|America's independent, non-partisan advocate for overburdened taxpayers.||Home | Donate | RSS | Log in|
Liberal Plan for Deficit? How About a 40% Tax Hike
Unsurprisingly, it was that last line that caused the uproar. In response, Douthat did some math and found that if the CBO’s projections come true (revenues jump from 18 to 23 percent of GDP) an average family of four’s payroll and income tax burden would jump from 15 to 25 percent. The marginal tax rate on labor income would rise from 29 percent to 38 percent. “Such unprecedented levels of taxation,” Douthat argues, “would throw up hurdles to entrepreneurship, family formation and upward mobility.”
Drum didn’t wait long before punching back. In a post from yesterday, he pointed to the fact that “The federal tax take was around 20% of GDP during the Clinton era.” Using this as a reference point he argues that letting the Bush tax cuts expire and then raising tax rates by an additional four or five GDP points wouldn’t “be wildly oppressive.”
There are numerous problems with Drum’s latest attempt to pull himself out of the intellectual hole he has dug. Most prominent among them is his odd choice of reference point. Although it is true that tax revenue did rise to 20 percent of GDP under Clinton, it is not, as Drum would have us believe, a case where policymakers can snap their fingers and have revenues soar. Tax revenues are much more closely tied to the performance of the economy than with tax rates. As Megan McArdle pithily notes, “saying ‘all we have to do is go back to the tax rates under Clinton’ is effectively saying ‘all we need is another asset price bubble that funnels a huge amount of money into the pockets of the rich.’” McArdle points out that if we exclude the height of the stock market (or, if you prefer, the dot-com) bubble, the average tax revenue take under Clinton was around 18.5 percent.
We also have to dispute Drum’s notion that a tax hike of 5-6% of GDP isn’t “wildly oppressive,” an argument much akin to the initial flash-point of this debate, his assertion that tax levels of 25 percent “just isn’t that much.” While such throw-away editorializing may work on a blog, in reality, such tax hikes would dramatically increase tax burdens for the average American.
Since World War II, the traditional demarcation line given the emergence of the modern welfare state, government revenues have hovered just around 18 percent of GDP. Much to liberal’s chagrin, even with the continuation of the Bush-era tax cuts, the United States will collect about 18 percent of GDP as the economy recovers.
So the problem is not revenues have suddenly plummeted, it’s that government spending will dramatically spike. While NTU firmly believes that we mustn’t the burden of Washington’s largesse on the backs of taxpayers and should instead find ways to curb the growth in government spending, liberals like Drum believe we should raise taxes to 25 percent of GDP. They phrase their planned tax hike smartly, saying revenues need to go up by 7 percent of GDP. But this obfuscates the reality for the average taxpayer. Using an 18 percent baseline, a 7 percent GDP increase, would mean that everyone’s taxes would have to go up by around 40 percent. And that huge revenue grab doesn’t buy us anything new, it’s solely to maintain entitlements as they are presently structured!
This online debate may go on forever. Drum even admits that “a lot of our disagreement is simply irreconcilable.” But let’s hope our representatives in Washington are not so ideologically stubborn. Let’s hope they don’t believe a 40 percent across the board tax hike “just isn’t that much.” Because it is that much. It would mean a fundamentally different life for the average American.1 Comments | Post a Comment | Sign up for NTU Action Alerts
NTU Foundation’s weekly newsletter brings you a variety of bills this week with an environmental management plan bill for the Chesapeake Bay region, an act to establish a commission to study the nation’s justice system, a measure to create a domestic supply of medical isotopes, and a proposal to expand anti-hunger activities throughout the United States.
The bill to increase funding for community food initiatives and to expand some of the federal-to-state food stamp reimbursements is this week’s Most Expensive Bill of the Week. At $200 million in new federal spending for each of the next five years, HR 350 would direct tax dollars to nonprofit hunger groups within 20 designated geographic areas. The groups would present their plans and goals to receive operational grants and/or technical assistance grants. @NTUF will keep taxpayers informed about the different aspects of this bill, as well as the other three bills we detailed in Issue 7 of the Tab. Not much of a twitterer? No problem! Subscribing to the Tab is the best way to stay informed about all the exciting research coming out of NTU Foundation.
Newly scored bills highlighted in the latest Taxpayer’s Tab include:
Do you or anyone you know live in Congressmen Jose Serrano (NY-16) or Rob Wittman (VA-1), or Senators Jeff Bingaman (NM), Lisa Murkowski (AK), or Jim Webb’s (VA) states? Each of these legislators were mentioned in this week’s Tab. Check it out and keep a tab on your representatives!0 Comments | Post a Comment | Sign up for NTU Action Alerts
Reflections on CPAC
Today is the third and final day of the 2011 Conservative Political Action Conference (CPAC), the largest annual gathering of conservatives and libertarians in the nation. After three days of staffing a well-visited booth, meeting with dedicated activists, and listening to dynamic speakers, I’m looking forward to some rest and relaxation, but also to what the future holds for the conservative movement.
This year’s CPAC had the highest number of attendees (11,000) in the history of the conference. CPAC speakers ranged from Rep. Paul Ryan of Wisconsin, the House Budget Committee Chair, to Governor Mitch Daniels of Indiana, a potential presidential candidate who gave, in my view, an outstanding keynote address, which you can read here. Also, CPAC 2011 featured a number of new participating organizations that focus on both activism and policy related to social, economic, and political issues at the federal, state, and local levels.
While attending CPAC, I had the opportunity to participate in a number of discussions about important tax and fiscal policy issues facing the United States. NTUF hosted a discussion about entitlement reform that featured experts such as Rep. Devin Nunes, Maya MacGuineas, Douglas Holtz-Eakin, Steven Moore, and Dan Mitchell. The bottom line of their presentation was that we need to start tackling the problem of runaway entitlement spending before it’s too late.
But budget reform should not be restricted to social programs. CPAC also featured a panel on how the nation can reduce defense spending to a more manageable level without jeopardizing readiness. As a former military aide to a fiscally conservative Member of Congress, I was pleased to hear all of the views presented and the many ideas for maintaining an affordable defense posture. The passion the attendees displayed at the panels, and in conversations with me at the NTU table, was striking. It bodes well for conservatives if these activists carry their views home and remain outspoken and active in the political process.
For the last several weeks, there has been a lot of talk in the media about differences in the conservative movement over certain policies and suggestions that these differences spell certain doom the conservative movement. After three days of observing conservatives of all stripes from across the country, I can unequivocally say that reports of destructive differences among conservatives are greatly exaggerated. In fact, I would argue that the conservative movement has never been stronger and ready to bring real solutions to the many serious problems facing the nation.3 Comments | Post a Comment | Sign up for NTU Action Alerts
California Targets Amazon.com at the Expense of Local Businesses
Online companies have seen their sales surge despite a two year economic slump. Amazon.com alone saw worldwide sales jump nearly 30 percent in 2008 to $19 billion and to $24 billion in 2009. This upward trend only continued in 2010. Brick-and-mortar retailers did not fare as well. They, along with National Retail Federation and many state legislators have back lashed against this success claiming it is predicated on the fact that Amazon “skirts” state sales taxes. They claim Amazon under cuts in-state retailers and strips state coffers of revenue. In response, Legislatures across the country are trying to skirt Supreme Court rulings to levy taxes on companies operating outside their borders.
The most recent attempt comes from high-tax California. Assemblywoman Nancy Skinner recently re-introduced a bill (AB 153) that would require out-of-state companies with in-state advertizing affiliates to collect and remit sales taxes it supposedly owes the state. She estimates the state is being shortchanged between $250 and $500 million.
The kicker: Amazon is not doing anything wrong. According to the U.S Supreme Court ruling in Quill Corp. v. North Dakota, companies are only required to collect state sales taxes from their customers when they have a physical presence in the state (state-based factories, warehouses, employees, etc. conducting general operations). Amazon currently passes this “physical presence” nexus as it is headquartered in Seattle, Washington and has warehouses and facilities considered legal entities in Kansas, Kentucky, and North Dakota. Only residents in those states pay taxes on Amazon purchases.
Quill cited the commerce clause in its ruling, arguing that if enacted, retailers would need to track a myriad of state and local sales tax rates (about 8,000) which constantly change. Facing these new barriers to entry online companies simply end their in-state affiliate programs. For example, in July 2009 Rhode Island included an affiliate-nexus tax in its budget. Amazon.com severed formal ties with all Rhode Island businesses enrolled in the “Amazon Associates Program,” which refers buyers to Amazon.com, while giving business owners up to 15 percent of the profit. As a result, Rhode Island saw less tax revenue and less economic growth as local businesses dependent on advertizing revenue were forced to close up shop.
California will suffer the same fate if Skinner gets her way. Our colleagues at Americans for Tax Reform, Patrick Gleason and Kelly Cobb, spell out the disastrous effects this new tax will have on California’s budget, businesses, and taxpayers. They note that in 2009, 25,000 individuals and small businesses in California earned $1.6 billion from online advertising, paying $124 million in state income tax. The state will loose that money, not to mention revenue from lost payroll, business, property and sales taxes. Sacramento’s budget problems are sure to get worse.
While Amazon contests the unconstitutional imposition of state sales taxes on their customers the company does support the goal of making tax laws "simple and harmonized" and does not oppose "a constitutionally permissible national system applied even-handedly.” Similarly the retail federation and 24 other states have been seeking federal approval of a formal compact that would simplify and harmonize sales tax administration among the states to get around constitutional hurdles to taxing interstate vendors.
However, this tax collusion is an affront to American federalism and tax competition. States are attempting to abandon true federalism and jurisdictional tax competition in exchange for the power to potentially recoup a small amount of tax revenue. The federalism of the Founders fostered friction and tension between competing units of government –“laboratories of democracy” if you will. Proponents of so-called tax streamlining use colorful words like “cooperation” and “harmonization” as a guise to extend tax burdens.1 Comments | Post a Comment | Sign up for NTU Action Alerts
Tune into NTU's State of the Union Coverage tonight
Tonight at 9 p.m. EST, the National Taxpayers Union's crack government affairs and policy analysis teams will provide special online coverage of the President’s State of the Union Address, and we want you to be there and be a part of the discussion. We will be breaking down the President's proposals and what they will mean for taxpayers. Details on how you can join the conversation are below.
We look forward to seeing you online tonight at 9 p.m. EST!
We look forward to seeing you online tonight at 9 p.m. EST!
2011 Index of Economic Freedom
Our friends at the Heritage Foundation, in conjunction with the Wall Street Journal, recently published their Index of Economic Freedom. For those of you unfamiliar with the publication, the Index measures ten components of economic freedom, assigning each a score between 1 and 100. All scores are then combined to give an overall economic freedom grade to participating countries. The ten components include the following: business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom. The recently-distributed Index reports on policy developments in the second half of 2009 in 183 countries.
Just a few of its key findings:
The top 5 countries in the Index of Economic Freedom are Hong Kong, Singapore, Australia, New Zealand, and Switzerland. The United States comes in 9th with a “Mostly Free” score of 77.8%.0 Comments | Post a Comment | Sign up for NTU Action Alerts
What's the Lame Duck Done So Far?
So, Congress was in a Lame Duck session last week. What did they accomplish? The following four bills passed Congress and were sent to the President for his signature, according to the Library of Congress.
Can't wait for the after-Thanksgiving break flurry of activity.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Election 2010: What a night
Oh what a night!
As of this morning, Republicans won 60 additional seats and control of the U.S. House of Representatives. Also, Republicans expanded the size of their caucus by six in the Senate. These two changes that will have serious implications for a host of economic policies at the national level, including energy production, taxes, entitlements, and the debt. My colleague Jordan Forbes will have more to say about the federal results soon.
But for all of the dramatic change at the federal level, what happened in Congress pales in comparison to the changes that voters made at the state level. Republicans picked up nine governorships, including several in the economically important Midwestern states, and won control of 18 state legislative bodies, including chambers in North Carolina and Alabama; today marks the first time since Reconstruction the GOP has controlled those chambers. The larger number of fiscal conservatives in state legislative chambers will have a significant impact on the next round of budget negotiations, when states will have to face no easy choices to balance the budget in the midst of uncertain economic times.
Voters also weighed in on hundreds of state and local ballot measures that affect tax and budget policies. There were several setbacks for taxpayers yesterday. It appears as though voters rejected efforts to reduce taxes income and property taxes in Colorado and sales taxes in Massachusetts. Additionally, California passed a measure that would allow the legislature to enact a budget with a simple majority vote, which will likely open the door to more tax hikes. Unfortunately, Californians also rejected an effort to repeal a costly cap-and-trade emissions program in the state. However, at the same time, Californians voted to require supermajority votes on fees and to prevent the state from raiding funds for local government.
But taxpayers did score several important victories. Despite rejecting a broad reduction in the sales tax, Massachusetts approved a cut in the sales tax on alcoholic beverages. Washington voters resoundingly rejected an effort to enact a new state income tax and approved a measure rolling back a tax on soda, candy, and bottled water. Washingtonians also voted for a measure to require a supermajority in the legislature for any tax increase. Missourians voted overwhelmingly to require votes on local earnings taxes. Meanwhile, Indiana approved a measure to enshrine caps on property tax increases in the state’s constitution.
Elsewhere, Arizona and Oklahoma approved measures that projected the right to choose a health care plan from the individual insurance mandate in Obamacare. Several states, including Oklahoma, South Carolina, and Virginia approved measures to increase the size of their rainy day funds to weather bad economic times. Other states also approved measures that would provide property tax exemptions, impose term limits, and improve government accountability.
Of course, these are just a sample of the hundreds of measures that NTU is analyzing for its report showing how taxpayers fared at the ballot box yesterday. Stay tuned.1 Comments | Post a Comment | Sign up for NTU Action Alerts
Can California afford to Live like Ed Begley Jr.? Nope
The reality television show “Living with Ed” documents actor and environmentalist Ed Begley Jr.’s adventures and challenges in living a low-carbon emission, or so-called “green” lifestyle outside of Los Angeles. In each episode, we watch as Ed tries to grow his own drought-resistant crops or get good mileage out of his electric car. Though we may chuckle as Ed endeavors to practice what he preaches, his reality could become the reality for all of California unless Proposition 23 passes.
Proposition 23 on the statewide ballot would suspend AB 32, a 2006 law that requires a 30% reduction in carbon emissions by 2020, until unemployment falls to 5.5 percent for four consecutive quarters. AB 32 achieves the emissions reductions through new taxes and regulations on cars, trucks, appliances, and farming. Additionally, AB 32 mandates electricity from renewable sources like wind and solar power.
The bill’s supporters said it would create jobs, so-called “green jobs,” in California, but a study a the Pacific Research Institute, a San Francisco-based think tank, predicts 150,000 lost jobs by 2012 and another 1.3 million by 2020. Additionally, a Sacramento State University study shows that AB 32 will actually increase a family’s cost of living nearly $4,000, boost the regulatory burden on an average small business by nearly $50,000. All of this to create a “green” lifestyle for all of California.
These figures are not idle speculation. European countries that have tried programs like AB 32 have actually experienced job losses. Gabriel Calzada, a Spanish economist and lead author of a study detailing the economic costs of Spain’s green experiment, found that the Spanish economy lost a net 2.2 jobs for every “green job” the mandates created. And most of the green jobs (9 out of 10) created from renewable energy mandates were temporary because they were installation jobs. As a result of the mandates, Spanish companies like Acerinox, a steel maker, exported manufacturing jobs to South Africa and Kentucky. California companies will likely do the same.
California simply cannot afford this. The American Legislative Exchange Council already ranks California 46th out of 50 on its Economic Outlook Rank. The state ranks so poorly due to its high state and local tax burden, its income tax progressivity, size of its public workforce, and public employee compensation. For example, the state boasts one of the highest marginal income tax rates on high-income earners, currently at 10.55 percent, and the highest marginal corporate income tax rate in the West, at 8.84 percent. However, all of this translates into a weaker economic output. Adding to the tax burden by allowing AB 32 to take effect would only exacerbate the state’s bad economic problems.
No other state has tried to follow California’ lead in creating it’s own cap and trade program, and for good reason. Even under the best economic conditions, the impacts of AB 32 on the state would be terribly harmful. But at a time when the state’s unemployment rate is in excess of 12 percent and the state is broke by $20 billion, allowing AB 32 to take affect would be downright devastating to Californians. Though we may laugh and envy some aspects of Ed Bagley’s lifestyle, California simply cannot afford it.0 Comments | Post a Comment | Sign up for NTU Action Alerts
NTU Joins with Liberal Group to Identify $600 Billion in Waste
Today, NTU joined with the liberal group U.S. PIRG to release a report called "Toward Common Ground: Bridging the Political Divide to Reduce Spending." This report debuts a list of $600 billion worth of specific federal spending reductions. With all the talk about debt and deficits, we saw an opportunity to put together a true left-right coalition in order to begin the conversation about the difficult choices we’ll have to make as a nation. We thought it would be useful to reach across the ideological divide to identify specific items that we could cut from the federal budget without reducing the quality of government services or neglecting the government's basic commitments. The U.S. PIRG and NTU study identifies 30 specific, actionable items to cut in federal spending, including:
Today, NTU joined with the liberal group U.S. PIRG to release a report called "Toward Common Ground: Bridging the Political Divide to Reduce Spending." This report debuts a list of $600 billion worth of specific federal spending reductions. With all the talk about debt and deficits, we saw an opportunity to put together a true left-right coalition in order to begin the conversation about the difficult choices we’ll have to make as a nation. We thought it would be useful to reach across the ideological divide to identify specific items that we could cut from the federal budget without reducing the quality of government services or neglecting the government's basic commitments.
The U.S. PIRG and NTU study identifies 30 specific, actionable items to cut in federal spending, including:
While we're under no illusions that every group or individual on the left and right will agree with our list, we think that it can serve as something of a consensus document from which Congress and the President's Fiscal Commission can work. Simply stated, we can't continue to kick the can down the road on reducing the size of the federal government. In order to head off a debt crisis like that facing Greece today, we need to begin scaling back our unsustainable spending habits. This list can help to do that without starting a political food fight.1 Comments | Post a Comment | Sign up for NTU Action Alerts