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Study Finds Tobacco Taxes Cause, Don’t Fix, Fiscal Problems
National Taxpayers Union Foundation (NTUF) just released a study that uncovers the grisly fiscal truth behind tobacco taxes - particularly, that all taxpayers and citizens are affected by the failure of these measures to live up to revenue projections, which leads to new taxes and budget crises.
Check out a rundown of the major findings below, and make sure to read the complete study HERE.
Cigarette tax hikes lead to different types of tax increases, fail to meet revenue projections. In nearly 70 percent of cases between 2001 and 2011, tobacco tax increases were followed by other tax hikes! Whether directly due to their failure to live up to revenue expectations, or simply because they signal a political apparatus desperate for more pet-program funding, there is no denying that every taxpayer has cause for concern when they hear a tobacco tax hike proposal.
Tobacco tax revenues are rarely used to reduce other taxes. Considering how frequently such hikes are made in the name of education or healthcare programs, or pitched by revenue-hungry legislators, this may not be surprising. Nevertheless, this finding is key since it demonstrates these tax hikes do little to create flexibility in budget management.
States with high cigarette tax rates have tax burdens an average of $1,356 above the national average. NTUF’s study actually found that the correlation between a state’s overall tax burden and its cigarette tax rate went both ways; states with lower cigarette taxes have lower overall tax burdens.
These types of tax increases are not associated with strong economic growth. States that hiked their tobacco taxes in some way in 2009 tended to have slower Gross State Product (GSP) growth over the following two : they grew at an average rate of 1.34 percent, compared to the U.S. average of 2.43 (a 1.09 percent lower growth rate).0 Comments | Post a Comment | Sign up for NTU Action Alerts
Today’s Taxpayer News!
NTUF today released a study on cigarette taxes, exploring the broader fiscal effects of an excise on tobacco.
NTU and 21 other organizations have backed a measure that would prevent the IRS from playing a role in the implementation of Obamacare. The legislation, introduced by Rep. Tom Price (R-GA), is expected to be considered by the House on Friday.
Speaker of the House John Boehner (R-OH) is supporting a temporary stop-gap measure to prevent the government from shutting down due to a lack of funding at the end of the fiscal year. Many conservative groups (including NTU) have urged Boehner to oppose measures that offer funding for Obamacare.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Today’s Taxpayer News!
President Obama yesterday unveiled his own plan for tax reform, advocating a “grand bargain” that would lower the corporate tax rate in exchange for increased jobs spending.
Watchdog.org released this piece exploring the pensions of Wisconsin’s congressmen, one of whom will be receiving a payout of more than $100,000 annually upon retirement.
Missed the Milton Friedman commemoration event? No worries! If you couldn’t celebrate with us in person, be sure to join us online - the site will be up all week!0 Comments | Post a Comment | Sign up for NTU Action Alerts
Today would have been the 101st birthday of renowned economist Milton Friedman, who has been recognized by his peers as one of the most influential figures in modern economic thought and received numerous awards and honors for his achievements, including the Nobel Prize and the Presidential Medal of Freedom. NTUF and our fellow policy analysts at the Tax Foundation will be commemorating his life and work by hosting an event tonight from 6-9 PM in downtown Washington, D.C. You can participate online and find out more by visiting our #Milton101 page here.
Friedman's contributions to economics and the ways in which we frame public policy discussions were numerous. But what did he have to say on the issue of tax reform?
As a founder of the Chicago school of economic theory, Friedman generally believed that less government intervention in the economy would lead to increased prosperity and growth. When applied to tax policy, this idea led him to an unequivocal determination: "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever possible."
A crucial issue that Friedman found with the U.S. tax system (both then and now) was the sheer complexity of the code. He lamented the lack of incentive for those on either side of the aisle in Washington to simplify the complicated system of deductions and loopholes that we know today. Even though the video below was filmed in 1978, many of the problems Friedman discusses still apply to our modern debates.
Friedman has been noted as a prominent advocate of the "negative income tax," a system in which those who earn below a specific income threshold would receive a stipend from the government to make up a percentage of that difference. He contended that such a system would maintain a progressive bent -- one that would not unduly punish the less fortunate -- while doing so in a more efficient manner:
"[Friedman] was above all a pragmatist, and he emphasized the superiority of the negative income tax over conventional welfare programs on purely practical grounds. If the main problem of the poor is that they have too little money, he reasoned, the simplest and cheapest solution is to give them some more. He saw no advantage in hiring armies of bureaucrats to dispense food stamps, energy stamps, day care stamps and rent subsidies."
Friedman also made the case for a flat tax, most notably in his seminal 1962 work "Capitalism and Freedom". He stated in a 1996 article in the Wall Street Journal:
"All things considered, the personal income tax structure that seems to me best is a flat-rate tax on income above an exemption... I would combine this program with the abolition of the corporate income tax, and with the requirement that corporations be required to attribute their income to stockholders, and that stockholders be required to include such sums on their tax returns. The most important other desirable changes are the elimination of percentage depletion on oil and other raw materials, the elimination of tax exemption of interest on state and local securities, the elimination of special treatment of capital gains, the coordination of income, estate, and gift taxes, and the elimination of numerous deductions now allowed."
In a 1976 People magazine article in which he referred to the modern income tax system as an "unholy mess", Friedman contended that a flat tax would bring in enough revenue to allow for lower overall rates (which would benefit the less wealthy). A flat tax and fewer deductions, he said, would also eliminate the "tax shelter industry" that many high earners use to avoid paying certain taxes.
In both cases, Friedman was adamant that a vastly more efficient system would bring with it a significant economic boom. He favored simplicity over complexity while trying to combine fairness with effectiveness.2 Comments | Post a Comment | Sign up for NTU Action Alerts
Last Thursday, NTU and NTUF interns had the distinct honor of meeting with Congressman and former Republican Study Committee Chairman Jim Jordan from Ohio’s Fourth District. We learned about the life of a public servant, the in’s and out's of Congress, and how he is addressing the IRS scandal through the committee process. This was a rare opportunity because the Congressman is currently on three committees and is always on the move between the Buckeye State and Washington, DC.
The interns thank Jim Jordan for his time and insights!
A special thanks to Melissa Evans for making this meeting possible.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Today’s Taxpayer News!
NTU’s Nan Swift joins the Heartland Institute to talk about the impact of wireless communication taxes and the upcoming Wireless Tax Fairness Act, which would impose a five-year moratorium on new taxes on cell phones and similar products.
Join NTUF tomorrow (July 31) in celebrating Milton Friedman’s birthday! The Foundation is hosting both in-person and online events to celebrate Friedman’s contributions to economic freedom.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Senator Tackles Key Element of Tax Reform – Business Expensing
Perhaps the greatest policy challenge confronting this Congress remains how, exactly, to fulfill leading lawmakers’ promises to systemically reform the income tax law. Even after receiving months of input (informed by years of experience) from industry representatives, legislators, advocacy groups like NTU, and everyday taxpaying citizens, Members of the House’s and Senate’s tax-writing committees still have considerable work to do in crafting a tax reform package for floor consideration. No one said it would be easy.
As these efforts continue, having the right kind of legislative raw material will be vital to building a tax structure that will stand up to political and economic vicissitudes. Last week Senator Jeff Flake (R-AZ) made a helpful contribution toward one element of this vital construction project – the tax treatment of business expenses – by introducing the Small Business Investment Promotion Act (S. 1342). The bill is cosponsored by Sens. Jim Inhofe (R-OK) and Tom Udall (D-NM).
Aside from considerations such as the rate and ease of filing returns, business owners must – to a greater degree than the majority of individual tax filers – consider how expenses will affect their tax bills. Start-up companies may have large initial outlays for their infrastructure, while more mature firms may need to retool to keep up with more modern competitors. Either way, the ability to write off major investments up-front could make the difference in a business’ future growth, or even its survival.
How would a streamlined, less burdensome tax system recognize this imperative? Under one of the best alternatives, the Fair Tax (H.R. 25/S. 122), expensing for federal tax purposes would be irrelevant. Businesses would no longer be afflicted with income and payroll tax headaches from Washington, and would instead collect a consumption tax if they engaged in retail trade. Otherwise, in a flat or multi-rate profit tax environment, the law should allow 100 percent expensing in the year it occurs, the relief should be available to all businesses, and the provision should be as permanent as statutes permit (i.e., not put on a specific expiration schedule). Senator Flake’s bill makes good strides toward these ends:
There are of course many meritorious options for addressing the issue of business taxes in general and expensing in particular. For example, Senators Susan Collins (R-ME) and Robert Casey (D-PA) have authored bipartisan legislation (S. 1085) to make the present expensing policy permanent, plus extend for one year the Tax Code’s allowance for bonus depreciation as well as the 15-year straight-line depreciation for certain improvements. These would be positive changes too.
As NTU noted upon introduction of Senator Flake’s bill:
NTU strongly supports tax-policy proposals that permanently expand, simplify, and accelerate expensing for all businesses. Senator Flake's legislation makes admirable progress in applying these principles to small businesses and would, properly timed, be consistent with the framework for tax reform under development in the Ways and Means and Finance Committees. Congress should act to provide business owners with greater certainty and consistency in the tax laws so they can better focus their time and energy on growing the economy.
Here’s hoping Congress can take the preceding sentence to heart and can reach agreement on a reform package that moves our tax system in the right direction.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Interested in the ideas and legacy of renowned economist Milton Friedman? Looking to discuss the latest tax reform proposals with some of DC's foremost policy experts?
Join National Taxpayers Union Foundation and the Tax Foundation on Wednesday, July 31 at the Laughing Man Tavern in downtown Washington, D.C. for this year's Milton Friedman Legacy Day. From 6-9 PM we'll be celebrating the life and work of the renowned economist with complementary drinks and a discussion of the latest in the world of tax reform. For more information on the location and to RSVP, check out the event page on Facebook.
For those outside of the metro-DC area, you can participate in the events by joining us online for a special contest. Just visit our Friedman Legacy Day website, vote for your preferred tax system reform, and you will be entered to win a $50 iTunes gift card!
We look forward to seeing you there (or online)!0 Comments | Post a Comment | Sign up for NTU Action Alerts
Subscribe to NTU's podcast "Speaking of Taxpayers" via iTunes!
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Pete & Doug discuss the President's remarks this week, Art Laffer's unconvincing study on the Internet sales tax, and NTUF's Dan Barrett discusses our Milton Friedman celebration online contest and event! Plus, the Outrage of the Week!
Today’s Taxpayer News!
Forbes continued its 11-part exploration of Dodd-Frank with this piece on the failures of Fannie Mae and Freddie Mac.
Business Insider recently updated this eye-opening collection of charts and tables related to government spending, taxation, and the federal debt.0 Comments | Post a Comment | Sign up for NTU Action Alerts