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Two Different Court of Appeal Rulings on Obamacare; House Investigators Believe Lois Lerner Emails Can Be Recovered – Late Edition, July 23
Posted By: Jihun Han - 07/23/14

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.

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Dueling Obamacare Decisions: The Law Must Trump Bureaucracy
Posted By: Brandon Arnold - 07/22/14

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.”

Keep in mind that this is the same Administration that has seen its attempts to expand executive power rejected unanimously on 12 separate occasions by the Supreme Court.

Now another federal court has ruled that Obama’s Administration has gone too far. The court stated that the IRS does not have legal authority to provide tax credits to nearly 5 million people who have attempted to purchase health insurance through the federal government’s exchanges at The impact to taxpayers is significant, as the cost of these credits could amount to more than $36 billion through 2016 (according to a study by the Urban Institute and the Robert Wood Johnson Foundation).

To some, that might seem to be a “dog bites man” story – after all, the federal government makes approximately $100 billion in improper payments each and every year. But while these improper payments stem from unacceptably high levels of waste, fraud and abuse, in the matter ruled on in Halbig the illegal subsidies occur due to open disregard for the law of the land.

This is a disregard the Administration doubled down on today, stating it intends to ignore the DC Circuit Court ruling and continue to allow the subsidies to flow, continuing to cost taxpayers billions.

And here the term “subsidies” is appropriate. Some tax credits simply allow people and companies to reduce their liabilities to the IRS. But these “premium tax credits” are a different breed because they're refundable -- meaning they can more than wipe out the beneficiary's tax bill and cover all the cost of providing the insurance.

That means the refundable portion effectively amounts to deficit spending by the government, not just foregone revenues. Future taxpayers are being stuck with cost.

That despite the fact the ACA clearly and repeatedly states that subsidies can be obtained by individuals who purchase insurance “through an Exchange established by the State.”

Similar language appears or is referenced nine times in the ACA. For those who purchase insurance through federally established exchanges, there are no benefits provided for in the law.

But that has, to date, not stopped Obama’s IRS from providing tax benefits to individuals in the 36 states where there is no state-created exchange – and this is where taxpayers could continue to suffer billions of dollars of losses. 

The D.C. Circuit Court ruling was a big one for taxpayers, but the legal battle will certainly continue for some time. Just hours after the decision was issued, the U.S. Circuit Court of Appeals also ruled on the matter. This court found the law's legislative language to be ambiguous and thus, allowed the IRS to exercise its own discretion.

The dueling decisions mean the U.S. Supreme Court will likely make a final judgment on the matter, but there's no doubt that Halbig has put a chill on feverish claims that the IRS can essentially construct its own statutory powers by pulling words out of thin air and issuing regulatory edicts.

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High Corporate Taxes: One Explanation for America’s Painful Recovery
Posted By: Michael Liguori - 07/22/14

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.

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Lerner’s Hard Drive Destroyed in 2011, According to IRS; Michigan Voters To Decide On Personal Property Tax Repeal– Late Edition, July 21
Posted By: Jihun Han - 07/21/14

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! 

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Improper Payments Cost Taxpayers Billions
Posted By: Michael Tasselmyer - 07/21/14

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:

  • Medicare, alone, wrongly expended $50 billion dollars -- that's almost 18 billion Starbucks tall coffees.
  • Medicaid spent $14.4 billion in improper payments (enough for 1.6 billion monthly Netflix subscriptions).
  • Social Security wasted $2.4 billion, the equivalent of about 1 billion loaves of bread.

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.

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Operation Choke Point: Consumer Protection or Troubling Government Overreach?
Posted By: Michael Liguori - 07/18/14

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.

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Time to Rethink the F-35
Posted By: Melodie Bowler - 07/18/14

The F-35 Joint Strike Fighter Program has ground to a halt yet again. Toward the end of June, a pilot at Eglin Air Force Base in Florida was about to begin a routine training exercise when the tail of his F-35 caught on fire. Following that incident, Pentagon officials decided to ground the jets indefinitely on July 3rd. The fleet had previously been grounded in early June due to an oil leak during flight. Unfortunately, for proponents of the acquisition, this news comes right before several exhibition events in the UK. At the Farnborough International Airshow, the Pentagon and Lockheed Martin (the company building the jets) had planned on demonstrating the F-35’s capabilities. The much-anticipated jet is now highly unlikely to be seen at Farnborough, which runs from July 14-20.

The planned demonstration at the airshow this week was geared to garner interest in the F-35 from potential buyers. More orders of F-35 jets would lower the price of each, but Lockheed Martin has only seen cancellations lately. Canadian authorities recently paused their order of F-35s, stating a need to view other options through a procurement competition. Italy already cut its original order from 131 jets to 90, and speculation suggests they will cut that number further. Australian officials had similar thoughts, reassessing their schedule for purchasing the troubled planes. For the Pentagon, this means the price of each jet will rise. For taxpayers footing the bill, more of their dollars will be pledged to this enormously expensive acquisition.

The F-35 Joint Strike Fighter Program has repeatedly exceeded cost estimates and failed to meet deadlines. In 2001, the Government Accountability Office (GAO) estimated the entire program would cost $233 billion. In 2012, when the program had already missed every operational deadline by at least four years, GAO reassessed costs to reach $395.7 billion. In 2005, the Air Force expected to be the first military branch to receive its F-35s, but that deadline has since moved to 2016. The Marines will now be getting their jets beginning in 2015, nine years later than originally planned. The Navy will receive their jets last in 2018, a full ten years late. As timelines extend, costs grow. Research, Development, Test, and Evaluation (RDT&E) continuing longer than planned adds costs the Pentagon never predicted. If this portion of the program is complete by 2018, the additional RDT&E will cost taxpayers $39.1 billion. With no certainly that the F-35s will be operational by the new deadline, costs could continue to soar.

The Cost Assessment Program Evaluation (CAPE) office estimated in 2012 that the long-term costs of procuring and operating F-35s will be $1.45 trillion over 50 to 60 years. While taxpayers have invested considerably in the F-35 jets, it is better to stop investments now than continue to waste resources on a broken program. With dangerous malfunctions, demand dropping, and no end in sight, Congress should immediately reevaluate the future of the F-35 Joint Strike Fighter Program. Some have suggested scrapping the program altogether in favor of procuring upgrades of proven designs like the F-18 or renovating venerable performers such as the A-10. Others, including NTU, have suggested a hybrid fleet that allows a right-sized purchase of F-35s for the Air Force (assuming performance issues are resolved). Either way, elected officials owe our service people and taxpayers a more thoughtful, vigorously overseen procurement process.

If ever there were a time for a prudent pause in a terribly troubled program, it is now.

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Profiles in Liberty: Catherine Fitzhugh
Posted By: Dan Barrett - 07/18/14

NTUF research interns often have the opportunity to do work other than BillTally. More than half of our interns have written for the Government Bytes blog, and two compiled the state analyses for the BillTally report, which was released last week. These are only some examples of the work that we encourage our interns to do as part of our holistic internship program.  It’s our goal to give interns every opportunity to develop their skills to spread economic liberty.

NTUF Research Intern Catherine Fitzhugh

Catherine Fitzhugh, a research intern, comes to NTUF from Grove City College, where she is the Secretary of her sorority, Sigma Delta Phi. She is a Student Research Fellow at The Center for Vision and Values at Grove City College, where she has assisted two professors with five research projects throughout the school year. These projects included a testimony presented to the Pennsylvania House of Representatives Committee on Ethics and several book projects. 

What do you enjoy doing outside of the office?

CF: I have many friends from school who are interning in the Washington, D.C. area this summer, so I’ve been spending a lot of time with them. I’ve also enjoyed sightseeing, particularly on the National Mall, and going to the Smithsonian Museums.

How did you become interested in politics?

CF: I sort of fell into politics. For years, I would listen to my father and brother criticize politics and big government, but I didn’t want to let my family’s ideology be my sole influence, so I set out to discover what I personally believe, and became very interested in policy along the way. Though I chose to major in political science on a whim, I have found that I love studying state and local level politics.

What are your career aspirations?

CF: I’d like to work in a state capital, eventually, because I feel the smaller environment would better suit me. It’s generally noted that more things get done in the states, so I’d have more of an opportunity to influence policy by working at the state level. NTUF has given me the leg-up on policy research that I need to accurately determine how legislation would affect spending and taxpayers.

What projects have you been working on at NTUF?

CF: I’ve been working on BillTally research mostly, and I’ve been writing the Profiles in Liberty series as well. I’ve enjoyed writing about the other interns, as each person is so unique, and it really comes out in their answers to questions.

What have you learned at NTUF that has most interested you?

CF: I’ve been amazed by the number of bills that are introduced in Congress compared to the number that are voted on. Before coming here, I didn’t know how many bills Representatives introduce. I researched three bills in a row, once, that were introduced by the same Congressman. Despite the number of bills introduced, it seems like a relatively small amount go to the floor for votes, and it’s been interesting to see which bills get stuck in committees versus which bills are signed into law.

What is the most interesting bill you have researched this summer?

CF: I researched the authorization act for the U.S. Coast Guard for 2015 and 2016. At first, I was amazed by the amount of money which the Coast Guard needs to operate, but, after some further research, I realized that, as it was originally written, this bill was giving the Coast Guard fewer tax dollars than last year. This bill was also interesting because of the different categories into which the money was portioned. The funds were given to the Coast Guard pre-divided into pools for research and development, maintenance, and for the alteration or removal of bridges over navigable waters which obstruct the flow of boats, to name only a few of the categories.

Why did you choose to work at NTUF?

CF: Several friends who have interned at NTU and NTUF highly recommended NTUF to me. Aside from their recommendations, I wanted experience with reading policy and knowing how legislation works in real life versus in a textbook. It’s been a great experience so far, and I’ve learned a lot through it!

The last of our Profiles in Liberty series for this summer will be highlighting Michael Liguori, an NTU Government Affairs Intern. Be sure to check out our most recent interview with Melodie Bowler.

How can you help? Join with thousands of Americans committed to fiscal transparency by making a tax-deductible contribution. The more you give to NTUF, the less you hand over to Uncle Sam.

Thanks to Catherine Fitzhugh for developing the Profiles in Liberty series and interviewing our interns.

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House Passes Budget Cuts for the IRS & Approves Bill to Allow Banks To Do Business With Marijuana Shops – Late Edition, July 17
Posted By: Jihun Han - 07/17/14

Today's Taxpayer News! 

The House voted to cut more than $1 billion from the IRS’s Tax Enforcement budget. The spending cuts will likely result in fewer audits for American taxpayers. The bill heads to the Senate floor for consideration.

Keeping busy, the House also passed a bill to make it easier for banks to conduct business with marijuana shops and medical dispensaries. Rep. Earl Perlmutter (D- CO) is skeptical of the bill and believes crime rates will rise. Read here for more!

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