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If you’re following HBO’s Game of Thrones, winter’s always coming. The problem for taxpayers is that our winter comes every year in mid-April and it’s increasingly becoming a game with only losers. Around this time of year, I hear from citizens and even policy experts not only complaining about their tax burden but wondering why the system itself is in such dire straits. There are many reasons (NTUF recently laid out some of the problems and solutions in The Taxpayer’s Tab -- seriously, if you’re not subscribed to the Tab, you’re missing out) but some Americans see no hope for our graduated progressive-income tax system and are looking to completely replace it.
One such reform was pointed out to me by Tom, whom I met at NTU and Foundation’s CPAC 2014 booth. His idea is to streamline America’s tax system in a way similar to what the Founding Fathers originally created. I later found a short description of what Tom calls the Neutral Tax on his website:
[The Neutral Tax] eliminates all federal taxes on citizens and businesses (including federal income, payroll, personal income, unemployment, corporate, gift, estate, capital gains, alternative minimum, self-employment, gasoline, etc.) and replaces them with a singular flat tax on the gross revenue of each state government (including all local taxes & fees.)
In short, the new system would transfer the requirement of collecting federal revenues from individuals, households, businesses, and corporations to state governments. State governments tend to be more efficient in costs and accountability when collecting taxes because they are made up of much smaller jurisdictions than the entire country. Dealing with a smaller pool of people means lower operating and enforcement costs. Though there are still horror stories coming out of state Departments of Revenue, taxpayers are better able to walk down the street or travel to their state capitol to dispute their tax burden compared to traveling all the way to Washington, D.C. and/or dealing with examiners of a large and oftentimes cumbersome agency, such as the Internal Revenue Service (IRS).
The new system would take the responsibility of collecting taxes away from the federal government, leaving the states to decide the methods and parameters to tax citizens. Bringing the notion that states are laboratories for democracy into play, governments could choose to merely expand existing systems or choose to reform to collect the necessary funds. The goal is to allow states to have the freedom to reform their systems without having to also conform to the federal income tax-based framework. For example, today, taxpayers in Florida (and six other states) don’t pay state income taxes (and generally pay higher sales or use taxes) but still must pay federal income taxes. This system makes having a comparatively more efficient sales tax system less advantageous because people are a part of two systems. Having a Neutral Tax system might increase efficiencies by decreasing compliance costs for households and businesses. Of course, the tax system that states would adopt is all dependent on the Governor and state legislators.
With the basic concept out of the way, let’s delve down into what a Neutral Tax system might look like, how it would affect taxpayers, and how it might change the federal budget.
Calculating the Neutral Tax: As it appears in Tom’s document, the Neutral Tax would be revenue-neutral, meaning that the system would collect the same amount of revenue as before the fundamental reform. At the federal level, tax rates would be set at zero. Each state would calculate the state, local, and federal tax makeup of its citizens to determine how much it would need to increase its own collections to offset the federal income tax repeal.
For 2014, total projected federal revenue ($3.0 trillion) is divided by total tax revenue ($5.7 trillion – federal, state, and local total) to reveal that 52.6 percent of taxes paid go to the federal government. To be compliant in the new system, state revenue departments would need to increase average collections by 52.6 percent, which would not change the taxpayer’s tax burden (just the method of collection). It would be up to the Department of the Treasury and Congress to determine what percentage of the tax mix would go to federal accounts.
The Neutral Tax & Taxpayers: At least initially, taxpayers would likely not see a change in their tax burden. States would have the freedom to decide how to collect revenues and how much to collect, which would also leave it to state officials to decide who collects taxes. For example, it’s possible that one state could adopt a more progressive income tax while its neighbor could have a Fair Tax system.
The policy document also notes that “it cannot be argued The Neutral Tax inherently falls more heavily on one group or another. It will be up the states to determine how they modify their existing tax/fee structures to collect the additional federal tax… .”
A Different Federal Budget: Even with the same amount of revenue coming in, the Neutral Tax would not necessarily lead to similar spending levels. Enacting the new system would mean refundable tax credits would no longer be in effect. These credits are payments given to households in excess of their tax liability and are counted by both the Congressional Budget Office and NTUF’s BillTally project as spending, not revenues. Without these credits, federal spending would be reduced by $86.4 billion if the Neutral Tax was enacted this year. This line of reasoning is also found in our scores of the flat tax and Fair Tax proposals.
I took a similar view of the Neutral Tax as with the Fair Tax with respect to the IRS. With the elimination of most of the Tax Code, the IRS would be significantly downsized. The agency is approved to spend $12.1 billion this year, which would be counted as savings if the Neutral Tax is passed and the IRS is eliminated. BUT, a couple of further details: The IRS would need a multi-year wind-down to finalize remaining tax cases and to transfer data and authority to a smaller entity, comparable to the Treasury’s Alcohol and Tobacco Tax and Trade Bureau. They spend $96 million last year (page 1070 of the Budget Appendix) on operations and so I would credit that figure against the total IRS deauthorization.
Much like other fundamental tax reform measures, this proposal also has a slim chance of passing a divided and pro-establishment Congress. In this proposed system, as with other reforms, the decision making power of how much to tax Americans rests with Congress and the Treasury Department. This then relies on individuals, local taxpayer associations, and national organizations to push for changes in the overall rate. It is difficult to tell if taxpayers would organize to keep rates low or if we could face a situation similar to today where rates are often times arbitrarily increased. However, it is good to keep the ideas coming for taxpayers to consider how best to fund the government in challenging economic times. Thanks to Tom for stopping by our CPAC booth and helping me add another alternative to the growing list of reforms!
Have an opinion of the Neutral Tax or another tax reform? Let us know in the comments.0 Comments | Post a Comment | Sign up for NTU Action Alerts
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NTUF's Dan Barrett joins the podcast to analyze all the budgets the House has been analyzing this week. Pete & Doug discuss all the smoke billowing from the IRS scandal, and an AP poll on the "ease" of filing taxes. Plus a smelly Outrage of the Week!0 Comments | Post a Comment | Sign up for NTU Action Alerts
When most of us think of trading on the floor of the New York Stock Exchange, images of traders frantically running across the room as they take orders over the phone come to mind. Many Americans also trade at home, relying on internet services or financial advisors to relay the latest information on the stocks and funds that they're interested in.
However, there is growing concern that automated "high-frequency trading", which utilizes computer algorithms and software to make split-second decisions as trading conditions change in real-time, might give some traders an unfair advantage over others. The problem stems from the idea of marginal profit -- that is, even very small profits on minor trades can accumulate into larger ones so long as the trader conducts enough transactions. Software and computer algorithms are already capable of trading at exponentially higher speeds than the every-day financier, yet some firms spend hundreds of millions of dollars to cut down on communication time even further in order to get their hands on a stock first, then immediately resell it at a marginally higher price.
Author Michael Lewis has chronicled the debate in a recent book and several media appearances. The issue has gotten the attention of some lawmakers on Capitol Hill, too, who are pushing a national transaction tax in response. That tax would be levied on every financial transaction that investors make, which, according to Congressman Keith Ellison (D-MN), could serve as a deterrent for firms who are supposedly gaming the system by conducting thousands of small transactions at a time and rely on the very small marginal profits made on each one.
Ellison's idea -- which he has dubbed the "Inclusive Prosperity Act" -- attempts to counteract the effect of "Wall Street speculation" that "is currently subject to zero sales tax on its trillions of dollars of annual transactions- while consumers regularly pay sales taxes even on daily necessities." It has been proposed before in previous sessions of Congress.
NTUF featured an even broader transaction tax proposal in a 2012 edition of The Taxpayer’s Tab. Congressman Chaka Fattah's (D-PA) Debt Free America Act proposed to eliminate the personal income tax, virtually all tax credits, and the Alternative Minimum Tax and replace them with a one-percent fee on each and every cash, credit, debit, and stock or bond transaction. While it's unknown whether the bill would have any administrative costs associated with tracking every financial transaction Americans make, Rep. Fattah claims that his legislation will generate enough revenue to pay down the national debt in just ten years. Variations on that proposal include a 0.35 percent tax on all transactions, which proponents argue would simplify the current tax system and expand the revenue base.
Since our feature on Rep. Fattah's legislation, NTUF has offered a preview of other tax reform proposals -- including the Fair Tax and a flat tax -- that have been proposed in Congress. You can read our analysis here.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Broad Coalition Sends Message to Congress: Oppose Internet Access Taxes
NTU is proud to be among the 29 groups from across the political spectrum that signed a letter urging Congress to block potential tax hikes on Internet access. Specifically, the letter calls upon the House and Senate to pass the Permanent Internet Tax Freedom Act (H.R. 3086) or the Internet Tax Freedom Forever Act (S. 1431), bills that would make permanent the moratorium on multiple and discriminatory taxes on the Internet. The current moratorium is scheduled to expire on November 1, 2014.
As the letter explains:
Internet taxation affects all Americans from all political views and all walks of life. From healthcare to education, small business entrepreneurs to Fortune 500 companies, the Internet has dramatically transformed the way everyone lives, works, and learns. In 2010, the Internet accounted for an estimated $684 billion, or 4.7 percent of all U.S. economic activity. While the Internet was a nascent technology when the current moratorium was established in 1998, it has become the economic engine driving innovation and growth in our 21st century economy. Throttling that engine at a time when our economy is struggling hurts not only those trying to invest in America’s future, but also those who can least afford it and have the most to gain from the Internet’s potential.
Let’s hope Congress heeds the letter’s advice and works to reduce barriers to Internet access.1 Comments | Post a Comment | Sign up for NTU Action Alerts
In the newest edition of The Taxpayers Tab, National Taxpayers Union Foundation (NTUF) compared some of the alternative budget proposals put forth by several Congressional caucuses, including the Republican Study Commission (RSC), the House Republicans, the House Democrats, the Congressional Progressive Caucus (CPC), and the Congressional Black Caucus (CBC). We compared the top-line budget numbers from each proposal relative to the Congressional Budget Office's baseline projections for 2014 to give taxpayers an idea of how each of these budget alternatives differ.
This first of two posts will focus on each of the GOP alternatives.
Some notable points:
While the two GOP budgets are similar in that their ultimate goals are balanced books, the RSC plan would try to achieve that within a much shorter timeframe. In both cases, emphasis is placed on cutting discretionary spending rather than any wholesale or fundamental reforms of mandatory entitlement programs.
For more, check out NTUF's full analysis in The Taxpayer's Tab.1 Comments | Post a Comment | Sign up for NTU Action Alerts
Democratic Caucuses' FY 2015 Alternative Budget Plans
In the newest edition of The Taxpayers Tab, National Taxpayers Union Foundation (NTUF) compared the alternative budget proposals put forth by Congressional caucuses including the Republican Study Commission (RSC), the House Republicans, the House Democrats, the Congressional Progressive Caucus (CPC), and the Congressional Black Caucus (CBC). We looked at each budget's top-line numbers relative to the Congressional Budget Office's baseline projections for 2014 to give taxpayers an idea of how each of these budget alternatives differ from each other and the current budgetary forecast.
There were several alternatives offered from the Democrats:
They differed in a few key ways:
The Democrats' budgets focus primarily on responding directly to the country's poor economic conditions, both by increasing eligibility for entitlement programs and providing increased funding for job training and development. In general these proposals would be offset by more and/or higher taxes, but none of these plans project a balanced budget within the next ten years.
For more, check out NTUF's full analysis in The Taxpayer's Tab.0 Comments | Post a Comment | Sign up for NTU Action Alerts
As tax day approaches, lawmakers in various Congressional caucuses have been unveiling their own alternatives to the President's Fiscal Year 2015 budget proposal. In this week's edition of The Taxpayer's Tab, NTUF looked at proposals from the Republican Study Commission (RSC), House Republicans, House Democrats, the Congressional Progressive Caucus (CPC), and the Congressional Black Caucus (CBC) -- in addition to President Obama's own budget -- to see what their policy priorities could mean for taxpayers.
For more on these alternative budget proposals and how they compare to each other and the President's proposals, check out the online edition of The Taxpayer's Tab.0 Comments | Post a Comment | Sign up for NTU Action Alerts
The good folks at the Tax Foundation have released another eye-opening report with their Annual State-Local Tax Burden Rankings, which “estimates the combined state and local tax burden shouldered by the residents of each state.”
Not surprisingly, New York placed first, with taxpayers shelling out 12.6 percent of their income to pay for state and local taxes, while Wyoming replaced Alaska at number 50 with a burden of 6.9 percent.
Other key findings, according to the Tax Foundation:
The report serves as an excellent reminder for taxpayers to continue the push for tax reform and decreased spending at state and local levels of government. For more from the Tax Foundation or to read the entire report, click here.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Taxpayers Claim Big Win in Fight Against IRS Free Speech Silencing Rule
NTU members deserve a pat on the back for their hard work in the on-going fight against IRS-overreach. For months, NTU and other grassroots organizations (categorized under section 501(c)(4) of the Tax Code) have been engaged in an uphill battle against an oppressive new IRS rule proposal that would significantly restrict our ability to educate citizens and hold elected officials accountable. Thanks to your help however, this silencing of free speech has been thwarted...for now.
After concerned citizens filed an overwhelming number of comments with the IRS to oppose the rule – thousands of which came from NTU members – IRS Commissioner Koskinen announced yesterday that the rule will not be finalized this year. So, it’s clear that taxpayers have won the first round.
According to Koskinen:
During the comment period, which ended in February, we received more than 150,000 comments. That’s a record for an IRS rulemaking comment period. In fact, if you take all the comments on all Treasury and IRS draft proposals over the last seven years and double that number, you come close to the number of comments we are now beginning to review and analyze.
It’s going to take us a while to sort through all those comments, hold a public hearing, possibly repropose a draft regulation and get more public comments. This means that it is unlikely we will be able to complete this process before the end of the year.
As you can see from Koskinen’s comments, this fight is far from over. Largely developed behind closed doors, the new ruling would have constituted a profound infringement of the First Amendment rights of NTU and each of our members. It would have made it difficult – if not impossible – for NTU to hold elected officials accountable for their actions and ensure that the voice of the taxpayer is heard in the nation’s capitol. It should come then as no surprise that imposing this rule was a major priority for the Obama Administration to finalize ahead of 2014 Congressional elections. (Click here for more background information).
It’s important that we use the time we have to keep up the pressure on our legislators to oppose this terrible rule!
Here’s how you can help:
Yet Another Scandal at the Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) was created just a few years ago and it’s already experienced more than its fair share of stumbles. The latest kerfuffle: revelations that a self-professed socialist now sits on one of the agency’s advisory boards.
Ron Ehrenreich has been appointed to the CFPB’s Credit Union Advisory Council. Flash back to 26 years ago, and he was running to be Vice President of the United States on the Socialist Party’s ticket. How times change … or have they? In any case, it’s unclear what kind of impact Ehrenreich will have in this role, but his appointment certainly underscores the need for additional oversight and accountability at CFPB. This lack of Congressional supervision is something that NTU has been concerned about for years and was a major source of contention when President Obama appointed Richard Cordray to head the agency. At that time, Republicans in the Senate blocked the appointment for months as they raised serious concerns about the inability of Congress to conduct sufficient oversight, as well as concerns about the sweeping new powers the CFPB would wield. Obama eventually used a constitutionally questionable “recess appointment” to put Cordray in office and he was later confirmed after Senate Majority Leader Harry Reid changed the rules to prevent his colleagues from using the filibuster.
The next CFPB public relations disaster occurred soon after Cordray’s Senate confirmation, when we discovered that many of its employees were extremely well-paid:
Hundreds of CFPB officials are paid more than Supreme Court Justices, senior White House officials, members of Congress, and all 50 state governors, according to a Washington Examiner analysis of salary data for the board's 1,204 workers.
As my colleague, Pete Sepp, noted in the same Washington Examiner story, “how can it be justified on grounds to hire expertly qualified people when many of the salaries far exceed the experts at places like the Federal Reserve and the Securities & Exchange Commission?”
This week, the CFPB was hit with two significant issues. First, as previously mentioned, we learned of an avowed socialist serving on a CFPB advisory board. And just yesterday, the CFPB was accused of discrimination against women and minorities.Taxpayers must be left wondering what is next for this troubled agency that is supposed to be protecting consumers from harm.0 Comments | Post a Comment | Sign up for NTU Action Alerts