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All too many federal agencies can be cited for having budgetary skeletons in their closet, and U.S. Customs and Border Protection (CBP) is no exception. From poorly managing a drone fleet purchase, to making questionable demands for more employees, CBP has raised fears for the security of taxpayers’ wallets in the past. Yet, Congress has an opportunity to ease future fears, over a controversial new CBP project, before it can cause a fiscal fright.
Two years ago, the U.S. Department of Homeland Security (DHS) concluded a letter of intent with the United Arab Emirates to build a “pre-clearance” facility at Abu Dhabi airport which would allow travelers to the U.S. to clear customs before arriving on American soil. So far, so good: pre-clearance can not only save time and reduce congestion at U.S. points of entry, it can also help ease the way for tourists who contribute to economic activity while visiting here.
Now for the not-so-good:
All these drawbacks lead to one long question: Given CBP’s service challenges at existing airports, is it really a good idea to plow ahead with a facility whose use will be comparatively scarce in the near term, and give another leg-up to an airline backed by its own government as well as ours, at the expense of an already overtaxed flying public?
And “overtaxed” is an understatement. As NTU has often noted, the typical overall government tax and fee burden of 20 percent on a $300 domestic airfare is higher than the average effective rate a middle-class American is likely to pay on his or her 1040 income tax return. International air travelers can have it even worse, with impositions such as separate departure and arrival taxes along with a passenger agricultural inspection fee (which the Obama Administration ill-advisedly considered raising in 2009) and a customs fee.
Proponents of the CBP station at Abu Dhabi argue that the investment of U.S. tax dollars will be minimal since UAE will pick up 85 percent of the project’s expense under the current agreement. But that’s little comfort to tax-weary travelers in America (see above), who remain worried that whatever share they will be forced to commit could escalate if construction or operating costs are not contained. Meanwhile, there’s that pesky matter of how best to apply CBP’s fee collections as well as appropriations from general funds – should they be used to expedite higher-priority passenger and cargo entry-exit services?
Many Members of Congress seem to think so. In June, the House of Representatives passed an amended FY 2014 DHS Appropriations Bill specifically blocking the Abu Dhabi pre-clearance scheme. In May, a bi-partisan group of 11 Senators echoed the sentiment of their House colleagues in a separate letter to DHS Secretary Janet Napolitano, questioning whether the agency’s “decision was made as a result of a risk based analysis.”
Alas, earlier this month DHS announced it was moving forward with a data-sharing agreement that could pave the way for the facility’s activation, even as it faces a concerted petition effort from interested industry groups with considerable clout.
Regardless of the politics involved, the taxpayer aspects of the issue deserve further exploration – that goes not only for the Abu Dhabi pact but also the ever-troubling direction of the Ex-Im Bank. Allowing the free market and fiscal responsibility to sort out needs from niceties would provide some badly-needed bone-rattling for those accustomed to budgetary business as usual in Washington.1 Comments | Post a Comment | Sign up for NTU Action Alerts
Detroit recently followed in the shoes of several other US cities in filing for bankruptcy. Theories abound as to the root of the problem: an overbearing public-pension burden? The devastating loss of auto-industry jobs? Rising crime, and the flight of the middle-class it precipitated? Even all these problems, though, can be traced back to one overarching cause: taxes.
Detroit boasts some of the highest tax rates in the nation, and its residents already face the highest income tax rates allowable by Michigan law. Overall, those in Detroit struggle under the highest per-capita tax burden in the state, despite an unusually high percentage living below the poverty line.
Property taxes make up a huge portion of this tax burden for property owners in Detroit. In 2011, the city ranked first in a study of property tax rates in the 50 largest U.S. cities, and assessments of the properties themselves tend to run high.
The Detroit News released a series showing that many houses are assessed at ten times their actual value, and appeals can sit in limbo for an extended period of time before being resolved. To add insult to injury, many Detroit residents don’t feel they’re getting their money’s worth. A number of corrupt government officials (including former mayor Kwame Kilpatrick) and soaring government costs took their toll on city services, eventually becoming evident in rising crime and failing schools. The housing crash and the loss of most of the city’s manufacturing jobs (the crime rate and poor business climate having driven the automotive industry largely out) were the final straw for many Detroit natives, and the upper-and middle-classes began to leave the city in droves.
Naturally, this only made the tax revenue situation worse. As the population sank, so did the amount of money coming into the city coffers. Recovery for Detroit might have happened, if the business climate could have supported recovery. However, mismanagement again took over, and regulation and taxes increased, if anything. The real estate market could not properly bounce back, as city law requires all the back taxes be paid on every property bought at foreclosure - the only exception is for a select few pieces of real estate auctioned once a year by the city. So, when the housing market plummeted and Detroiters began to flee the city in the wake of lost jobs and exponential increases in crime, no incentives existed for speculators to purchase foreclosed properties for investment. As a result, the real estate simply sat in the hands of banks and the city, and eventually became derelict.
Those who did own or buy properties found themselves with an entirely new set of problems. As Detroit’s finances began to collapse, the tax-collecting infrastructure fell through with it. The city eventually began forcing employees to take an unpaid day of leave every two weeks, adding still another complication to the process. One business attempted to pay $25,000 worth of property taxes, only to find that the collection office was closed and no one would be there to receive payment. That scenario also assumes residents are receiving tax bills at all - which many are not. With this sort of bureaucracy in place, is it any wonder only 50% of property taxes in 2011 ended up in the city coffers?
High taxes certainly aren’t the only thing that drove Detroit to bankruptcy. However, the lesson Motown’s crash has to offer other cities cannot be ignored. The crippling effect of taxes can’t go on forever, even in a healthy economy - and other governments across the nation would do well to take note of that fact.2 Comments | Post a Comment | Sign up for NTU Action Alerts
Senate Republicans, led by Senate Minority Leader Mitch McConnell (R-KY), held off a bloated Fiscal Year 2014 Transportation, Housing and Urban Development (THUD) appropriations bill yesterday with a 54-43 cloture vote. The defeat of the Senate THUD appropriations bill comes only a day after the House version was unceremoniously yanked from the floor as support for the spending measure dwindled.
Taxpayers everywhere should be much relieved to see the THUD bill grind to a halt. Operating under the strange (and false) impression that the Budget Control Act (BCA) isn’t the law of the land, Senate Appropriations Committee Chairwoman Barbara Mikulski (D-MD) has been blithely appropriating far above the $967 billion discretionary spending limits imposed by the sequester, as reported in the TheHill.com:
The Senate Appropriations Committee will write fiscal 2014 bills according to the top-line discretionary spending level in the Senate and White House budgets, ignoring the sequester cuts in current law.
By crafting bills at the $1.058 trillion level set by the Obama and Senate budgets, Senate Appropriations Committee Chairwoman Barbara Mikulski (D-Md.) is setting the stage for a showdown with the House, which intends to use the $966 billion level set by sequestration.
National Taxpayers Union issued a strongly-worded vote alert urging Senators to oppose the bill early last week, explaining:
Weighing in at a staggering $54 billion, S. 1243 is $2.4 billion more than the President’s request, $10 billion beyond the House version of the bill, and $2.3 billion over FY13 pre-sequester spending levels. Taxpayers are the ultimate victims when the Senate persists in ignoring the realities of sequestration and the limits imposed by the Budget Control Act. By funding 302(b) allocation levels for discretionary spending at $1.058 trillion, the Senate makes it that much harder for appropriation bills to ever move through normal order.
We also went on to point out one missed opportunity for taxpayer savings after another:
Only a day before the Senate’s THUD bill went belly-up due to its out-of-control, unrealistic spending, TheHill.com reported that House Appropriations Committee Chairman Hal Rogers (R-KY), “hinted that a vote on the [House THUD bill] was scrapped because leaders didn’t have the votes to support the deep cuts he was directed to write.”
Given the fact that earlier this spring House Republicans supported the $967 billion discretionary spending cap enshrined in the House budget in accordance with the BCA, and a Senate THUD bill that spent far more couldn’t garner the 60 votes needed for cloture, this seems to be more a matter of misappropriated priorities than a case of too many “deep cuts.” Instead of adhering to the separate defense and non-defense discretionary spending caps imposed by the BCA - and sticking with across the board spending restraint – House appropriators shuffled the deck chairs in other areas to pay for significant plus-ups on the defense side to keep all the appropriations bills under the total cap.
When viewed in light of the profound fiscal challenges we face, legislators should be looking for savings everywhere and favored projects shouldn’t escape scrutiny, especially when there is plenty of room to save across the budget on both the defense and non-defense sides.
Sadly, for taxpayers, legislators might be forgetting that the Budget Control Act and sequestration are about slowing the growth of spending, not the “draconian” spending cuts we hear about from big government proponents. Legislators in both houses are starting to look for a way out from under the law that is reining in their profligate tendencies.
House Appropriations Chairman Rogers went on:
“With this action, the House has declined to proceed on the implementation of the very budget it adopted just three months ago,” Rogers said. “Thus, I believe that the House has made its choice: sequestration — and its unrealistic and ill-conceived discretionary cuts — must be brought to an end. And, it is also clear that the higher funding levels advocated by the Senate are also simply not achievable in this Congress.”
Across the Capitol in the Senate, it looks more and more likely Majority Leader Reid will push for a sequester replacement bill as soon as September.
For supporters of less spending and less government, the dual defeat of two major spending bills draws a clear outline of the next big battle and highlights what our priority should be moving forward: hold the line on BCA caps and sequester-level funding, hold the line on spending overall.
Luckily for taxpayers, Senator McConnell has proven that he can. As taxpayers look ahead, we shouldn’t just hope the Senator can do it again, we need to work hard to help make sure all our legislators remain focused on these vital tasks.
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Rep. Jeb Hensarling of Texas talks the PATH act and housing finance reform, latest updates from the fight to protect taxpayers, and the Outrage of the Week!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
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
The Senate Finance Committee received some negative attention last week when it solicited comments on tax reform from Senators with the odd stipulation that any such submissions would be kept confidential for 50 years. A clandestine submission process certainly runs counter to the notion of a transparent, open government. And this is particularly true given the complicated and burdensome nature of our tax code, many provisions of which are carve-outs and exemptions designed specifically by and for special interest groups.
The Committee should open up this process, not only by making all comments publicly available, but also by soliciting opinions from all Americans. Its counterpart in the House, the Ways & Means Committee, did exactly this and received a multitude of comments from various individuals and groups. The Joint Committee on Taxation summarized these comments in a report that can be found here.
But there are even bigger challenges than secrecy. Before it continues to pursue fundamental tax reform, the Senate Finance Committee should commit to an end product that is revenue neutral. Politically speaking, this is the only way tax reform has a chance to proceed in the divided Congress. But more importantly, committing to revenue neutrality effectively removes the possibility that the tax code overhaul would result in a system that causes even more economic drag than the current code. In short, the goals of tax reform should be fairness, simplicity and economic growth – not an expansion of the size of government. Fourteen Republican Senators made this same point in a letter they sent last week to Finance Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT). The letter also wisely noted that there was bipartisan agreement on the principle of revenue neutrality before the successful tax reform efforts of 1986 – a fact that should surprise no one.
Partisan tensions are high right now on Capitol Hill and passing even the simplest bill can be difficult. If a major legislative initiative like comprehensive tax reform is going to gain traction, it’s important to set fair and appropriate ground rules now. That means committing to a transparent reform process with a goal of revenue neutrality.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
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 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