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On July 17th, the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law held a hearing on Operation Choke Point (OCP), a program within the Department of Justice (DOJ). The first witness, Assistant Attorney General Stuart Delery of the DOJ Civil Division, stated OCP’s objective is to identify and prevent fraudulent merchants and payment processors from accessing financial services. An obscure program until recently, OCP is gaining recognition for the questionable manner of its investigations. Thus far, the DOJ has sent fifty subpoenas to financial institutions, largely local banks and credit unions, requesting information on their customers. Only one of the cases has closed, the remaining are ongoing.
When questioned by Rep. Darrell Issa (R-CA), Delery agreed that the subpoenas he sent are not meant to change routine banking operations. Since the inception of OCP, however, businesses in particular industries have reported being denied loans or having their long-standing bank accounts closed. The Federal Deposit Insurance Corporation (FDIC) published a list of “high risk” industries (including businesses as diverse as firearms sales, home-based charities, coin dealers, and dating services), but Delery denied any connection between that list and DOJ objectives. Upon further scrutiny of the issued subpoenas, which Delery signed, Rep. Issa found a truncated version of the FDIC’s list attached to each one. Somehow, Delery still denied a connection between OCP-DOJ objectives and the FDIC list.
Whether intending to or not, by including the list in the subpoenas and effectively endorsing FDIC “recommendations,” the DOJ has caused banks to rethink their clientele in order to maintain compliancy with the federal government. Subcommittee Chairman Spencer Bachus (R-AL) mentioned a letter circulated to lawmakers last fall, in which one bank claimed it was threatened with an audit if it agreed to service an online lender. Another said the FDIC refused to close an audit unless the bank stopped certain payment processing. Despite these accounts, Delery continued to insist the DOJ is innocent. He stated that his department is making efforts to explain to financial institutions that they are not discouraging legal business, but encouraging due diligence.
As Rep. Issa illuminated in the hearing, the FDIC list was created based on “ideological decisions of what is high risk rather than economic.” For businesses whose accounts were closed, the basis had nothing to do with a change in their risk profiles and was instead predicated on a change in bureaucratic opinion. It is far less costly for banks to drop unfavorably-viewed clients now, than to respond to subpoenas later. In the subpoenas that were already issued, the DOJ requested the banks’ documents from each merchant’s account for every month in which they had a return rate of 3 percent or more, despite Delery’s admission that fraud is indicated by return rates of 30 percent or more. Delery could not attest to the cost of compliance with such a request. Another witness, David Thompson, representing short-term lenders, said the cost can be in the hundreds of thousands. For small banks and credit unions, the new expense of servicing these legal yet “high risk” businesses makes them no longer profitable, resulting in closed accounts.
Fitting with the hearing’s title, “Guilty Until Proven Innocent,” the panel uncovered that the DOJ is targeting banks for serving legal industries, rather than investigating specific cases of fraud within individual businesses. House Judiciary Committee Chairman Bob Goodlatte (R-VA) described the problem in his opening statement, clarifying that Operation Choke Point does stop some fraud, but there are too many casualties.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Today's Taxpayer News!
The Senate will debate on a bill that would give tax credits (the carrot) to companies that bring jobs home from outside the country; and slap a higher tax bill (the stick) on those who don’t “bring them back” to the U.S. Read here for more!
San Francisco city leaders voted to approve a tax on soda and other sugary beverages. The measure will now be on the ballot in November for voters to decide. Reuters has the latest!0 Comments | Post a Comment | Sign up for NTU Action Alerts
The National Taxpayers Union’s (NTU) Government Affairs interns are enjoying their eighth week at NTU headquarters in Alexandria, Virginia. Government Affairs interns have the opportunity to attend hearings and meetings with NTU staff and Members of Congress, and participate in NTUF’s lunch discussion series, where interns meet with experts from many different fields and discuss current issues in public policy. Like NTUF, NTU takes a very holistic approach to their internship program, focusing on providing interns with the best skills and knowledge to make a difference in the world of public policy.
In the last of our intern interviews, we focus on NTU Government Affairs intern Michael Liguori. Michael is currently enrolled at the University of North Carolina Chapel Hill, where he is pursuing a degree in International Relations and minors in Economics and Arabic. In the past, Michael has worked at an international agricultural development nonprofit, building inexpensive machines and tools to help improve subsistence farming output. Michael hopes to work in foreign affairs someday, and is particularly interested in diminishing the conflict in the Middle East and North Africa.
What have you most enjoyed about living and working in the DC area?
ML: Although I enjoy going to briefings and hearings on Capitol Hill, what really astounds me is what happens off the clock. I can sit in a coffee shop and hear State Department employees arguing over major international events, and I can brush past a former Speaker of the House while getting a burger
How did you become interested in politics?
ML: My parents are very freethinking people, and they encouraged me and my siblings to be as well. I was a curious kid, and if I asked them a question about what a Supreme Court decision in the news meant, they would tell me I had to figure it out on my own. We don’t have dogmas in my house, and that really left a lot of room for my beliefs to grow.
Who is your political hero?
ML: I get a lot of weird looks when I say it, but Malcom X. Even when I completely disagree with his writings and opinions (which happens quite frequently), I still recognize and admire that he was an uncompromising advocate against injustice. When other civil rights leaders sat down and stayed quiet, he stood up and shouted for justice under the law. No one could scare him into submission, and I can’t think of a courage that is more admirable.
What have you enjoyed about working at NTU?
ML: I’ve really enjoyed working with Federal Government Affairs Manager, Nan Swift, and getting to be at the Capitol so frequently. It’s a completely invaluable part of the experience as a Government Affairs Intern at NTU. My usual day consists of updating staff on state tax news, writing blog posts, and drafting vote alerts for bills such as the Permanent Internet Tax Freedom Act. In addition, if there are any relevant meetings on Capitol Hill that need to be covered, I handle those.
What have you learned which has most interested you while working at NTU?
ML: I’ve learned how convoluted and cryptic Congressional procedure can be. Most people don’t understand the nuances of the politics of passing a bill into law. One of the best examples I can think of to illustrate the intricate and unpredictable nature of Congressional politics is the Permanent Internet Tax Freedom Act. This bill passed the House of Representatives as a tax-decreasing bill. In the Senate, however, the Majority Leader added an unrelated amendment which increases taxes. After working at NTU, I have a much better understanding of Congressional proceedings thanks to the experience of attending hearings and collaborating with Nan and Brandon Arnold, NTU’s Vice President of Government Affairs.
Why did you choose to work at NTU?
ML: Although I generally focus more on foreign affairs, I wanted to get an understanding of Washington politics. The thought of taking people on tours and answering constituent phone calls for a Congressional office didn’t strongly appeal to me, so I chose to work at NTU. Working at NTU helps me understand the more substantive undercurrents that move politicians and politics.
Be sure to read our previous interview with research intern Catherine Fitzhugh.
Thanks to Catherine Fitzhugh for developing the Profiles in Liberty series and interviewing our interns.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Today's Taxpayer news!
On Tuesday, a U.S. Court of Appeals for the D.C. Circuit ruled that federal-run health exchanges are not eligible for subsidies. However, a few hours later another appeals court upheld the current laws of the Affordable Care Act. NTU VP Brandon Arnold explains why the first decision is more important. Read here for more!
More on the IRS scandal, House investigators revealed on Tuesday that the emails in the hard drive was damaged but not “destroyed”. Some GOP lawmakers talked to IRS tech experts and said the emails can be recovered.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Dueling Obamacare Decisions: The Law Must Trump Bureaucracy
Today’s Halbig v. Burwell decision at the U.S. Court of Appeals for the D.C. Circuit represents a massive rebuke of the Obama Administration’s interpretation of the Affordable Care Act (ACA) or “Obamacare.”
High Corporate Taxes: One Explanation for America’s Painful Recovery
Just looking at the numbers, June seemed like an example of strong economic recovery, with the Dow growing, unemployment shrinking, and more jobs entering the economy. However, writing in The New York Sun economist Lawrence Kudlow found some problems brewing in the seemingly positive June jobs report:
But there were some important glitches in this good-news report. For one, worker wages remained soft, rising only 2% over the past 12 months. Total hours worked are 2.1% ahead of a year ago, suggesting that overall income and nominal GDP are growing at a relatively slow 4% rate.
Meanwhile, the U6 unemployment rate, which includes part-time workers who want better full-time jobs or folks who have given up, dropped only slightly to 12.1%. That’s still a historically high rate. And the labor-force participation rate was unchanged at 62.8%, a 30-year low.
One of the problems Kudlow highlights is that unemployment goes down in two ways—either more people are employed, or more people stop looking for work. He notes that while, “2.15 million people gained employment in June, 2.35 million dropped out of the labor force.” In order for the economy to have true increases in employment, businesses need to be able to freely add more positions to their payrolls. The answer to this problem is simple: stop holding the market back, and lower the corporate tax rate. With the highest effective corporate tax rate in the developed world, the U.S. is making itself into a much less desirable home for the kind of lucrative corporations that provide the economic growth that Americans need.
Kudlow cites a dynamic economic model released by the Tax Foundation that demonstrates the market potential currently being restrained by the 35-40% corporate tax. Cutting the tax to 25% would, “over ten years raise real GDP by more than 2 percent, increase private business-capital investment by more than 6%, boost worker wages by 2%, and increase total federal revenues by nearly 1%.”
In June, The Wall Street Journal published an op-ed regarding the fact that numerous corporations are doing exactly as feared and choosing to leave America in favor of kinder tax rates in places like Ireland, and why shouldn’t they? Medical technology firm Medtronic is planning to shift its principal executive offices to Ireland, which boasts a corporate tax of 12.5%, and according to The Wall Street Journal, corporate friendly countries are numerous.
Ireland isn't the only place with a more competitive tax policy. The near-40% U.S. average rate is almost double the 21% average in the European Union, or the 22% in Asia, according to KPMG. As we noted recently, about the only place outside of captive Marxist countries with a higher corporate tax rate than the U.S. is the United Arab Emirates. But its top rate of 55% is generally applied only to foreign oil companies.
By overtaxing, we are intentionally sending jobs, wealth and innovation away from the United States. The corporations that the current tax-and-spend administration seems so eager to hold back are the very entities that can bring vitality to the struggling American economy. Relieving them of excessively high tax burdens relieves the American people and helps put the economy on the road to recovery. The rest of the world knows this, and it’s high time our government caught up.0 Comments | Post a Comment | Sign up for NTU Action Alerts
In June, the Senate introduced the Social Security Overpayments Fairness Act of 2014, a bill that would reinstate a 10-year limit on the period during which the Social Security Administration could recover improper payments to beneficiaries. The high frequency of improper payments on the federal level is a major issue for both government agencies and taxpayers, and it carries billion-dollar consequences.
While receiving a check without earning it doesn't seem likely, according to a recent report published by the Government Accountability Office (GAO), the chances of this happening to you are better than winning the lottery. Their study found that the government spent over $105 billion in improper payments last year, arising from outright fraud, clerical errors, or awards without the proper paperwork and verification.
The GAO conducts the study each year to determine which federal agencies are making wasteful payments and how to minimize the frequency of these payouts. Although improper payments have slowly decreased since 2010 (when they peaked at $121 billion), it is estimated that over the course of five years, about half a trillion dollars will be paid to ineligible individuals. That's $500 billion that could be circulating in the economy and fostering economic growth.
By providing funds or services to individuals without the proper medical documentation, entitlement programs are the largest contributors to wrongful payments. Here are some examples:
Whether it's coffee or bread, there are countless ways in which this money could be spent in the private sector, but the fact of the matter is improper payments represent a huge deadweight loss in the economy.
Fortunately, there are a number of options to reduce the incidence of improper payments. The first step to reducing these payouts relies on identifying the root cause of the issue, whether it's simply an accounting error or a high frequency of fraud. Secondly, government agencies can implement reforms such as data sharing and training programs to improve up-front validation of eligibility. Many of these steps will increase spending, however, so it is important that these agencies make the most cost effective reforms. Lastly, it's important for the agencies to identify instances of improper payments so that they can then quickly recover the lost funds. If agencies like the Social Security Administration can establish a more efficient and cost effective way to recover improper payments in a timely manner, then there will be no need to pursue indirect beneficiaries for funds allocated more than a decade before. Similarly, a transparent Social Security program with more uniform payments would make it significantly easier for the administration to determine when it has wrongly apportioned funds.
There is no doubt that tax and healthcare fraud pose a serious threat to taxpayers and the economy. With the total estimated costs of healthcare fraud exceeding $270 billion, more than $375 billion dollars in taxpayer funds are being wasted each year -- that's 7.5 percent of all federal tax revenues. Not only does this harm the taxpayer and hinder the recovery of the economy, it also sets tax levels at a higher rate than necessary. By cleaning up our system, we can lower the need for federal revenue and, in turn, leave a few extra dollars in each American's pocket.
Special thanks to NTUF Research Associate Steve Adams for authoring this post.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Today's Taxpayer News!
The IRS revealed under oath on Friday that the hard drive containing Lois Lerner's emails was destroyed in 2011 to protect "confidential taxpayer information". Most of the testimony on Friday reacpitulated most of John Koskinen's congressional testimony a month ago. The Hill has the latest!
Michigan voters will have a chance to decide and approve a personal property tax reform package in Agusut. The reform would eliminate the personal property tax in Michigan. Read here for more!0 Comments | Post a Comment | Sign up for NTU Action Alerts
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Operation Choke Point: Consumer Protection or Troubling Government Overreach?
The recent House Financial Services Committee hearing regarding the Department of Justice’s “Operation Choke Point” made the shady overreaches of government look even more commonplace. The ominously named DOJ program has been billed as an attempt to slow fraudulent businesses from taking advantage of consumers.
This goal was repeated by many of the Democrats attending the hearing, who attempted to shed mostly a positive light on the DOJ’s motives. However, testimony from the witnesses assembled suggested something to the contrary. The witness panel was comprised of the DOJ’s Assistant Attorney General Stuart Delery, the Federal Reserve’s Scott Alvarez, the FDIC’s Richard Osterman, and the Comptroller of Currency’s Daniel Stipano. The witnesses stated repeatedly that the program only existed to target businesses acting unlawfully, and that banks facilitating legal enterprises had nothing to fear.
It certainly appears that things are not quite that simple. Representative Patrick McHenry (R-NC) led the hearing, and called attention to a list that the DOJ sent around to banks designating “high risk businesses” that were likely to incur subpoenas and investigations. The problem with the list, however, is that it doesn’t just cover specific businesses—it lists whole industries. The types of industries listed are varied, including strictly illegal operations like Ponzi and credit card schemes right next to entirely legal enterprises like tobacco sales.
Rep. McHenry tore into this list, calling it a “government hit list” and a tool for the Obama administration to intimidate banks into not interacting with legal businesses it dislikes. This allegation was reinforced throughout the hearing. Besides very recently informing banks that they were not being asked to stop working with lawful, “high risk” businesses, the witnesses failed to demonstrate that they had done anything to discourage the kind of intimidation the DOJ is being accused of using.
The most fiery and cutting remarks came from Representative Sean Duffy (R-WI), who asked Delery to state if the DOJ has actually pressed charges directly against the supposedly fraudulent businesses in question, or obtained a single guilty adjudication. Although Delery could name a few banks that had been fined, he could not answer Rep. Duffy with any fraudulent businesses that had been tried and found guilty. Rep. Duffy pointed out the danger of an overzealous government: “We have a federal government that’s out of control, and we have bureaucrats who think they can get a swift idea and impose the heavy hand of government on legitimate businesses that have no adjudication of fraud.”
The fact that the Department of Justice was at such a loss in its defense of Operation Choke Point is extremely concerning. The program is easy to exploit, and even worse, people across the country are employed by the industries the DOJ has deemed “high risk,” and these citizens have faced a withdrawal of financial services by their bank after regulators came knocking. Representative Andy Barr (R-KY) shared the story of a family land lender to the coal industry having their loan no longer facilitated by their bank. Representatives Ann Wagner (R-MO) and Stephen Fincher (R-TN) also attested to job losses in their states due to Choke Point’s crackdown on low-interest, short-term pay day loans.
The defenses offered for Operation Choke Point were weak at best, citing a few cases of levying fines against banks, but no guilty verdicts were described. Though a consumer protection in theory, practice shows that the program is little more than a means of politicized persecution of any business the Executive branch views unfavorably. While its drawbacks are being felt across entire industries, Choke Point’s benefits remain to be seen. If officials from the Federal Reserve and the Department of Justice can’t formulate rejections of the criticisms provided and demonstrate real consumer benefits, it’s doubtful that this discriminatory and damaging program has any real use.
You can read more about NTU’s take on the unfolding Operation Choke Point scandal here.0 Comments | Post a Comment | Sign up for NTU Action Alerts