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Ken Blackwell on Milton Friedman
Posted By: Dan Barrett - 08/07/14

Last week, Ken Blackwell, member of the board of directors for the National Taxpayers Union and director of the Coalition for Mortgage Security, wrote an article for Forbes praising Milton Friedman for his contribution to the understanding of free markets and advancement of individual rights in honor of the late economist’s 102nd birthday. In addition to outlining Friedman’s ideas regarding the role of government in civil society, Blackwell commends him for accurately predicting the growth of government and anti-market sentiments that has occurred in recent years.

Friedman believed that government responsibility should be limited to military defense, the enforcement of contracts between individuals, and the protection of citizens from crimes against themselves or their property. He further argued that government intervention in the economy ultimately leads to, “inefficiency, lack of motivation, and loss of freedom.” In his 1994 reintroduction to Friedrich Hayek’s The Road to Serfdom, Friedman suggested that “the battle for freedom” is one that “must be won over and over again.” Blackwell’s analysis of Friedman’s introduction to Hayek’s pivotal work sheds light on the dangers Americans face today as our government continues to expand, assault for-profit institutions, intervene in the healthcare market, and disregard private property rights.    

Thanks to Kelly Hastings for writing this post.

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Obama Administration Opaque On Releasing Obamacare Info; Growing Number of U.S. Citizenship Renunciations Spurred by Taxes? – Late Edition, August 7
Posted By: Jihun Han - 08/07/14

The Obama Administration has stopped releasing Obamacare sign-up information since the month of May. They are reportedly nervous about releasing premium rates before the midterm elections. Daily Caller has the latest!

The Treasury Department released its quarterly list of Americans renouncing their citizenship. 2013 was a record high for U.S. expatriates and the trend still seems to be going up. According to Forbes, one of the reasons is because of the complex tax code and the requirement to file taxes even if you don’t work in the U.S.

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Corporate Inversions Continue
Posted By: Melodie Bowler - 08/07/14

This is a follow-up to the earlier blog post, Corporate Inversion: Fleeing from the Terrifying Tax Code.

The fervor for inversion is not slowing down, especially now that Congress is in recess until September. With two bills left behind, H.R. 4679 in the House and S. 2360 in the Senate, Congress could address the issue during their short September session or in the subsequent lame duck session. While President Barack Obama and Treasury Secretary Jacob Lew condemn businesses as “unpatriotic” for trying to relocate, few policymakers attempt or even suggest specific comprehensive reforms to the tax code, despite admissions that the rate is the real problem. Instead, both bills retroactively change the IRS requirements for inversion to trap businesses in the U.S.

The high corporate tax rate reduces competitiveness for U.S. companies, causing many to analyze the costs and benefits of moving their headquarters abroad. Under the current law, some not-yet-incorporated, fledgling businesses will also decide that the U.S. is not an ideal country in which to open shop. The U.S. corporate income tax rate sits at 35 percent, considerably higher than the European Union average rate of 21.34 percent or the OECD average of 24.11 percent. Operating with at least a 10 percentage point tax advantage leaves foreign competitors with significantly more income for future investments, higher wages, or lower prices, with which U.S. companies struggle to compete.

With their additional expendable revenue, foreign corporations are increasingly viewing U.S. companies as valuable investments. They can buy U.S. competitors to take advantage of American resources and infrastructure, yet maintain their headquarters abroad. As a recent Wall Street Journal article reported, foreign businesses use their additional cash after paying taxes to outbid their U.S. counterparts trying to buy U.S.-based businesses. The article specifically cites a situation in which Emerson, a manufacturing and technology company based in St. Louis, attempted to acquire American Power Conversion (APC) in Rhode Island. Despite an offer of over $5 billion, France-based Schneider Electric outbid Emerson by about $1 billion, turning once-American APC into a French company.

Without true tax code reforms, Congress will continue to see erosion of its tax base. Congress’s misguided attempts to stop inversions could actually expedite the erosion by preventing new companies from incorporating in the U.S. President Obama has threatened unilateral action to stop inversions, but only comprehensive tax reform will rectify the problem that Congress has created with the complicated tax code.

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Walgreens to Stay in the U.S.; President Obama Considering Executive Action to Stop “Inversions” – Late Edition, August 6
Posted By: Jihun Han - 08/06/14

Today's Taxpayers News!

The ongoing melodrama over corporate “inversions” may have pushed Walgreens to keep its headquarters here in the U.S. The Chicago based company was considering moving its headquarters to Switzerland. USA Today has the latest!

Staying on the subject, The Obama Administration is considering using executive action to prevent American companies moving overseas to pay less in U.S. taxes. Read here for more!

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What Tax System Taxpayers Want
Posted By: Dan Barrett - 08/06/14

In honor of the economist Milton Friedman’s birthday, NTU Foundation once again opened up the polls to taxpayers across the country to see which fundamental tax system change they support. As many Americans know, Friedman was a supporter of tax reform in favor of broadening the base and increasing bureaucratic efficiency. This poll has become a tradition for Americans as NTU and Foundation continue to research the different revenue collecting proposals in Congress and state capitols. Taxpayers were given several different options to choose from:

  • FairTax: A consumption-based national sales tax on all new goods and services. It would repeal the 16th Amendment and eliminate all income-based taxes, including refundable tax credits that are counted as increases in federal spending. The Internal Revenue Service would also be phased out over a four-year period. A monthly “prebate” would be sent to every household to cover taxes on necessities up to the federal poverty level. While the measure is said to be revenue-neutral, NTUF found that it would decrease budgetary outlays by $96.9 billion over five years if enacted in FY 2014.
  • Flat Tax: A modification of the current income-based system where progressive income brackets would be replaced with a single 17 percent rate for everyone above the poverty line. The measure would repeal all income tax credits (including refundable credits) and would likely lead to reductions in costs associated with IRS enforcement and staff. If S. 173 was signed into law in FY 2014, the federal government would cut spending by $85.8 billion in the first year.
  • Keep the Current System: A hybrid-progressive income-based system with thousands of credits and deductions. In the modern seven-bracket system, the more that one earns, the more they must pay to the IRS. Many measures have been proposed, including Congressman Dave Camp’s (R-MI) idea to consolidate the number of brackets and reduce the number of credits. New spending would occur if the reform was introduced and then signed into law by simplifying the Tax Code (and decreasing costs for the IRS) and dedicating new funds to infrastructure projects. NTUF determined that Rep. Camp’s plan could increase spending by $126.5 billion over eight years but that does not include lower IRS costs and possible savings from consolidating refundable tax credits.
  • National Transaction Tax: A defined percentage tax on every financial transaction or transfer involving currency, stocks, or bonds. Congressman Chaka Fattah (D-PA) proposed, specifically, a one-percent transaction tax in the 112th Congress as well as a repeal of the income-based tax system. Individuals making under $100,000 and households making under $250,000 each year would receive a one-percent credit to help offset the tax. Though H.R. 1125 did not call for an increase or decrease in the federal budget, it is likely that monitoring the millions of transactions would require new funds and personnel; exactly how much is unknown.
  • Value-Added Tax: A flat rate imposed on goods and services each time they change hands within a supply chain until sale. Currently in operation in Europe, a VAT is a fee on the value added to a product as it makes its way through the levels of production. The tax is ultimately passed onto the consumer in a similar end-result like a sales tax. Though a VAT has been discussed in the past, few legislators have put forth a version that would replace the current system. Back in the 102nd Congress, Congressman Robert Wise (D-WV)* proposed to have the Department of the Treasury study the VAT. Similar to the Transaction Tax, a VAT would likely require more federal funds to keep track of the millions of transactions of goods and services throughout the supply chain.

What did taxpayers vote for this year? Over 170 people voted in our poll with half voicing their support for the FairTax. The Flat Tax came in second at 39 percent. Demand for a National Transaction Tax, Keeping the Current System, and a VAT fell into the single digits, similar to last year.

Thanks for everyone who voted in our poll this year! We will be doing more of these as Congress continues to propose alternatives and marginal changes to our current tax system.

Have a thought or question on the FairTax or any of the other options? Leave a comment below and our NTUF experts will get back to you!

* Email me if you want to see Rep. Wise's BillTally report from the 102nd Congress. NTUF has back to the 107th Congress online.

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Federal Budget Outlook: Worse Than You Think
Posted By: Dan Barrett - 08/05/14

What are the long-term implications of government spending, and how should policymakers reign in the current trend of unsustainable federal expenditures? Those questions were the focus of a recent event hosted by the Cato Institute, entitled Federal Budget Outlook: It’s Worse Than You Think, featuring Senator Ron Johnson (R-WI) and Cato’s Director of Tax Policy Studies Chris Edwards.

In FY 2013, the federal budget deficit was a staggering $680 billion, and expenditures topped $3.9 trillion. That pattern is projected to continue going forward, with some estimates showing current spending at 20.4 percent of GDP (projected to rise to 31.8 percent by 2040).

Edwards considered five categories of federal spending:

  • compensating federal workers – $407 billion
  • paying interest on the federal debt – $414 billion
  • purchasing goods and services – $571 billion
  • state and local aid – $510 billion
  • subsidy and benefit programs (transfers) – $1.98 trillion

Despite recent deficit decreases, spending on subsidy and benefit programs are growing at an annual rate of 6.7 percent. This spending increase results from the proliferation of entitlement programs including: Social Security, Medicare, SNAP (food stamps), unemployment benefits, agricultural subsidies, refundable tax credits, and so forth. Below is a visual graphic demonstrating the aforementioned categories.

Edwards noted, “the U.S. Constitution does not create an open-ended role for the federal government to transfer wealth or aid to the states. Yet today those two activities account for about two-thirds of federal spending.”

Senator Johnson’s main argument was that reporting by the Congressional Budget Office (CBO) is fundamentally flawed, allowing an administration to mask the severity of fiscal crises. CBO typically sticks to a ten-year budget window, but Johnson contended that some fiscal scenarios warrant a thirty year window, especially as demographic changes like the aging of the baby boomer generation impact the long-term stability of Social Security, Medicare, and other federal entitlement programs. The Senator said that ultimately, these programs amount to “inter-generational theft.” A sense of urgency has not yet set in among lawmakers because CBO does not adequately report the long-term effects of current fiscal policy.

The speakers suggested that America can move towards budgetary solvency if it eliminates wasteful spending (those that cost more than the benefits they yield) and respects the 10th Amendment. They also suggested that policymakers should work towards reducing regulatory and bureaucratic inefficiencies that cost taxpayers time and money, and open the door to cronyism and abuse.

At the current spending rate, the deficit will soon be many, many trillions. Senator Johnson finished the talk by imploring, “Please, God, don’t tell Washington what comes after trillions.”

Thanks to Paul Bartow for drafting this post.

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U.S. Senate Passes VA Reform Bill; Federal Employees Caught Watching Adult Videos During Work Hours– Late Edition, August 4
Posted By: Jihun Han - 08/04/14

Today's Taxpayer News! 

The U.S. Senate passed a VA reform bill that will cost about $17 billion. Some Senators were dissatisfied that it was rushed through President Obama is expected to sign the bill.

Federal employees have been caught breaking the rules and watching all sorts of things during working hours of “boredom”. NTU’s Pete Sepp sees this unnecessary free time as taxpayer money being wasted. Fox News has the latest!

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Congress, You Ain’t Got To Go Home… - Speaking of Taxpayers, August 1
Posted By: Douglas Kellogg - 08/04/14

... But you got to get the heck up out of here. What's Congress bumbling on budgetary matters before they finally head home for August? Lois Lerner is back in the news with some not-nice words for taxpayers. Afghan reconstruction costs more than rebuilding Europe. More interns invade the podcast. Milton Friedman Day is over, your chance to win 50 bucks is not. Plus, the Outrage of the Week!

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US Not Making Friends Through FATCA
Posted By: Samantha Jordan - 08/01/14

Rarely is there a policy or legislation that doesn’t have a cute acronym to help legislators sell it to the public. The Foreign Account Tax Compliance Act is no different. FATCA is the stunted acronym for “fat cat,” a term used frequently by President Obama, when referencing the so-called rich eluding taxes. However, FATCA isn’t just about targeting cartoonish tax-eluding billionaires - it is already causing trouble for many making well-below seven figures.

According to the IRS if you are a US individual holding just over $50,000 in foreign financial assets on the last day of the tax year, you too will be under the scrutiny of FATCA. But it isn’t just US citizens who are facing the consequences.

The vague wording in FATCA is extending its reach beyond US “citizens” to US “persons.” According an article in The Economist, foreign banks and other financial institutions must choose between turning over information on clients who are “US persons” or handing 30 percent of all payments of US source income as well as gross proceeds from the sale of securities that they receive from America to the IRS. “US persons” not only includes citizens but also current and former green card holders and non-Americans with various personal and economic ties to the United States, such as marriage. Of those non-American citizens impacted, it appears that Canadians will be the most directly affected.

Take Ruth Anne Freeborn for example. After the passage of FATCA in 2010, Oklahoma born US citizen Freeborn had to choose “between country and family.”  Freeborn has been living in Canada for over 30 years with her Canadian husband who receives an income of $51,000 a year as an electronics technician and is the sole income earner in the family. Despite her family’s modest income, Freeborn was fearful enough of FATCA’s overreach to renounce her US citizenship.  Freeborn explained, “My decision was either to protect my Canadian spouse and child from this overreach or I could relinquish my US citizenship.”

It is unlikely Freeborn’s Canadian family will be alone in their decision. Many banks are giving their American associated customers the boot to avoid entanglement with FATCA. It may not be hard for Americans to choose their family’s financial wellbeing over their US citizenship.  According to FATCA Newsany Canadian holding a dual US-Canadian citizenship is a US person and will be impacted by the FATCA provisions. Individuals who have spent a large amount of time in the US are also considered US persons. Others include estates, trusts, US corporations and partnerships.” Even some Canadian “snowbirds” who travel to America for a small portion of the winter will be subject to FATCA. 

This is just a small snapshot of the rifts FATCA could be creating across the world – either causing discomfort for anyone interacting with Americans, or making any U.S. “person” persona non grata abroad. If these experiences become more widespread, it seems more than just “fat cats” are getting a shave.

More on FATCA: Increase in Expats: FATCA a Factor in Stunning 70 Percent of Citizenship Renunciations

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New Lois Lerner Emails Reveal Bias Against Conservatives; House Rep. Introduces National Soda Tax Bill– Late Edition, July 31
Posted By: Jihun Han - 07/31/14

Today's Taxpayers News! 

The House Ways and Means Committee released November 2012 emails belonging to Lois Lerner. Lerner used derogatory terms to describe Republicans and Conservatives in the emails. Fox News has the latest! 

Rep. Rosa DeLauro of Conn. introduced a national soda tax bill aimed at taxing sugary beverages. Similar measures at local levels will be brought up in November for the people to vote. Read here for more!

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