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Internet Sales Tax Supporters’ Fantasies Cannot Quell Concerns as Alternatives Take Center Stage
Posted By: Douglas Kellogg - 03/13/14

Yesterday’s House Judiciary Committee hearing about alternatives to the Marketplace Fairness Act’s (MFA’s) brand of Internet sales tax mandate offered several options that Congress could focus on, the best of which would be “origin sourcing” – yet, the most imperative statements remain the prudent warnings about the risks posed by MFA, and the need for the House to avoid this legislation first and foremost. 

Indeed, the hearing was more of a referendum on MFA than anything, and for good reason since MFA represents such a dangerous departure from traditional taxpayer protections and interstate competition. National Taxpayers Union (NTU) submitted comments to the Committee arguing against MFA and providing observations on other policy avenues, and late last year commissioned a poll with the R Street Institute finding at minimum 57 percent of respondents opposed MFA (the level of opposition rose when they were presented with “pros and cons” of the proposal).

Those testifying in favor of MFA, or nominally a Streamlined Sales and Use Tax Agreement (SSUTA), joined some of the lawmakers on the Committee in making many misguided points. The most oft-repeated of them warrant a response:

1)  “Leveling the Playing Field.” We heard multiple times that “leveling the playing field” or protecting brick and mortar establishments was the major motivation behind an MFA-type policy.

Yet, the number of brick and mortar stores that do not also sell their wares online is smaller than ever; as of 2010 they represented 38 percent of online sales. Online sales and storefront sales have both similarities and differences in their business models, so “leveling the playing field” in the way MFA does could carelessly plow under job creation and other activity that benefits the economy – and, indirectly, benefits government coffers.

Nonetheless, it is possible for sellers to participate in both kinds of retailing. Government cannot turn back the technological tide, and it cannot be valid to simply note change as a reason for panicked action.

2) The Massive Compliance Burden for Small Business. There still was no answer to the compliance burden question. Despite repeated attempts at creative explanations by several panelists -- Mr. Kranz, Mr. Crosby, and Mr. Moschella -- the main response to the threat of being subject to the rules (and audits) of nearly 10,000 taxing jurisdictions seemed to be “software.”

A 2006 PricewaterhouseCoopers study demonstrated that small businesses with sales between $1 million and $10 million still face enormous costs that would threaten profitability, causing significant harm to interstate commerce and the economy during an especially fragile time.

Even more striking, a coalition of “e-tailers” wrote lawmakers warning that MFA could cost the signatories some 220,000 jobs.

Mr. Crosby expressed faith that Congress could craft a bill combined with software that would alleviate any problems. But, unless Congress somehow took on legal liability for any failure of this software, businesses will be on the hook for any mistakes the software makes, after the cost of implementing it into their existing systems.

The significance of this part of the MFA equation cannot be understated. Has there ever been a time Congress has so succinctly prescribed a particular tool to business to deal with a law? The occasions are quite rare. If passed into law, will their advice and words of comfort mean anything for the first small business to be visited by California auditors? Would these words survive litigation?

3) Overblown Attacks on Origin Sourcing. As one might expect, pro-Internet Sales Tax panelists targeted “origin sourcing”, which would apply our current “physical presence” sales tax standards to online sales.

Where MFA would effectively have you be the property of your home state no matter where you shopped, “origin sourcing” represents the familiar situation of paying sales taxes wherever you buy something.

During the hearing Mr. Kranz in particular described “origin sourcing” as turning our tax system on its head. How using a current actual or de facto standard in many states for traditional retail could be described as turning anything on its head is not clear. Most importantly however, “origin sourcing” is the only current solution that actually represents “fairness.” It would place brick-and-mortar and online sellers under the same rules whereas MFA would only put online sellers at the mercy of out-of-state auditors.

We also heard points brought up from an Art Laffer study that made great leaps in logic by assuming states would take all their new revenue from MFA and attribute it toward tax cuts. NTU Executive Vice President Pete Sepp took these points apart previously in a piece on ntu.org.

Another common theme centered on the revenue states could rake in with such a scheme – but as noted in NTU’s testimony, these assumptions are based upon a highly-flawed methodology developed by the University of Tennessee that overstates the likely amount of revenue at stake.

While few conclusions could be drawn from the hearing, what is clear is that while experts and Committee members continue to labor under serious misapprehensions as to how the MFA will affect businesses and taxpayers alike, it is prudent for the Committee to not to rush to an MFA mark-up but to continue exploring solutions to what is a complex problem. Representative Collins (R-GA) put it best when he cautioned that implementing a framework for internet sales tax might be “closing one Pandora’s box and opening another.”

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What Budget Florida’s 13th District Elected
Posted By: Dan Barrett - 03/12/14

Yesterday, voters in the 13th Congressional District of Florida elected Republican David Jolly to finish out the late Congressman Bill Young’s (R-FL) term. A former counsel to the late Congressman, Jolly sought to continue some of the goals of Rep. Young as well as to elevate other fiscal issues to the national stage.

Now that taxpayers know who will be representing them in Washington, DC, the question remains what policies Congressman-elect Jolly will pursue. Though Jolly was outspoken about his opposition to the Affordable Care Act, many wonder what else will be on his agenda until another election is held in the district this November. To help educate voters before yesterday and to answer lingering questions today, NTU Foundation compiled all of the direct quotes and campaign literature put out by David Jolly (and the two other frontrunners) to show taxpayers exactly what kind of a federal budget he would support and what questions remain for the newest member of the House of Representatives. Check out the full Florida special election report.

What numbers we have: David Jolly had three specific policies that were clear enough to be scored. NTUF matched his proposals with in-house or third party data and, similar to our BillTally project, accounted only for changes in budgetary spending (or outlays). If these three were enacted, the government would spend a net $60 billion less per year.

  • Repeal the Patient Protection and Affordable Care Act: -$63.9 billion (savings)
  • Secure the Border: $3.68 billion
  • Prevent National Flood Insurance Premium Hike: $180 million

Jolly’s unknown spending policies: We have been analyzing campaign agendas for years but campaigns continue to not provide Americans with the information they need to understand how those seeking office would affect their tax dollars and their government. Though they were too broad to be quantified, NTUF found seven platform items that could affect the federal budget. The difficulty of scoring these policies is not new.

  • Index the Minimum Wage
  • Block Medicaid Expansion Without Federal Guarantee
  • Purchase Insurance Across State Lines
  • Ensure the Military is Properly Equipped
  • Fight for Local and Regional Military Installations
  • Strengthen America’s Foreign Policy
  • Protect Veterans Programs and Funding

Where savings could be: Depending how items would be scored by the Congressional Budget Office, one policy might save the government money. Jolly spoke of blocking the expansion of Medicaid -- an Affordable Care Act provision -- which might save money if Florida’s share of funds would be dedicated to deficit reduction.

Spending still prevalent: Six proposals in Jolly’s platform would either reallocate existing federal spending or increase expenditures by potentially billions of dollars. Without clarification, it is impossible to determine (for example) how keeping local and regional military bases open would affect other defense spending programs, potentially costing taxpayers more in the long run. It is hoped that as time goes on and Rep. Jolly organizes his staffs in Washington and Florida, he will clarify his positions on the above proposals and provide the intended or projected costs.

On net: Though it is not likely that a single Representative will affect federal spending on a mass scale, it is certain that David Jolly will vote on important fiscal issues. Those votes might point the government in a fiscally-sustainable direction or continue America’s deficits. Votes might include reforming the complex tax code, reauthorizing federal highway spending, and/or the many small bills that add up to big changes. The important takeaway from Florida’s latest special election is that candidates need to communicate their complete platforms to taxpayers and, once in office, to live by those promises. NTUF will be analyzing and scoring David Jolly’s legislation, just as we do so with every introduced bill in Congress.

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House Restarts Debate over Satellite TV Bill
Posted By: Brandon Arnold - 03/10/14

On Wednesday, March 12, the House Energy & Commerce Committee’s Subcommittee on Communications and Technology will hold a hearing on the reauthorization of the Satellite Television Extension and Localism Act, or STELA as it is commonly known. First passed in 1992, this legal framework was originally intended to foster competition in the pay-TV marketplace.

The current law expires at the end of 2014 and this week’s hearing has the potential to launch Congress into a contentious battle over several complex issues. Lawmakers could, for instance, pursue aggressive regulatory reforms along the lines of the Next Generation Television Marketplace Act (H.R. 3720). Back in 2012 my former NTU colleague Andrew Moylan described how the legislation would “eliminate retransmission consent and compulsory license provisions, thereby placing negotiations between television content and service providers on a more level and clearly delineated playing field.”

However, rather than implementing a major regulatory overhaul, it appears Congress will probably take a less volatile route. According to the Committee’s draft legislation, which was released late last week, , the House will likely pass a relatively “clean” STELA reauthorization bill. The Committee’s draft recommends a few changes to current law, such as allowing cable and satellite companies to negotiate rates with individual broadcasters instead of being required to conduct joint negotiations. However, the proposal avoids more controversial issues, like ending the requirement that cable companies must include network broadcasts on their basic programming tier. Taking a safer route would make legislative passage easier, but it could very well mean that debate over additional market-driven,  consumer-oriented policies will have to wait until another opportunity arises. Given the current political environment, that may even mean the next Congress.

 

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CPAC Caps Conference Season
Posted By: Douglas Kellogg - 03/10/14

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NTU & NTUF hit the two big conferences this late winter, the International Students for Liberty Conference (ISFL), and of course the granddaddy of them all, CPAC, the Conservative Political Action Conference – with encouraging results.

If you missed any of the action, check out our pictures on Facebook and our Instagram account, or Twitter to catch up. We also recorded a special two-part CPAC podcast from the floor, featuring six guests covering everything from digital liberty to state pension gimmicks.

After it first debuted with success at ISFL, hundreds of CPAC attendees rushed to play “Cards Against Liberty” at our booth and become NTU members. Players would finish sentences including “What keeps John Boehner up at night” and “The IRS’s next target:” with quips like “the finale of Breaking Bad”, “Obamacare”, or “Adlai Stevenson.”

In addition to the games, NTU staff educated on big issues like the President’s budget, threats of increased taxes, and how to get involved in local taxpayer activities… and Federal Affairs Manager Nan Swift even had some fun chatting with NPR.

Big government may seem to be on the march, but even with Darth Vader at the conference, the taxpayer movement is poised to strike back with your help!

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"Speaking of Taxpayers" from CPAC 2014, Part 1 (with link to Part 2!)
Posted By: Douglas Kellogg - 03/10/14

Subscribe to NTU's podcast "Speaking of Taxpayers" via iTunes!

We're back from the bustling floor of CPAC! A special, extended edition of "Speaking of Taxpayers" has all the action as we discuss the conference & chat with a number of great guests. In part one of this two-part podcast, Pete & Doug talk about the Obama budget with TPA's Michi Iljazi; and budget busting pensions, Medicaid expansion, and expensive gimmicks with Corey Eucalitto & Joe Lupino-Esposito of State Budget Solutions...Click for Part 2!

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Changes to Medicare Part D Could Cost Taxpayers Billions
Posted By: Brandon Arnold - 03/03/14

Since Medicare Part D’s creation in 2003, National Taxpayers Union has expressed concerns about its impact on the federal budget. The program, which instituted a prescription drug benefit for Medicare, cost $55 billion in 2012 – a hefty price tag, yet much less than original projections that suggested it would saddle taxpayers with a $123 billion burden.

It’s encouraging (and extremely rare) to see a federal program defy the trend and actually come in well below the cost forecasts. Unfortunately, recent actions by the Obama Administration could take Part D in the wrong direction. In approximately 700 pages of text, the Centers for Medicare and Medicaid Services (CMS) has proposed wholesale changes that could reduce options within the program, increase premiums, cancel or significantly alter millions of existing plans, and force taxpayers to shell out more. In fact, a study by the Milliman actuarial firm concluded that Part D would cost an additional $1.6 billion per year if the rules are adopted.

Thankfully, a bipartisan group of 20 Senators led by Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Orrin Hatch (R-UT) recently expressed very strong objections to the proposed rule in a letter to CMS Director Marilyn Tavenner. Similarly, a letter to Director Tavenner from House Ways & Means Chairman Dave Camp (R-MI), House Energy & Commerce Chairman Fred Upton (R-MI), and Senator Hatch asks her to “reject these harmful changes to the Part D program and withdraw this proposed regulation.”

The CMS proposal is yet another example of the Obama Administration’s over-utilization of the rulemaking process.  As strong bipartisan opposition to the rule continues to grow, NTU hopes CMS will be mindful of taxpayers as well as seniors, and abandon it altogether.

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Latest Taxpayer's Tab: FL Special Election & The Belly-Button Tax
Posted By: Michael Tasselmyer - 03/02/14

Tab Insert

Congressman Bill Young passed away last year, meaning that Floridians will have to elect a new Representative on March 11 to finish his term in the House. The three candidates -- David Jolly (R), Lucas Overby (L), and Alex Sink (D) -- have made a lot of promises as they vie for the open seat, but what do their proposals mean for taxpayers?

That's what NTUF's Research and Outreach Manager, Dan Barrett, tried to find out in the report featured in this week's edition of The Taxpayer's Tab. NTUF sifted line-by-line through each candidate's campaign speeches, websites, and debate transcripts to compile a list of proposals they're running on and that could affect the budget, then compared those promises to current or proposed legislation in our BillTally database to come up with each politician's net spending agenda. While no candidate offered much in the way of details, NTUF was able to score some of the proposals and figure out how much each of their agendas could cost:

  • David Jolly: -$60.04 billion
  • Lucas Overby: $191 million
  • Alex Sink: $20.391 billion

Links to a summary as well as the full report are in the Tab's online edition.

Also featured this week:

  • Most Expensive: Senator Barbara Mikulski (D-MD) introduced S. 1086. The Child Care and Development Block Grant Act would reauthorize the eponymous federal program at $1.6 billion above current levels over the next five years.
  • Least Expensive: The "Belly-Button Tax" is a provision within the Affordable Care Act that charges certain group health plans a fee over the next three years in order to stabilize premiums in plans covering higher-risk enrollees. Congressman Pat Tiberi (R-OH) introduced H.R. 3489 in order to repeal that provision and replace it with appropriations $5 billion below current funding.
  • Wildcard: Puerto Rico and the U.S. Virgin Islands are well-known for their rum production. What many don't know is that the government reimburses them for some of the taxes they pay to ship it to the 50 States, through what's known as a "cover over." The rate at which it does so recently fell, so Resident Commissioner Pedro Pierluisi (D-PR) introduced H.R. 3967 to restore the cover over rate to its higher previous levels. The bill is a revenue-only provision and is therefore not counted as a "cost" in the BillTally methodology.

For more, check out The Taxpayer's Tab online.

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(AUDIO) Tax Reform-cast w/ James P. Pinkerton of RATE Coalition - Speaking of Taxpayers, Feb. 28, 2014
Posted By: Douglas Kellogg - 02/28/14

Rep. Dave Camp (R-MI) released his tax reform proposal this week, and the response is still echoing throughout the policy world. James P. Pinkerton, Co-Chair of the RATE Coalition, joins the podcast to discuss the tax reform effort. Plus, the Outrage of the Week!

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Get Ready for Another Round of Internet Sales Tax Brawling
Posted By: Douglas Kellogg - 02/27/14

The Internet Sales Tax debate is about to heat up yet again! Today, NTU attended a briefing organized by Rep. Steve Daines (R-MT) that offered many good reasons to be wary of the Marketplace (un)Fairness Act (MFA). The briefing featured Montana Attorney General Tim Fox, Phil Bond of the WE R HERE Coalition, and R Street’s Andrew Moylan. There will a formal hearing next week and those interests motivated by new revenue, or a business advantage, see this is their chance to make headway in the House.

Fox made clear that the MFA is not so much about e-commerce, as it is about the 31 states unable (or unwilling) to balance their books – at a total of $55 billion in collective deficit – looking for the power to snag more revenue. In this case that revenue would come from out-of-state businesses who they previously had no ability to burden.

The Montana AG said the MFA scheme was like an “illicit drug” and that it would make the federal government a proverbial drug dealer, leading addicted states to more revenue, rather than fiscal responsibility. He also alluded to the possibility of legal action by the states should this scheme move forward.

Andrew Moylan explained the significance of the poll commissioned by NTU and R Street a few months ago (which you can read through HERE). He emphasized that the poll found across the board opposition to an MFA-type Internet Sales Tax scheme, and that people understood the current taxing principles such a policy would destroy.

WE R HERE’s Phil Bond added insight on the plight of small business in this struggle, saying thousands of enterprises would disappear overnight, thanks to 17 cents per dollar of additional compliance costs.

Of the risk of audit from over 10,000 taxing jurisdictions, Bond quipped, “When you get an audit, there’s not an app for that.”

More ominously Bond warned of the unintended consequences of such a broad change in law. For the pro-tax group, the dollar signs flashing in front of them may not come to pass, these taxes on the state level in California and Illinois have fallen woefully short of revenue projections. He also discussed consumers dealing with their state watching what they were buying online because they in essence owned them.

Taxpayers can do more than just hope the House listens to these, and many other, dire consequences of a Marketplace Fairness Act scheme. They can contact their representatives and tell them: we understand what MFA would do, don’t trash my constitutional protection against out-of-state taxing authorities, and don’t destroy the system of interstate competition that has served our country so well.

This remains a long fight, but taxpayers have to stay on their feet and never give up.

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