With another income tax day behind us, this year's penance may be the last "simple," "unfettered" return we file in a while.

The CBO projects that with current policies in place, addled by a wave of retiring Americans, our tax burden as a nation (in terms of revenues received through income, payroll and excise taxes) will rise 1.5%, to nearly 20% in 2020. That growth aside, revenues will still fall nearly 5% less than Uncle Sam will be spending at that time.

Thus, according to a growing coterie of pundits and officials, more taxes are on the way (spending cuts would be nice, but I digress).

The recession has been many things to many people. For most of us, these are trying times, to say the least. But like a newscaster or mortician who profits from some of life's worst experiences, the states see the recession somewhat more optimistically than the rest of us.

Sure, in the next fiscal year states face nearly $180 billion in budget deficits, with many in dire straits (as this somewhat hyperbolic article touches upon). Yet, letting no crisis go to waste, this has honed where many of those cash-strapped states are looking for their next meal.

The Wall Street Journal recently noted that the slump has brought back to life an idea that many of us thought had died - requiring e-retailers to collect sales tax from out-of-state customers. The state's new tool of choice? The so-called "Amazon.com tax."

It works like this.

Remote / online merchants that have "local marketing affiliates" (i.e., entities essentially operating website pointers to remote merchants) in a given state, must collect state sales taxes for customer purchases of their products - all because the "local affiliate" in that given state pointed any sale (not even the specific sale) to the out-of-state retailer. This controversial tool (now being contemplated by 6 states, and in effect in 3 others) allows states to get around constitutional requirements of physical presence in a state to collect sales taxes. It also gets around the inconvenient fact that in most states with sales taxes, customers largely ignore their obligations to pay that tax (e.g., use tax) if it isn't collected by the Internet / remote merchant.

There's a movement afoot in Congress to advance legislation that would eviscerate the Commerce Clause of the Constitution, empower a state-based tax cartel, and potentially decimate the Internet economy in the process. Business Week has the details:

In the next week, legislators are expected to introduce bills in the House and Senate promising to do away with the "physical presence" requirement. If a bill passes -- and that's a big "if" -- it would require all online retailers, except for the tiniest companies, to collect sales taxes in the 23 states that are part of the Streamlined Sales Tax Project. The states would compensate the retailers for the trouble, while promising not to sue them for tax collection mistakes that are made.

The real danger of the SSTP, however, is what it means for the Constitution and tax competition among the states. In this 2003 paper I penned with Veronique de Rugy for the Cato Institute, we showed why the SSTP would not only fail to simplify the sales tax code, but would actually cede dangerous taxing powers to state and local governments over the interstate marketplace. In the process, Veronique and I argued, a multi-state sales tax cartel would be spawned:

The Obama administration's recent budget calls for a ten-year extension of the tax credit for private-sector research and development expenses.  See the White House press release.  That is welcome news.

The exact details of the credit are, like all other things tax-related, rather complicated, but it costs the Treasury about $7.5 billion per year.  Also complicated is the history of the tax credit:  For the nearly thirty years that the tax credit has existed, it has been often granted annually, and sometimes retroactively.  It has expired some thirteen times in its existence; sometimes Congress steps in to provide retroactive credit, and sometimes there is no credit at all.  A useful timeline of the R&D tax credit appears on page 3 of this report.  Most recently, it was not until October 2008, as part of the emergency economic stimulus, that the tax credit was provided retroactively for fiscal year 2008.

President Obama notes that every dollar of the tax benefit "stimulates as much as an additional dollar of private R&D spending in the short run and two dollars in the long run.  Every $1 of R&D adds $2 of benefit to our economy and society as a whole."  A little online research will show that some detractors cast doubt on those numbers and see the credit as an unreasonable subsidy to large corporations.  An economic analysis of the exact benefits of the R&D tax credit is beyond the scope of this blog entry; it seems safe to assume, however, that the tax credit spurs a substantial amount of R&D.

Using tax policy to spur R&D seems eminently reasonable.  The alternative to private sector R&D is, of course, public sector R&D or directed research grants.  That's a tricky thing for this or any government to do well.  Where public money should be allocated is highly politicized and highly charged.  Public investment in R&D forces the government to make big bets on the direction of technology.  But technology is by its very nature highly unpredictable.  I would rather have a thousand companies themselves bet on the direction of technology than the government by fiat.

The way in which the tax credit has been doled out in past years, however, gives credence to some of the detractors of the R&D tax credit.  A tax credit meant to serve as an incentive for R&D spending should actually provide that incentive.  Retroactive tax breaks arguably fail to provide any incentive.  This concept comes up all the time in connection with intellectual property rights:  Should patent terms or copyright terms be allowed to be extended retroactively?  See, for example, the Supreme Court's 2003 decision in Eldred v. Ashcroft regarding copyright term extension.  Retroactive payouts do not increase incentives to invent; they reward people who have already done so.

Research labs do not spring up overnight, and they do not disappear like Cinderella's carriage at the stroke of midnight New Year's Eve.  Any reasonable reliance on a tax credit for R&D necessarily will span several years.  Accordingly, the tax credit itself should also span several years.  That way, the private-sector can make reasonable and informed decisions.  The Obama budget should be commended for doing just that.

Looks like we can count on another tax landing on our cell phones soon thanks to the taxaholics in the Obama Administration. According to Jeff Silva of RCR Wireless:

Though details on the Obama budget are few and far between, some information was made available. The administration estimates that spectrum license fees would raise $4.8 billion over the next 10 years.

You know, because we're not already paying enough in taxes on our phones.

(P.S. I'm actually a little surprised that the "progressives" in this administration would support this proposal since a tax on mobile phones will end up being about as regressive as taxes can get.)

The economic programs and rhetoric of both major party presidential candidates leave much to be desired, but Barack Obama's tax ideas are truly alarming. For a good summary of what the tax code would look like if a President Obama got his way, see this chart from Stanford economist Michael Boskin:

As you can see, after-tax returns on ordinary income could plummet 32% under the Obama plan, while after-tax returns on capital gains could drop almost 27%. These are not "marginal" tax tweaks but enormous changes to the American tax code, and thus to American competitiveness.

No candidate who cares about American jobs, real wage levels, or health care benefits can seriously propose such penalties on investment and entrepreneurship. Obamanomics would make the U.S. one of the least tax-competitive nations on the planet, pushing jobs overseas, reducing real wages, and making it ever more difficult for employers to provide decent health care, not to mention discouraging the marginal American entrepreneur or innovator from launching or growing a company (aka, employer, health care provider, tax payer) of the the future.

MIT's Technology Review has a great review of a new biography of Georges Doriot (Wikipedia) by Businessweek Editor Spencer E. Ante entitled, Creative Capital: Georges Doriot and the Birth of Venture Capital. Born in France, Doriot fought in World War I, then studied at Harvard Business School, served as director of the U.S. military's Military Planning Division during World War II as a brigadier general, and in 1946 launched American Research and Development Corporation (ARD) as the first publicly owned venture capital firm.

Doriot's legacy looms large today, even if his name is new to most:

Contemporaneously with ARD's watershed investment in [Digital Equipment Corporation], others began walking the trails Doriot had blazed: Arthur Rock (a student of Doriot's in the Harvard class of 1951) backed the departure of the "Traitorous Eight" from Shockley Semiconductor to form ­Fairchild Semiconductor in 1957, then funded ­Robert Noyce and ­Gordon Moore when they left ­Fairchild to found Intel; ­Laurance ­Rockefeller formed ­Venrock, which has since backed more than 400 companies, including Intel and Apple; Don ­Valentine formed Sequoia Capital, which would invest in Atari, Apple, Oracle, Cisco, Google, and YouTube.

he opposed both the dirigiste political economy of his native France and the tax hikes and anticompetitive laws enacted in the United States under the New Deal. Such regulations, he maintained, arrogated to bureaucrats the function of the markets; their worst feature was that they let government lend money to failing businesses. Ante notes that a former colleague of Doriot's, James F. Morgan, recalled him as "the most schizophrenic Frenchman I've ever met"--devoted to his original land's wine, cuisine, and language even as "the French capacity to make very simple things complicated drove him nuts."

It is shocking to think that we have a presidential candidate who would make the private sector $5 poorer in order to make the government $1 richer.

That's economist Lawrence Lindsey's bottom-line assessment of Barack Obama's plan to raise the top marginal income tax rate and lift the cap on Social Security taxes. Obama's move would catapult the top marginal tax rate from 37.7% today all the way to 53% -- and that's before state and local income taxes.

Lindsey explains why raising top marginal tax rates yields little revenue but big downside distortions:

the economic well-being of the country is not measured by how much taxes the government can collect, or even the size of the deficit. Rather, it is measured by the country's productive capacity. Our theoretical entrepreneur's 11.2% decline in taxable income reflects both less effort on his part and a less efficient use of his income in order to avoid confiscatory tax rates. Or, to put it directly, Sen. Obama's plan would reduce an entrepreneur's after-tax profits by $70,000 - $56,000 in lost profits and $14,000 more in taxes - just to produce a net revenue gain to the government of $14,000.

But the tax hike story doesn't end there.

Obama has also proposed boosting the capital gains tax to 28%. Combine that with rising inflation, and you get a huge new tax on at-risk capital. Economist Michael Darda explains the risk to both the stock market and overall growth.

Capital gains taxes are set to rise to 20% from 15% in 2010 (with the dividend tax rate reverting to the top marginal income tax rate). Sen. Obama has proposed a bump in the capgains tax to 28% from 15%. A 28% capital gains tax, along with 4% headline inflation, would raise the effective tax rate on capital to 50% from 28%, and lower our model's stimulation of the forward P/E ratio to 12.1 from 15.3. This could cut the S&P 500 down by 15-20%, which would increase the cost of capital, lower the capital-to-labor ratio, retard trend productivity growth, and lower income and wage gains across the country. It simply makes no sense in this context. This is a significant risk looming over the market at a particularly inopportune time.

Effective marginal tax rates on both income and capital gains could thus explode north of 50% in the next few years. In today's hyper-competitive supply-side world, we can't afford such an enormous leap backwards.

Or as Nobel prize winner Bob Mundell says, "I look upon the United States still as the main sparkplug of economic growth in the world." It thus follows, he says, that rescinding the Bush tax cuts "would be devastating to the world economy."

UPDATE: Don Luskin of Trend Macro makes another good point:

Worst of all, even the small contribution to Social Security solvency that Mr. Obama's plan might make is entirely illusory. In fact, the more taxes his plan collects, the worse Social Security's long-term situation gets. That's because all plans based on collecting taxes and saving them in the Social Security Trust Fund for future benefit payments rely on the U.S. government being able to redeem the Treasury bonds that trust fund holds.

There's only one place that the money to redeem those bonds can come from: taxes. So ironically, any tax dollars collected today will have to be collected all over again - plus interest. You like the idea of paying more taxes today for Mr. Obama's Social Security plan? Then just wait 20 years or so, because you'll get to pay more taxes all over again.

Obama's tax bomb is not the way to sustain America's fragile global lead in entrepreneurship and innovation.

Almost 30 years ago World Bank economist Keith Marsden published a groundbreaking study comparing the growth rates of low-tax and high-tax nations. Marsden found that the low-tax nations grew faster. Perhaps not a surprise. But Marsden also found that the low-tax nations increased their government spending three times faster than the high-tax nations. How? Because the low-tax nations grew some six times as fast.

Now, Marsden is back with a new study for Britain's Centre for Policy Studies called "Big, Not Better?: Evidence from 20 countries that slim governments work better. "

When Marsden first compared the high-tax and low-tax nations three decades ago, the worldwide tax-cutting revolution was just commencing. Ronald Reagan and Margaret Thatcher were the leading Western innovators, and although it was not fully appreciated at the time, China's Deng Xiaoping was watching -- and emulating -- the shining example of Hong Kong. So it's fitting, after several decades of global tax-cutting catalyzed today's global boom, to revisit the high-tax/low-tax debate.

Marsden's key finding, now as then, will confound not just high-tax liberals but many "starve the beast" conservatives as well.

Faster economic growth in the first [low-tax] group also generated a more rapid increase in government revenue, despite (or rather, because of, supply-siders suggest) lower overall tax burdens.