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The Payroll Tax Deal
Posted By: Andrew Moylan - 12/22/11

So, good news/bad news. The good news is it sounds like we have a deal to extend the lower payroll tax in order to prevent a substantial tax increase from hitting folks in the midst of a very difficult economy. The bad news is it's only good for two months (for now). The House will pass a two-month extension of the payroll tax (with one language tweak to fix the glitch I blogged about recently) and Democratic Leadership will name conferees for the year-long version in order to negotiate a final bill. In essence, the two-month patch gives some breathing room for negotiators to hammer out a bill fcovering the rest of 2012.

Lots of liberal media-types are protraying it as a big "cave" by House Republicans, which is a bit puzzling to me. Yes, House Republicans are now agreeing to pass a two-month extension that they (rightly!) pointed out was not good long-term tax policy, but Senate and House Democrats are pledging to stop their obstruction of the conference committee process for the year-long extension at the same time. So really, both sides are giving some ground here. The result is a two-month reprieve and, hopefully, a speedy resolution on a year-long product that maintains lower payroll taxes, trims spending, and maintains job-creating provisions like expediting the Keystone XL pipeline.

For taxpayers, the real test will be when Congress returns in the new year and begins work on the longer-term bill. Nobody can really call this deal "victory" until we have secured a legitimate year-long extension of lower payroll taxes coupled with spending reductions. I hope that Harry Reid, Nancy Pelosi, and their appointments are going to be productive participants in the conference process so that they can join House Republicans as the only Members of Congress to pass a full-year payroll tax extension early next year.

 

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Who's Right on Payroll Tax Fight? The House is Closer
Posted By: Andrew Moylan - 12/21/11

In the ongoing saga of the payroll tax, there's now a fight between the House and Senate approaches to the problem. The House passed a year-long extension of the reduced payroll tax and coupled it with several other good things (expediting a decision to approve the Keystone XL energy pipeline, full expensing of certain assets for businesses) and, unfortunately, some not-so-great things as well (a further extension of extraordinarily long-term unemployment benefits, though in transitioning from a 99-week to a 59-week duration the bill did return substantially closer to the 26 weeks that prevailed pre-recession).

Of even more concern to us was the fact that bill text was available for little more than a day before voting occurred, in direct contravention to House Republicans' pledge to give 72 hours to review all legislation. All told, it wasn't the greatest piece of legislation ever drafted, but it was enough to garner NTU's qualified support because it would have prevented a substantial tax increase in the middle of a difficult economic recovery while advancing the cause of job-creating efforts like Keystone XL.

As is its custom these days, the Senate did not take up and pass the House bill. Instead, they crafted their own two-month extension of the bill thus ensuring another battle over the payroll tax early in the new year. It passed Saturday morning, and right away Speaker Boehner and other House Republicans began saying they could not support this short-term patch. To compound the issue, payroll experts have said that the Senate bill is unworkable anyway. In short, a tweak in the Senate version would essentially create a two-bracket payroll tax (as opposed to the single, flat rate that exists today) which payroll processors claim that their systems cannot accommodate.

NTU's preferred solution to the problem would be to pass a single piece of legislation that extends the reduced payroll tax rate and pairs it with substantial spending reductions to ensure that there is no deficit impact. Heck, we even gave Congress a trillion-dollar head start on identifying the low-hanging fruit of wasteful spending. Neither bill adhered to our preference, but who got closer? Which approach is better for taxpayers?

The answer is the House version. Congress' recent practice of passing short-term extensions on just about everything (the "doc fix," the AMT, the yearly package of "tax extenders," continuing resolutions to fund the government, etc) is quickly becoming more than just tiresome and unfortunate. It's becoming a real threat to taxpayers. Everyone in Washington has known for the entirety of 2011 that the reduced payroll tax rate would expire at the end of the year. We had an entire year to craft a bill that would prevent a tax increase and reduce spending, but only now, a few days before Christmas and just ten days before the end of the year, is Congress even dealing with the issue. The time has come to stop budgeting in fits and starts.

Taxpayers deserve better than this, and businesses and employers all across the country deserve to know what tax system they'll have to comply with in a week and a half. Both chambers of Congress should return to Washington and hammer out a solution, whether through a conference committee or a negotiated solution that prevents a tax hike, cuts spending, and moves the ball forward on job creation.

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Nanny State Program Faces the Ax
Posted By: Andrew Moylan - 12/15/11

An impossibly ridiculous program that has wasted millions of your tax dollars funding nanny state campaigns to pester you about health might finally be at death's door. The "Prevention and Public Health Fund" (which I warned about more than a year and a half ago when it had a different name and piles of cash from the "stimulus" bill) looks to finally face the ax at the hands of the House of Representatives when it votes tomorrow on the massive $1 trillion "megabus" appropriations bill.

H.R. 3671, the Consolidated Appropriations Act, takes aim at the PPHF and its funding of state- and local-level campaigns for higher taxes and stricter regulation on everything from soda to tobacco products. Though they are of course justified in the name of "public health," the PPHF-funded efforts have spent millions of hard-earned taxpayer dollars in support of a host of policies that raise costs and restrict availability for perfectly legal products while nagging people to exercise more and eat their Brussels sprouts. Kudos to House appropriators (you won't hear me saying that very often) for seeing fit to include language in the megabus to put an end to this insanity.

The "slippery slope" argument that is so frequently deployed in Washington isn't always accurate, but the PPHF is perhaps the best example that it not only exists but is even steeper and more slippery than we could have imagined. Decades ago when the anti-tobacco crusade really began in earnest, many limited-government advocates warned that it would only be a matter of time before government began trying to tax into extinction and restrict other products with which they were displeased. Those warnings are proving prescient now that many states and localities are fighting battles not just against so-called "sin" products like tobacco or alcohol, but on fatty foods, sugar-sweetened drinks, even SALT for God's sake! But the PPHF really takes the cake (as long as cake is still legal, that is) because in many cases, those dollars are handed out to lobbyists and PR firms to run glitzy ad campaigns to snuff out whatever products or behaviors Big Brother doesn't like. Tax dollars funding lobbyists who fight to raise your taxes! It's a spiral of stupidity.

Thankfully, House Leadership has seen that insanity for what it is and targeted it in the appropriations bill. Here's hoping that, whatever happens with the end-of-the-year appropriations fight, common sense prevails and the PPHF gets what it deserves: elimination. After all, if Congress can't cut a program this egregious, what can they cut?

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Why is President Obama Threatening a Bi-Partisan, Job-Creating, Payroll Tax-Cutting, Unemployment Insurance-Extending Bill?
Posted By: Douglas Kellogg - 12/14/11

The President has been going to the mat pressuring Congress to extend the current payroll tax rate reductions, allow unemployment insurance to be collected beyond the current 99-week limit, and of course has paid much lip service to ‘creating jobs’. So the House-passed “Middle Class Tax Relief & Job Creation Act” should be a perfect Christmas present for President Obama.

The National Taxpayers Union supports this bill despite its imperfections because (among other things) it avoids a tax increase, will eventually help to reform unemployment insurance (a topic NTU recently addressed), and will give the green light to the Keystone XL pipeline – an initiative that is practically guaranteed to create THOUSANDS of American jobs.

A slam-dunk right? President Obama wants to help put folks back to work, and is in favor of all that! Nope. The President has threatened to veto the bill and Sen. Reid (D-NV) is on the march to prevent that scenario from having to play out.

The alternatives preferred by the President would extend the payroll tax reductions and unemployment insurance while pursuing tax hikes on politically convenient targets in the name of ‘paying for’ the new spending and defunding of Social Security and Medicare. Once again the President and his Senate allies seem to be putting their job-killing moves in writing, even as they devote  their airtime to claim interest in job creation.

If the President and Harry Reid truly desired what they claim, they would be thankful to help enact legislation that has so much potential to put Americans back to work, extends the benefits they want, and essentially asks them to compromise on reducing spending to offset any revenue loss, rather than further crippling job creators.

Perhaps with more concerned citizens voicing their support for this bill, minds can be changed. It’s high time Senate leaders and President Obama put aside their vendetta against specific industries and high-income earners and helped put Americans back to work.

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Repatriation a Win-Win for Taxpayers, Washington
Posted By:  - 12/08/11

Recent reports indicate that Speaker of the House John Boehner and House Majority Leader Eric Cantor are debating whether to include a repatriation holiday in the legislative package to extend the payroll tax cut and jobless benefits.

Politico reports:

They’ve also been on opposite sides on the issue of repatriation — corporations bringing foreign profits back to the U.S. at lower tax rates. Cantor has been vocal in his support for the process, it’s a favorite of K Street and roughly a quarter of the Republican Conference has signed a letter supporting the idea.

But Boehner is staunchly opposed to tacking it onto the year-end agreement — the optics would be terrible, he thinks, since the Congressional Budget Offices says it adds tens of billions of dollars to the budget. Suddenly, a bill that cuts money would become one that adds to the deficit.

NTU has long been an advocate of fundamental corporate tax reform – lowering the rate and instituting a territorial system. But repatriation – temporarily reducing the tax rate on foreign earnings - is a positive interim step that would bring investment back to our shores and provide a shot in the arm to our ailing economy. Indeed, a recent examination by former CBO Director Douglas Holtz-Eakin on behalf of the Chamber of Commerce found that repatriation could raise GDP by $360 billion over two years and add 2.9 million new jobs to the economy.  

But taxpayers wouldn’t be the only ones to benefit by opening a temporary repatriation window. A August study by former Clinton advisor, Dr. Robert Shapiro, has found that repatriation could provide a significant boost to the U.S. Treasury as well. His research found that contrary to the “terrible optics” that Rep. Boehner mentioned, repatriation would produce revenue gains of $8.7 billion over 10 years, compared to the Joint Committee on Taxation’s estimate of a 10-year cost of $78.7 billion.

It’s a win-win for taxpayers and Washington, for the job-focused and deficit-hawks, and for Republicans and Democrats alike. Now is not the moment for intra-party squabbling. It’s time to provide businesses with some relief from our uncompetitive tax rates by including repatriation in any year-end extenders package that House Republicans send to the Senate.

 

For more information check out some of NTU's recent work on the issue HERE and HERE.

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The Power of Spending Addiction in Illinois
Posted By: Brent Mead -

Illinois seems to have a default answer to all budget and spending decisions: Put it on the taxpayer’s tab. That is the only conclusion I can draw after reading that another local government in the Land of Lincoln wants to raise alcohol taxes rather than cut spending. Following on the heels of Cook County’s decision to massively increase taxes on alcohol, the Elgin City Council is pushing for a three percent hike. Astute readers of maps might note that portions of Elgin cross into Cook County so some lucky residents will get to pay both taxes!

The full proposal laid out earlier this week is to close the city’s budget deficit by raising the sales tax .5 percent to 1.25, impose a new leaf collection fee, and raise refuse fees in addition to the aforementioned alcohol tax. The City Council is pushing this scheme to avoid cutting government handouts to various non-profit associations. The sales tax is estimated to cost consumers $1.7 million in higher taxes per year, raising the alcohol tax will cost up to $1 million per year, and the city does not provide revenue estimates on the leaf or refuse fees.

As a matter of perspective, Elgin currently operates on a $268.7 million annual budget. The supposed impetus for these fee and tax increases is to close a $4.5 million deficit. The quick math shows that the deficit is roughly 1.5 percent of spending. Rather than continuing the Illinois tradition of nickel and diming every last cent from taxpayers the city could look to cut back just a little bit. For every dollar currently spent by departments, the deficit would be non-existent if they cut back to a measly $.98.

Furthermore, the use of sin taxes -- small, targeted excise taxes on goods such as cigarettes and alcohol -- are among the most politically expedient yet economically counterproductive policy prescriptions for revenue-hungry lawmakers. Officials at all levels of government find such taxes alluring because opposition tends to be weaker, since only a relatively small percentage of the population uses the good or service in question.

Notwithstanding any moral arguments for or against smoking, drinking, or gaming, Elgin should know the downsides of these taxes better than most. In fact, one of the drivers of the current deficit is an overreliance on the Grand Victoria Riverboat to sustain high local spending levels. Yet the City now wants to supplement the declining gaming revenues with an additional tax on alcohol. What needs to happen is for Elgin to go cold turkey on sin taxes.

As NTU has pointed out in the past, Elgin's experience is the logical progression of these taxes. Our study found that of the 35 tobacco tax hikes on the state level between 2004 and 2006, 22 were followed up with subsequent tax increases. Quoting directly from the City’s website;

However, Elgin’s primary street improvement funding source, the Grand Victoria Riverboat is becoming a less reliable revenue generator. To address this imbalance, the city’s proposed budget includes a half-cent increase in sales tax, taking it from .75% to 1.25%. Sales tax provides a way to diversify revenue streams without placing the burden solely on Elgin residents, as sales tax is paid by non-residents shopping in Elgin.  

Arguments for exporting the local tax burdens aside, the City is demonstrating precisely what NTU has warned about time and again. Sin taxes, whether they be gaming, tobacco or alcohol, inevitably lead to higher taxes on everyone at some point. The root cause of the problem is an addiction to spending. Shifting the burden onto politically convenient targets does not cure the disease.

 

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IRS Has Serious Internal Control Deficiencies, Says GAO
Posted By:  - 11/15/11

A guest post from our good friend Tim Wise at ACTA.

The U.S. General Accountability Office (GAO) has completed its audit of the IRS's Fiscal Years 2011 and 2010 Financial Statements (summary, 1-page highlights and full report, both require Adobe). As the GAO reports, "IRS is a large and complex organization, posing unique operational and financial management challenges for its management. IRS employs over 100,000 people in its Washington, D.C., headquarters and over 700 offices in all 50 states and U.S. territories and in some U.S. embassies and consulates."

In the report highlights, GAO wrote that it found:

"In GAO's opinion, IRS's fiscal years 2011 and 2010 financial statements are fairly presented in all material respects. However, serious internal control and financial management systems deficiencies continued to make it necessary for IRS to use resource-intensive compensating processes to prepare its balance sheet. Because of these and other internal control, compliance, and system-related deficiencies, IRS did not, in GAO's opinion, maintain effective internal control over financial reporting as of September 30, 2011, and thus did not have reasonable assurance that losses and misstatements material to the financial statements would be prevented or detected and corrected timely."

While GAO said that "IRS continued to make strides in addressing its deficiencies in internal control," it also said:

"However, deficiencies remain concerning (1) material weaknesses in internal control over unpaid tax assessments and information security, (2) a significant deficiency in its internal control over tax refund disbursements, (3) a noncompliance with the law concerning the timely release of tax liens, and (4) financial management systems' lack of substantial compliance with FFMIA requirements . . . ."

GAO also points out that 182 recommendations remain "open" from its prior audits of IRS's financial statements. Here is how GAO reports that in more detail on page 14:

"We have reported on IRS's internal control weaknesses in prior audits and have provided IRS recommendations to address these and other less-significant issues. As of the date of this report, 182 recommendations related to our financial statement audits were still open, of which 10 relate to the material weakness in internal control over unpaid tax assessments, 105 relate to the material weakness in internal control over information security, and 9 relate to issues encompassed by the significant deficiency in internal control over tax refund disbursements. For more details on the material weaknesses and the significant deficiency identified as a result of our audit, see appendix I."

IRS's "management discussion and analysis" begins on page 23, which contains a great deal of informative data about the IRS, including a number of charts and tables. The financial statements begin on page 58.

HT Tax Prof Blog.

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Help Fight Unfair Taxes Online
Posted By: Andrew Moylan - 11/15/11

The Wall Street Journal has an interesting poll up on its site today regarding taxation of retail sales on the internet. The question seems relatively simple: Should states require online retailers to collect sales tax? The thought process for most people probably goes a little something like this..."If it's a sale, it should be subject to sales tax." That probably explains why a huge number of people voted for the (misleadingly-worded) answer "State sales taxes should apply always." Problem is, the "right" answer (from NTU's perspective) is "State sales tax only with physical presence." So please, for the love of all that is holy in proper tax policy (hah!), head over to the WSJ and cast a vote for taxes only with physical presence.

As intuitively appealing as the answer that state sales tax should always apply is, it ignores years of Supreme Court jurisprudence and small-business protections that only require businesses with a legitimate physical presence in a state to collect and remit that state's sales tax. In other words, Andrew Moylan Incorporated would be required to collect Virginia state sales tax because Andrew Moylan Incorporated is physically located in Virginia, but should AM Inc. also be required to collect sales tax for California, New York, Michigan, or any of the other states where it is NOT located? The Supreme Court says no, and rightly so, because that would impose enormous burdens on businesses to navigate more than 7,400 different sales tax jurisdictions across the country.

Keep in mind that, technically, every single sale that is made online is ALREADY subject to taxation. If the seller has a physical presence in the buyer's state, they'll collect and remit sales tax just like your local Target or Wal-Mart. If the seller does NOT have a physical presence, then the buyer is supposed to report the purchase and pay a "use tax" on it directly with the state government. Unfortunately, this use tax regime is a disaster. Most buyers have no clue they owe these taxes and very few actually pay them, so it's not as if there's no problem here at all.

But if proponents of burdensome tax-collection plans were serious about "fairness," they'd advocate a revenue-neutral system that respects our Constitution and preserves tax competition. As NTU noted in a recent news release, one step to explore would be requiring all firms to collect sales taxes only for the jurisdiction where they're based, rather than for multitudes of governments around the country. Another would be supporting Senate Resolution 309 from Senators Wyden (D-OR) and Ayotte (R-NH), which affirms Congress' intent not to give states "the authority to impose any new burdensome or unfair tax collecting requirements on small internet businesses."

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(VIDEO) NTU Launches "Taxonomics" Series to Explore Human Cost of Fiscal Policy
Posted By: Douglas Kellogg - 11/15/11

The first "Taxonomics" episode focuses on the story of local small businesses threatened with new taxes in a recession, many of their counterparts have already folded up shop. Of course the government refuses to exercise fiscal discipline, and is looking for more revenue.

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A Quick Review of State and Local Ballot Issues
Posted By: Brent Mead - 11/09/11

The results are in, and the winner is…well, that is complicated. Voters went to the polls across the country yesterday and NTU tracked the results of statewide and local ballot measures in 10 states. While the headlines are focused on the defeat of Issue 2 in Ohio, there were more positives than negatives, and the 2011 elections on the balance show a continued voter preference for lower taxes and less government.

All the results from last night should also be colored by the enormity of the victory in Colorado last week. Proposition 103 in Colorado was the only statewide tax increase in the country and it went down by a 2-1 margin. The policy choices expressed by voters last night do not necessarily reflect a tax preference. That preference is still very much clear by looking at the number of local tax hikes which went down in defeat.

In Ohio, Issue 2, the repeal referendum on the state’s collective bargaining reform law, went down handily. However, those same voters were even stronger in their antipathy for President Obama’s health care law, voting to protect health care freedom of choice by a 65%-35% margin. The early message from big government apologists seems to be that this vote was only symbolic. However, even as a symbol it shows continued strong disapproval of the federal health care law. When coupled with similar actions by states such as Missouri shows that federal overreach will continue to be an issue for voters going into 2012.

Additionally, a majority of the local tax and bonding measures went down in defeat. Thus, while voters said no to the state’s collective bargaining reform efforts, they sent an even stronger message that the solution to Ohio’s budget woes will not be found in tax hikes and government mandates.

Another potential harbinger of things to come can be found in California. San Francisco residents voted for Proposition C, which would save the city over $1 billion in public employee pension costs. While voters rejected a more expansive proposal, Prop C shows a basic recognition by even the most liberal of cities that pension costs are quickly reaching unsustainable levels and reform, not higher taxes, are the answer. On the tax front, Bay Area residents also rejected a .5% sales tax increase to pay for public safety programs.

Washington State also provided a solid win for taxpayers. Voters approved I-1183 to privatize state liquor stores and sell off the related assets. In the process, I-1183 became the most expensive ballot campaign in the state’s history. They also voted to strengthen the budget stabilization fund. However, I-1125, which would ensure transportation revenue goes to transportation needs only, was narrowly defeated 49%-50%.

On the local level, results were also mixed. For instance, residents in Seattle approved a $32 million property tax increase, but rejected a $20 million vehicle fee increase. In San Juan County, voters narrowly decided to extend the real estate excise tax and decisively shot down a new solid waste disposal user fee.

While NTU is still in the process of compiling the results of the hundreds of elections last night a couple basic trends can be found. Voters did express a willingness to raise taxes if the measure delineated what the funds would be used for and was for a set period of time. However, overall, far more tax increases were defeated than passed. I think the big story is that despite the spin over Ohio's Issue 2 from proponents of big government, voters were in no mood to write blank checks to big-spending public officials.

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