And what you can do, you can see net neutrality across states, but also within because different firms having different models of business have very different liabilities. And we actually do it twice for each firm. We do it as a mature firm and as a new firm. [53.8s] As new firms often get incentives, firms usually don't get very many. So we can say, hey, your first couple of years, look, you'd be good. But if you're going to be here for 30 years, well, this is what you're paying.
Judy [00:33:23] There's your trap. Yeah, well, I think a lot of people like, oh, I love Texas. There's no individual income tax right there. Property taxes are up the wazoo. They and their sales tax is very comprehensive. I think people just don't even think about that. You know, they don't realize you're actually probably paying more taxes than you would in Colorado or some other states because of what their structure is. But they just don't look at it that way.
Jared [00:33:45] Right. Texas can still be a very good deal for a lot of businesses. You're right. Property taxes are quite high. Sales tax is sort of middle of the pack, but they're certainly not low. But I think a lot of employees and executives like the lack of an individual income tax. Their marginal tax is not well structured, but it's usually not very high for a lot of businesses depending on the model. So it can be a good place for a lot of companies do business, but it's not the automatic choice that like let's go to Texas, more complex than that
Judy [00:34:14] right now and let people look at the income tax. And I feel like it's hard to get income tax changes because everybody feels affected by it. But the sales taxes are incremental or property taxes, they creep up on you and they get, you know, how what Oregon just did there? They have a tax. A cat tax. Yes. Are you kidding me? Right. And so it's like that just creeps up on you. Like they gotcha. Yeah. Because they don't have a sales tax, so they're going to fund it somehow. And actually, there are more sales taxes than we think of in Oregon on certain things. And then I was just in Montana last year. And Montana is not known for having a state level sales tax, but there are local taxes there.
Jared [00:34:54] There are resort taxes. It was like thirty two of them can impose taxes and I thought, well, how is that going to
Judy [00:35:00] deals with Wayfair and Alaskas putting all their count, their hundred something counties or building together to say we want to have local taxes collected for Wayfair like purchase sales. Interesting. So there's definitely more taxes than people think in our nation. Yes. Yeah.
Meredith [00:35:17] Well and that somewhere like Judy, if you think about it like the Denver ballot measure, there's almost always a like in the city and county of Denver, like funding a small sales tax increase for funding of schools or whatever. Let's increase the marijuana tax. Let's do all these things. And they always pass in the city and county of Denver. Yeah, we
Judy [00:35:35] tax
Meredith [00:35:36] ourselves. And I think probably our sales tax rate has grown almost like a point in half over the last three or four years. And then for the first time in a while, the state income tax rate, we voted to reduce it, which is just this weird kind of dichotomy of like those. And it could potentially have to do with the political makeup of what the city and county of Denver is. Right. But like our property taxes and our sales taxes always go up in Denver. But then now for the first time in a while, we've reduced the like the state rate
Judy [00:36:08] so that our rate is so low anyway.
Jared [00:36:11] And there's clearly the distinction, you know, Denver versus the state is the whole. But I think also there are differences in people's approach to taxes based on what they're paying for or at least perceived as paying for. You look like Illinois rejected a higher income tax and graduated income tax, and that's a fairly progressive state. Colorado went for an income tax reduction. Arizona adopted an income tax increase. And honestly, the biggest difference, I think, is that in Arizona, they said this is going for schools. We're going to bring features, we're going to hire more teachers. And there were a lot of people who said, yeah, I'd like to pay teachers more. Yes. And when you're tying a tax increase to something tangible as opposed to just let's raise more money for the government, especially if you might be running a surplus. Yep, it makes a big difference. Also, the types of taxes people actually hate are property taxes. And economists hate this because economists think that real property taxes. I hate that. But people hate them. And part of it is philosophically, I own this. Why am I paying taxes? But the other part of it is the transparency of it. People know what they paid in property tax. If I asked you what you paid in sales tax last year, you'd have no clue. At least if you're like me, you've got no clue. So an incremental change, you don't feel that because it's a couple of pennies every time you buy something. Yeah, but the property tax, you probably know pretty close to what you paid in property taxes. And it's a big hit and transparency is good. We want transparency in taxes. But when this one tax is really transparent and a lot of the others aren't, people hate the transparent tax because they feel that burden,
Judy [00:37:36] but they don't realize how much they pay in sales tax. In fact, my daughter and I went shopping for Christmas. It was very sad. The parking lot was very empty. The mall was marginally full. It was a very interesting life experience given covid. Right. But I thought, well, we spent fifty dollars in sales taxes, about a couple hundred dollars of gifts for people. And I was like, wow, what contributes to the economy? And I because I look at that on my receipts. Right. Look at those taxes. So but you're right, I don't think people pay attention to that. And yeah, that's a fascinating issue. And I am so so they say it's good to have property taxes. My issue is I'm finding a property tax. I just don't want you to up my value. Right. I'll pay for that. I don't think it should be based on some future value when I'm in my home for 20 years, like I'm not paying a million dollars for it when I pay two hundred thousand. That's crazy. That's the stuff I don't like because at some point I'm going to push people out of their homes because they can't take care of themselves.
Jared [00:38:29] And there are states that have tried to avoid that with assessment limitations. California was the first property that.
Judy [00:38:35] But there.
Jared [00:38:35] But there are challenges with this, too, because you've got properties, you've got homes across the street from each other. They are the same home, essentially. But one was purchased 20 years ago, one for this year. And they are paying three times the difference on their property taxes and sometimes decisions. And it may say if it changes, for instance, if the assessment finally changes, if you convert the property or improve it, then you're saying don't add a new room to your house because now your property taxes are going to triple. Don't downsize when you retire, which can create more property stock. Right. So there's actually all these you know, there are good ways, I think, to do property tax limitations. But sometimes lawmakers want to address exactly the point you are addressing, but they create all these perverse incentives and they create problems. Also some serious inequities that people have to think about. So I grew up in Pennsylvania until a couple of years ago. There was a county that hadn't reassessed since the moon landing, which I feel was like a long time ago. But I think Monday was a long time ago. Yes, this is true, especially in this era. So huge disparities. But you also, like Massachusetts, had this issue and there was a court case in some jurisdictions, Pennsylvania. I've had this like in Massachusetts, you had mansions that hadn't been assessed for decades and then you have low income property that have been assessed very recently. And was often not only owned by low income individuals, but often minorities, and you had low income minorities paying less than, frankly, Boston Brahmins and their mansions, and the courts eventually said this is an equal protection issue. I think you're right. So it's a complex issue. And I, I get what you're saying about like you haven't realized the value. Your property is worth more, but you're not necessarily getting anything more. There are good ways to do property tax limitations to try to address this. You can also do some things to make sure that low fixed income individuals don't lose their homes. You've got to be careful in the design because you can have unintended consequences.
Judy [00:40:32] Well, like rent, rent, things in New York, like rent control. I kind of had people just sitting through the same space and just keeping the rent low, which wasn't really affected. But everybody figures out a way to avoid taxes. Speaking of which, [00:40:46]what do you think about our Gallagher decision in Colorado? [1.8s]
Jared [00:40:49] [00:40:49]I think it was the right decision. And I also think it's a bold decision for voters to make because it's one of those rare situations where people are undoing a benefit for their benefit. [11.5s]
Judy [00:41:01] Yes. Yes, absolutely. We got through.
Jared [00:41:05] [00:41:05]But, you know, for those who aren't aware of this, a long time ago, Colorado essentially put some limitations on putting a ratio in place functionally for how much commercial property would contribute in property taxes and how much residential would. And residential property values have risen much more dramatically than commercial. So that ratio is kept mant, meaning more and more extreme differences in assessments. I think that initially commercial property paid like a 30 percent premium and a lot of states have some sort of ratio where that would not be unusual. It was getting up to, what, like a five hundred percent premium and rising. And that's unrealistic. [36.8s]
Judy [00:41:42] So that's where that is, because I don't really focus as much on property taxes. But I do know our property taxes are fairly low. I actually have some rental property that we bought in this area called What's Considered. I think it's called Central Park now, but it was called Stapleton. That's a whole different issue about our plan, I guess, history. That was a condo. Right. And it was more property tax than my primary residence. I say it was a newer development, it was an old airport. They redeveloped it and they can have a higher tax ratio because of the way our laws work.
Jared [00:42:17] And here's something a lot of policymakers don't realize now. Some states account for this and they provide some sort of exclusion for rental properties in a lot of states, rental properties, commercial property was treated that way. And we all know that in practice, most, if not all, of the property tax burden on rental property is borne by the renters themselves. A lot of renters are lower income than homeowners. And yet you have states that think they're doing average people a favor by making commercial property pay twice as much or three times as much. And if the low income renters who bear a lot of that burden, absolutely.
Judy [00:42:49] No, it's a very interesting dichotomy. I remember having a lot of consternation about Gallagher, mostly because it does benefit me as an individual homeowner. And I have this whole issue of paying higher property taxes as I age. I bought my house planning to die in it. So, I mean, maybe not in it, but you know what I'm saying? So I'm like when I retire, I don't want to have this giant property tax bill. So anyway, that's just my own personal reasons. And I invite my assessment every year because I live in a unique property and they can't value it. So I'm always having a fight with our assessors as well.
Meredith [00:43:22] And as we kind of begin to wrap up Jarrard, I want to kind of talk about where we may be going forward. And so just kind of states reeling from covid-19 drain on budgets, they're paying for a lot of stuff. The income's not coming in. How do you see states changing tax policy to kind of fill some of those voids or do you see that or or think that
Jared [00:43:46] There is some good news here? [00:43:48]Revenue losses are real, but they're not as significant as many had feared. And this is for a variety of reasons. One, income taxes usually declined substantially during a recession because the stock markets have the bottom fall out and suddenly capital gains realizations disappear here. I think in the Great Recession, we had a seventy one percent decline in capital gains realizations this year. The stock market's up. It's kind of crazy, but he doesn't have any. Stock markets were rising, so that helped stabilize a lot of income tax collections. Federal programs like Paycheck Protection Program kept people in their job and kept them paying income taxes, things like the enhanced UI payments that the federal government provided for. That's taxable income. And even people who lost their jobs continued, therefore, to have fairly similar taxable income to the states. So whereas a lot of states were thinking that they would be seeing double digit losses this year, a lot of them closed calenergy between twenty with probably just low single digits, which is usually your rainy day fund can cover that. That doesn't mean they're out of the woods. There are issues. April is going to be a tough revenue month. We know there's still a lot to do, but only. A handful of states are finding themselves to be in crisis right now, so there's some good news on that front. [72.1s] Nonetheless, most states have seen a decline and they're going to be looking for a number of things. They're hoping in some cases for more federal aid, [00:45:07]but they're also looking at a variety of different tax options. Sometimes that's raising excise taxes a little. Sometimes that's maybe curtailing some business incentives, which could be a good thing. Sometimes its rate changes. What I worry about right now is we're seeing some really creative tax ideas in my line of work. Creativity is usually not something we want to encourage. So we're seeing things that are, I think, economically and legally dubious, like wealth taxes or mark-to-market treatment of capital gains, incomes, taxes on data, digital advertising, financial transaction taxes, curtailing net operating losses, lots of things that are, I think, pretty damaging economically and are going to be unhelpful for states in the long term recovery. [41.5s] There are revenue options. You can modernize your sales tax base. You can look at those incentives. You can make sure your dedicated taxes, like a gas tax, are raising enough money to avoid the need to transfer money out of the general fund. [00:46:00]But I'm telling you, don't rush into decisions that are going to reinforce the trends you're trying to combat. [4.8s] You look, for instance, at a state like New York or California right now, they actually haven't seen that significant of revenue declines, but they're still very, very concerned. They're concerned mainly because they're projecting significant future losses, because they fear some of the people who have temporarily relocated are not coming back, particularly with the rise of remote work where you don't have to live in New York anymore, California anymore. So they're fearing that smaller revenue base and [00:46:29]they're contemplating what to do about that. And they're saying maybe we'll impose some really significant tax increases on those who remain to offset the losses of the people who leave. And I'm saying stop a second, because this is exactly the sort of thing that's going to drive out the highly mobile high earners that you're desperately trying to retain. Well, tax and transfer taxes, sky high income taxes, that's how you make those fears of outmigration and revenue loss a self-fulfilling prophecy. I think it's really important to take a cautious approach on these. [27.2s]
Judy [00:46:57] Yeah. It punishes the sayers. It's horrible.
Meredith [00:47:00] Well, that's really interesting because we were having a catch up with one of our clients who's in software in the Bay Area. And, you know, they're just like filing all of these payroll registrations because a lot of people have left the Bay Area and they're going to like Texas and Missouri and they're leaving that area to go move back home because of their tech. They can work remotely, but they're relocating to a less they're doing exactly what you said and relocating to somewhere else. They don't need to be there anymore.
Jared [00:47:31] It's going to be a very interesting era in state tax because there's always been this element of competition that people vote with their feet. Sometimes both businesses and individuals choose to live in places that are either lower tax or lower business cost or lower cost of living and all of those things. But there's lots of trade offs, right? Businesses need to be where the workforce is. Sometimes there's agglomeration effects. There's a lot of friction. It's just hard to pick up and move. But now suddenly an individual employee who cares less about some of the amenities of a city and would rather live in a lower tax place, well, in many cases be able to say, hey, I'm leaving, I'm going there, I'll keep working in this job, but I'm going to Texas or Colorado or wherever they might like to be. Basically, whatever your factors are, they may not be tax, but whatever you care about in terms of where you live, suddenly that is disconnected from your job for a lot of people in a way that has never been true before. And it's really fascinating to see how states compete on this and which states react, I think, in negative ways, trying to claw everything back and which see it as an opportunity.
Judy [00:48:34] Yeah, a lot of people are moving to remote areas like Summit County, where Breckenridge and Vail and some of these I don't think they'll do well, anyway, all of our mountain counties are kickin in on property. I mean, people have never wanted to buy more property. It's just crazy. And I think what I remember reading and just bits and pieces, a lot of wealthy people have second homes in the country. A lot of people sheltered in their second homes. Right. They got out of Dodge. I didn't want to be in the city. All the things that they loved about city life were not accessible anymore. You can't go get a coffee. You can't go out to eat. You can't do anything. So they got out. And so I do think you're going to see a mass migration mentality and it's a shift. And then I do think we're going to see a very different shift of like downtowns. Like we've had so much wonderful growth in our city and Denver and everybody wants to be downtown because that's where everything's happening. Gosh, now that's happening downtown. It's all boarded up, you know, and even D.C. had this beautiful infrastructure community and restaurants. And it's just such a scene. And I assume you're just hardly seeing anyone on the streets like you would normally see.
Jared [00:49:40] Yeah, absolutely. And I think that some have sort of predicted this death of the cities. And I think that's greatly exaggerated. Cities have survived for millennia for good reason, and will want to be there, but they don't have to look exactly the same. And they don't necessarily go back to exactly there. Population, there are plenty of people who live in cities because their job is to live somewhere else, they would and cities are going to have to find ways to try to keep those people. And I don't think doubling down on the least attractive elements of city rise,
Judy [00:50:10] high taxes and everything is more expensive.
Meredith [00:50:13] Well, or even like living in a highrise, like, I don't really have a desire to be sharing an elevator with four hundred of my closest peers. Yeah, but anyway, that's just me. I live in a small house, so it's fun. So anyway, I guess what I want to do, kind of just like a last question that kind of might wrap everything up. So in your job, what do you enjoy the most?
Jared [00:50:37] Honestly, I love this job. I love almost all elements of it. I like research. I like writing. But mostly I think I like spending time with policymakers in meetings and testimony, helping to educate on tax policy issues where our presence can make a real difference. [00:50:49]We have a relationship with lawmakers that I think sets us apart from a lot of other organizations. [3.5s] Like I said, there's the advocacy groups. There's the pure ivory tower type organizations. [00:50:59]We strike the right balance. We have the research, relations and relationships. [2.7s] I love that I miss during this pandemic the ability to actually spend a lot of time in state capitals, but we're trying to find ways to supplement it. I spend a lot of time on Zoome doing remote testimony, remote meetings, looking forward to actually doing more of it in person in the very near future. [00:51:18]But I love that we have that immediacy and that impact that we can work on something and then take it to a lawmaker and say, hey, we can help you think through some really challenging issues architecturally. [10.9s]
Judy [00:51:30] It's so fun to see the different cities in America. I mean, it's interesting how they've all grown up and then that building represents something. Of course, our capital makes me think about our capital like it represents something of togetherness, of community, of, you know, taking care of each other. And it was sad to see our federal capital decimated when all those buildings across our nation, they mean something. So you have the opportunity to walk in those doors. See how they all grew up, because they're all a little different. Some have three domes above one dome. You know, they're just different parts of the city. That's a guy that I would love, that I love architecture. It is really
Meredith [00:52:06] Well, Jarrett, this was a great conversation. And we are so lucky and honored that you came on and you shared your story and your experience and your insight with us and the Tax Foundation. This has been SALTovation. This is Meredith Smith until next time on this podcast is for educational purposes only and is not intended, nor should it be relied upon as legal tax, accounting or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.
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Questions asked and answered in this Episode:
- How did Jared make his way to the Tax Foundation?
- What does he focus on at the Tax Foundation?
- Where does the Tax Foundation gather their data for analysis?
- How are they structured to cover all 50 states?
- How does he see states changing tax policies due to the effects of COVID-19 pandemic?
- What does he enjoy the most in his job?
What You Will Discover:
- [01:00] How Jared joined the Tax Foundation and his first job in legislature
- [03:08] Where he focuses his efforts and energy at the Tax Foundation
- [04:41] An overview of the organization’s state tax team
- [06:58] Where Tax Foundation gathers their data for analysis
- [15:45] What is the Colorado Sales And Use Tax Simplification Task Force
- [19:32] How the Tax Foundation strays from advocacy
- [26:47] Jared’s “I told you so” moment
- [31:32] How Judy learned about the Tax Foundation
- [31:17] The Tax Foundation’s publications
- [33:24] How state taxes vary and other tax issues
- [42:26] How state tax policies can change due to the COVID-19 pandemic
- [50:27] What Jared enjoys the most about his job
- “We’re a small team. I’d like to think that ” – Jared Walczak [05:02]
- “State lawmakers, they’re smart people, but they can’t all be experts on every issue. In many cases, they’re part-time. They honestly usually do not have significant full-time staff or if they do, it’s like a legislative assistant. I’ve been one. It’s not a huge policy research team that they have access to, so there’s this enormous need for serious but also digestible research and analysis, and I think it makes a huge difference. And we can provide that.” – Jared Walczak [14:07]
- “I think that we have found the right approach. We do education.” – Jared Walczak [20:20]
- “I found the Tax Foundation’s maps, and I’ve been relying on them ever since, because it’s a way to see that snapshot of America and all the bits and pieces that you guys share.” – Judy Vorndran [31:57]
- “We have a relationship with lawmakers that I think sets us apart from a lot of other organizations.” – Jared Walczak [50:49]