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Kicking Off the 2011 Election Season
Posted By: Brent Mead - 10/20/11

Even though it is still October, the fall election season is upon us. This Saturday, Louisiana kicks off a month of elections that will close on November 19th. In addition to the slate of candidates for local and state offices, voters in the Pelican State will also decide on five amendments to their constitution this weekend. As we do each year, NTU tracks these ballot measures in our General Election Ballot Guide in order to give taxpayers a better idea of what they are being asked to vote on.

The one measure with cause for concern is Amendment 1. From our ballot guide;

“Amendment 1 on the statewide ballot would redirect future tobacco settlement funds from the Millennium Fund to the Taylor Opportunity Program for Students (TOPS) scholarship. Additionally, the proposed amendment would permanently extend and place in the constitution a $.04 per pack cigarette tax set to expire next year.”

Generally speaking, state constitutions should be used to limit what kinds of taxation are allowed, and to set limits on the level of taxation. Rarely is the constitution used to set the specific rate. This measure would make it substantially more difficult for voters or the state legislature to reduce their tax burden in the future.

Furthermore, the Millennium Fund is Louisiana’s account to handle Tobacco Master Settlement Agreement (MSA) funds. The primary purpose of the MSA is to offset state Medicaid expenditures related to tobacco use. Amendment 1 would stop using future tobacco settlement payments for health care expenditures and redirect them to a wholly unrelated program. This gets away from the fundamental purpose of the MSA and taxpayers should be wary.

Fortunately, the remaining measures on the ballot are commendable efforts in fiscal responsibility. Amendment 2 would use one-time monies generated by natural resource development to start paying down the billions of dollars in unfunded state pension liabilities. Louisiana has roughly $9.5 billion in legacy obligations from its pre-1988 employee retirement plans. This amendment is an honest effort to meet those obligations without raising taxes. Amendment 3 creates a lockbox around the Patient Compensation Fund, so the legislature cannot raid it at will. Amendment 4, while somewhat confusing, simply sets some useful guidelines for refilling the state’s budget stabilization fund. The last measure is a technical correction.

As we say at the top of our guide, these off-year elections can too often be forgotten amidst the noise of the 2012 Presidential race, or even a classic SEC showdown. Bayou State taxpayers need to be on the lookout and hopefully NTU’s 2011 Ballot Guide can help.

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New Coalition Hopes to Turn Agreement Into Action On Corporate Tax Reform
Posted By:  - 09/23/11

Agreement is hard to come by in Washington, but on at least one issue the parties seem to be in agreement – the need to lower America’s corporate tax rate.

President Obama has repeatedly stated support for the idea. “If there are ideas whereby we can lower the corporate tax rates in a way that does not massively add to our deficit,” said Obama in 2008, “ . . . that is something that we would be very interested in.” Referring to such reforms as a “win-win for everybody.”  

Likewise, the House-passed Republican budget (which withered in the Senate) would have cut the corporate tax rate to 25 percent, down from today’s 35 percent.

Despite the widespread agreement, corporate tax reform has been unable to find a footing in Washington. “Tax reform has been like the weather, everyone talks about it but no one does anything about,” opined Pat Heck, a former top aide to the Senate Finance Committee.

In an attempt to get the ball rolling on something everyone believes to be a good idea, a broad coalition of major businesses has launched an effort to lower the U.S.’s sky-high corporate tax rate. The coalition, Reducing America’s Taxes Equitably, known by its acronym RATE, hopes to make Washington see the powerful economic effects that a reduced rate would bring.

NTU has long argued that America’s current tax system exerts a tremendous drag on the economy, piling heavy rates and double taxation onto the backs of our would-be job creators. A recent report by top accounting firm Ernst and Young found that the overall effective tax rate on corporate earnings that are retained and reinvested in the firm is 42.1 percent – one of the highest among developed nations. In fact, according to “Paying Taxes 2011,” a study jointly published by the accounting firm PricewaterhouseCoopers and the World Bank Group, the United States now ranks an embarrassing 124th out of 183 countries worldwide in total tax rate faced by a typical corporation.”

And while others are taking steps to make their corporate rate more competitive in an increasingly globalized economy, America has done little. Since the Tax Reform Act of 1986 lowered the top federal rate from 46 percent to 34 percent (subsequently raised to 35 percent in 1993) the corporate income tax rate has remained unchanged. On the other hand, 30 out of the 34 nations in the Organization for Economic Cooperation and Development, have lowered their statutory corporate rates since 2000.

Moreover, the United Kingdom is scheduled to lower their rate and the Japanese had proposed a rate decrease until the tsunami disrupted their economic plans.

Given these trends it is clear that America is quickly being left behind. Our high corporate rate is deterring businesses from locating their production facilities on our shores, creating disincentives for continued investment, and hurting workers through reducing employment opportunities and lowering wages.

"For the sake of our national economic and strategic future, it’s vital that we create a more simplified corporate tax system that is fair, transparent, and most of all, pro-growth,” said RATE Co-Chair James Pinkerton. NTU could not agree more.

For more on the RATE Coalition we urge you to check out their website by clicking HERE.

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An Outsider's Perspective on the Insider
Posted By: Douglas Kellogg - 09/22/11

The President’s vague new “millionaire tax” proposal has brought out the same old arguments that were used in past speeches seeking tax hikes on people making $200,000 or more, and as always, on oil and gas companies.

Oddly enough, a Business Insider article earlier this week took up some of the base arguments against such tax increases. Let’s take a look at a few of these, to see why they are not on the mark – and, in the process, see why the President’s plan is unlikely to do much good for the ailing U.S. economy.

Business Insider’s Henry Blodget claims spending is only part of the problem: “few reasonable non-partisan economists think that we can solve our budget-and-debt problems just by cutting spending. Unless we radically reshape and re-size the government – something that would have a huge and almost certainly negative impact on the economy – we also need to raise the percentage of GDP that is collected in taxes.”

The comment that reducing the size of government would have a “negative impact” on the economy perhaps betrays an ideological agenda, but beyond that spending has been a bipartisan problem over the past decade. Federal expenditures have essentially doubled from when George W. Bush was elected until today, and have increased by nearly 30 percent since Barack Obama moved into the White House. Today this alarming trend looks all the worse because of a decline in tax revenue that often happens in recessions. We can certainly expect revenue to increase if the economy improves, more so if our tax system is streamlined to be made more competitive internationally.  Still, spending has jumped radically and would likely outpace any increase in revenue, beyond bone-crushing tax hikes.

Business Insider then dismisses the concerns over discouraging upper-income earners and job creators from being economically active: “This is the argument that even reasonable people sometimes espouse. But it’s absurd. No one is proposing raising the top tax bracket to 90%, the way it was in the 1950s (when, by the way, the economy was tremendously successful). No one is proposing raising it to even 80% or 70% or 60%.”

This is a misunderstanding of historical circumstances by only looking at a snapshot in time. Those incredibly high rates were more limited in reach and escapable through various deductions. To give just one more recent example, the 1986 Tax Reform Act managed to streamline and reduce tax rates to two levels (15 percent and 28 percent) while remaining relatively “revenue-neutral” precisely because the previously narrow base of income subject to tax was broadened. The top rate prior to passage of the Act was 50 percent.

Blodget continues on this path saying, “Anyone who says with a straight face that successful, ambitious people will kick back in a chaise lounge because the government is going to take 40 cents of every dollar in income above a million dollars instead of 35 cents is an idiot, an ideologue, or a liar.”

Who has made such an argument? The real argument he must be referring to is that higher tax rates chase capital away, which seems pretty self-evident. But in case anyone could use a refresher, here is a nice summary of research on the topic. There are numerous effects, from keeping money outside of the U.S.’s jurisdiction to small business owners who declare profits on their personal returns getting hammered with higher taxes. Aggravating such financial situations with tax hikes WILL harm a floundering economy. It is hard to imagine we are still talking about a supposed job creation plan… .

As NTU continues to discuss, the tax code remains quite progressive. Despite the President’s claim the Bush Administration “skewed (the tax code) in favor of the wealthiest taxpayers and reduced the tax code’s overall progressivity,” the Bush tax reforms took many lower income folksoff the tax rolls.

The only way to permanently accomplish what Business Insider and the President are arguing for, a “fair” tax code and job growth (taking them at face value), is fundamental tax reform. That will ensure that no secretaries are paying more taxes than Warren Buffett.

Certainly there will be more to come as this debate continues!

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What Is The Matter With Missouri?
Posted By: Brent Mead - 09/07/11

Perhaps a harsh title, after all, Governor Nixon and the Missouri legislature are looking at ways to boost employment and they are doing it in at least a nominally revenue neutral manner.

The jobs package being debated can be found in either SB 2 or SB 8. Both are being heard September 7, before the Senate Jobs and Economic Development Committee.

The rough basics are a $360 million proposal to create an aerotropolis plan at the St. Louis – Lambert Airport. About $300 million of the tax credit package would go towards incentivizing warehouse construction with the bulk of the remainder going to carry-forward cargo operators. Other side projects include expanding the Quality Jobs Program, which offers a tax credit for businesses who hire a net number of positions at a certain wage level. Also included is a credit for advertising for amateur athletic sports competitions. The entire package is financed by acting on last year’s Tax Credit Review Commission’s recommendations to sunset or eliminate about a dozen tax credits.

The problems with the package are numerous. The Show-Me Institute covers the basics of the aerotropolis plan. In short, the tax credits would only apply to new warehouse construction, despite a glut of unused storage capacity in the area. Furthermore, Missouri has not undertaken the sort of long-term cost-benefit analysis necessary to adequately study such an endeavor.

Some of the other new or expanded programs carry potential for abuse as well. In that same report, the Show-Me Institute highlights a case where Liberty Mutual Group received $1.6 million in taxpayer subsidies under the Quality Jobs Program despite laying off 45 employees and then offering to rehire those same employees at a lower wage.

However; all that said, the real problem is that this proposal varies from the status quo only in who the state has picked to be winners and losers. Governor Nixon’s proposal simply shifts the tax burden from one special economic class to a new special interest. All Missouri citizens and businesses should have the benefits of a low tax burden, not just a select few.

If Missouri wants to compete globally and against it neighbors the state must look to lower this burden. Tennessee already has no state income tax. Kansas and Oklahoma are looking at doing the same. ALEC’s Rich States, Poor States highlights precisely why Missouri should go down this road. Over the past decade, Missouri has experienced relatively lower economic growth, a lower increase in tax receipts, and a lower growth in non-farm payroll. Tennessee’s smarter underlying tax structure led to these differences. If Missouri continues to rely on out-dated thinking that targeted tax credits can outperform broad based tax relief then it will continue to fall further behind.  

What is the matter in Missouri right now is the failure to seize an opportunity. The Missouri legislature can put an end to the government favoritism and offer broad tax reform that brings real relief to taxpayers that will make the state more competitive in the long run.

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Michigan eyes eliminating its tax on business equipment
Posted By: Brent Mead - 09/02/11

Next week, the Michigan State Legislature reconvenes for its fall session. Like all other states and Washington, D.C., job creation needs to be job one for the politicians in Lansing. Lt. Governor Brian Colley is on the right track in his recent tour calling for the elimination of the Personal Property Tax.

Michigan’s Personal Property Tax (PPT) is levied against property not somehow bolted to the earth; so things like office furniture, equipment, and industrial machinery. Note that despite being called ‘Personal,’ the PPT only applies to businesses as household property has been exempt for decades. All told, the PPT costs manufacturers and small businesses around $1.2 billion per year. No wonder Ford Motor Co. called it, “the largest and most uncompetitive tax burden we and other manufacturers face in Michigan.”

What complicates the matter is that municipalities and county governments rely heavily on this revenue. Roughly 80% of the $1.2 billion Michigan collected went to local school districts, cities, and counties. I appreciate the sentiment of the Jackson Citizen Patriot Staff that the solution to the lost local revenue can be found in government consolidation and budget efficiencies. However, I do not think that is necessarily politically feasible nor is it necessarily possible in areas such as River Rouge where 57% of general operating funds come from this tax.

At the risk of stoking collegiate rivalries, Ohio has been ahead of the curve on this issue. In 2005 the Buckeye State started to phase out its personal property tax, realizing it was a hindrance on economic growth. The tax was reduced in gradual steps from 2005-2009 and is now completely off the books. Ohio overcame the local political issue by imposing a new Commercial Activity Tax, which is a variation of a gross receipts tax to hold harmless education funding levels until at least 2013.

An alternate roadmap can be found out in Montana. Big Sky legislators cut their business equipment tax from 3% to 2%, while adding triggers for further reductions pending economic growth. Like Michigan, the most vocal, and really only, opposition came from local governments worried over the potential loss of revenue. Montana responded by backfilling most, not all, of the lost revenue by eliminating a host of tax credits including the film production and home energy efficiency incentives.

Ohio and Montana offer two possible fixes for the local revenue problem. Neither solution is perfect, but both states moved the ball in the right direction. Folks in Lansing should look and learn from other state's experience on this issue and then move forward to eliminate the personal property tax. Doing so will make the state more competitive in the region and globally, reduce administrative burdens, and create jobs.

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With Many Businesses Closing Their Doors, It's Time to Open a "Repatriation Window"
Posted By:  - 08/25/11

Remember the good ol' days? Back when the United States only had the second highest corporate tax rate in the industrialized world? Those were good times. But with Japan having implemented a 5 percent cut in their corporate rate (and potentially seeking further reductions) America is left with the ignominy of taxing it's businesses more than any other developed country. 

Permanent and fundamental reform is needed to reduce America's corporate income tax burden. Unfortunately, beyond punitively hiking taxes on a few disfavored industries (oil), President Obama has shown little willingness to make any wholesale changes to our uncompetitive tax regime.

But as NTU has argued, while we're waiting on the politics of larger reform, can't we at least build a consensus around a common-sense corporate tax holiday? The idea would be to create a period of time in which U.S.-based businesses could repatriate, that is to say, bring back, foreign earnings that they were stashing overseas so as not to pay our sky-high tax rates.

Sure, it's not ideal, but it could allow companies to reduce debt, increase investment, and jumpstart hiring. And in case you've been living under a rock (or vacationing in Martha's Vineyard) those are three things the American economy could sorely use right about now.

So what's the hold up? Well, some have begun to argue that the cost of a repatriation window is just to high, especially at a time of deep deficits. They say that the expectation of future tax holidays would lead businesses to simply park their cash overseas rather than bring it back at normal tax rates.

A new study out by NDN, a progressive think tank, should allay these fears. "Rather than the $78.7 billion revenue loss projected by the JCT, enacting a "repatriation" provision similar to H.R. 1834 this year would likely bring in a net $8.7 billion over 10 years to the U.S. Treasury," says the group via press release.

The study also found that the last repatriation holiday led to significantly more money being brought to the U.S. than expected under the JCT model and did not lead to a sharp decline in money repatriated at the standard 35 percent rate.

 

Washington should absolutely push for more fundamental corporate reforms to ensure American businesses remain competitive in the global economy, but in the meantime a corporate tax holiday could provide a useful boost to GDP while also helping to pay down our staggering deficit.

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Cartoon Monday - Super Committee
Posted By:  - 08/22/11

Cartoons are back after a lengthy hiatus.  A Congressional Super Committee-related cartoon via Tim Wise.

 


Matson's World

NTUF has released an analysis of the Super Committee.  You can read the release here.

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Eliminate the Gas Tax?
Posted By:  - 08/19/11

TaxGirl asks the following question at Forbes:  "Should the federal gas tax be reduced or eliminated in order to jump start the economy?"

Would it help?  Would it make a difference at all?  Would our infrastructure implode without the funding?  Share your thoughts with us and with TaxGirl.

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Members of the Joint Select Committee on Deficit Reduction
Posted By:  - 08/11/11

12:45 Update:  The Wall Street Journal is reporting "Pelosi names Reps. Becerra, Clyburn and Van Hollen to debt panel."  Those Members and their scores have been added to the table.

 

Nine of the 12 members of the Joint Select Committe on Deficit Reduction have been announced.  The panel is charged with producing a plan to reduce federal spending by $1.5 trillion over the next ten years.  As we did with the Bowles-Simpson Commission, we take a look at the NTU Rates Congress scores of the panel's members to see how taxpayer-friendly the panel's recommendations might -- or might not -- be.

As with the Deficit Commission, Nancy Pelosi is the last one to make her selections. 

 

  Members of the Joint Select Committee on Deficit Reduction and Their NTU Rates Congress Scores

Harry Reid's Selections
 
 Max Baucus (MT)
 F
 John Kerry (MA)  F
 Patty Murray (WA)  F
   
Mitch McConnell's Selections  
   
 Jon Kyl (AZ)
 A
 Rob Portman (OH)
 B (2004)
 Pat Toomey (PA)
 A (2004)
   
 Nancy Pelosi's Selections  
  Xavier Becerra (CA)
 F
  James Clyburn (SC)
 F
  Chris Van Hollen (MD)
 F
 
 
John Boehner's Selections
 
 Dave Camp (MI)
 B+
 Jeb Hensarling (TX)
 A
 Fred Upton (MI)
 B
 
Images from The New York Times
 
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