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Taxes

No Disenchantment on Failed Tax Policies Yet
Posted By: Brent Mead - 07/15/11

New Mexico, fresh off of cigarette tax hikes totaling $1.46 per pack in the past decade, now wants to take aim at smokeless tobacco and cigars. Calling the current 25% tax rate on smokeless products a “loophole,” tax hike cheerleaders want raise rates on all tobacco products to equal the new cigarette tax in the interest of fairness. I won't be breaking new ground with any of my arguments, but tobacco taxes still target the poor, still don't produce their advertised revenue, and they still hurt small businesses. 

New Mexico currently enjoys a slight competitive advantage vis-à-vis most of its neighbors. The 25% tax rate on the first purchaser is lower than Colorado (40%), Oklahoma (60%), and Texas ($1.16 per ounce). The proposal to more than double the rate to 57% would make New Mexico more expensive than all but the Sooner State. Further complicating the situation are the multiple Native American reservations in the state, which have varying tax relationships with the state. What all this means is that small businesses, like convenience store owners, who rely on tobacco sales will be hit hard at the register as consumers buy less, or more likely just buy elsewhere.   

Speaking of Native Americans, they are the group most likely to use smokeless tobacco, and are also the poorest demographic in New Mexico. In addition to having higher than average unemployment, many Native Americans can now also look forward to a massive tax hike that will hit them the hardest. I am not quite sure what is fair about adding another $350 in yearly taxes for a dipper who is already struggling to get by.

Finally, the past couple of years have not been kind to tobacco tax revenue estimates. The best example is the District of Columbia, which actually saw a decrease in collections compared pre-tax levels when it passed a massive increase in 2009. More recently, despite strong revenue growth across-the-board, Kentucky saw its tobacco tax revenue fall by over 5% when the state had projected an increase of over 10%. Maine is seeing similar numbers as well.   

Governor Martinez announced her opposition to the proposal, so perhaps there is hope that the enchanting spell sin taxes hold over New Mexico’s lawmakers will be broken. In the meantime, NTU and others will continue to argue for a sane tax policy that doesn’t drive business out of state, and doesn’t target the poor.

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Mitch McConnell Proposed What?!?!
Posted By: Andrew Moylan - 07/12/11

It's been a crazy week in Washington, but it just got substantially crazier. I'm sitting at my desk plugging away at some work when my email starts blowing up with details of a new debt ceiling plan being floated by Senator Mitch McConnell (R-KY), the Minority Leader. It's a doozy, but the basic breakdown is this: the President would be authorized to request from Congress three separate debt ceiling increases of between $700-$900 billion each. He would be required to submit a plan for an equivalent amount of spending reductions. Congress would then be given a chance to "veto" this package by voting on what's called a "Resolution of Disapproval." If that resolution failed, then the President would have his debt ceiling hike alongside a toothless set of spending reduction ideas. Even if the disapproval passed, he could then veto the resolution meaning that a two-thirds majority of Congress would have to override his veto in order to have the disapproval stand.

So what does that mean in reality? It means the President gets his debt ceiling increase, lock, stock, and barrel, unless a miracle occurs and two-thirds of Congress (AKA every Republican in the House and 50 Democrats along with every Republican in the Senate and 20 Democrats) engage in a sudden burst of bipartisanship and override his veto. True, the plan requires the President to submit a plan to reduce spending by an equivalent amount, but a plan isn't the same as actually cutting spending. Congress would have to actually incorporate those spending reductions into future bills, and the whole reason we have the debt ceiling impasse right now is that they can't agree on what spending reductions to include in future bills.

This is a point that appears to have been missed by some. There are otherwise-solid conservative legislators and activists who have said nice things about the plan because it appears to put the debt ceiling onus directly on the President. But, let me repeat, it does NOT force any cuts in spending. It contains nothing in the way of Congressional fast-track authority, the way several "spending commission" proposals that preceded the President's Fiscal Commission executive order did. Unless I'm missing something (which is always possible), I don't see a single thing that actually requires a spending cut, just a requirement that the President identify a list of spending cuts.

People smarter than I am have also raised real constitutional questions about this plan, as it essentially reverses the legislative process by allowing the President to propose something and Congress to veto that proposal. There is something of a precedent with the Congressional Review Act, which was established to allow Congress to modify or eliminate regulations proposed by executive agencies, but that's a much narrower case where Congress has delegated its legislative authorities relating to regulatory issues. This, on the other hand, strikes right at the heart of Congress' proper authority to determine levels of spending and borrowing as defined in Article I, Section 8 of the Constitution. It also bears a resemblance to the line-item veto debate of the 1990s, where a proposal was ruled unconstitutional because it allowed for the President to implement a set of policies not with Congress' APPROVAL, but simply by its lack of DISAPPROVAL.

Beyond all of the technical issues (which are substantial and important), it strikes me as a classic case of being worried about politics over policy. The reason this proposal was drafted in this way is because it would lay responsibility for raising the debt ceiling at the feet of the President. Of course, in shifting slightly more of the "blame" on to Obama (by the way, I think it can be argued that he already will bear most of the public responsibility for hiking the debt ceiling), it grants him a huge increase in the debt limit without including any kind of enforceable reforms to spending now or in the future. That might be a cutesy way to damage the President politically, but it's absolutely horrible if your actual goal in this whole debate is to address Washington's overspending problem.

The solution to our debt disaster is not some complicated form of legislative Jiu Jitsu, it's "Cut, Cap, and Balance." Cutting spending in the short-term will address our deficit, establishing a strong statutory spending cap will put us on a glide path to balance in the medium-term, and the passage and submission to the states of a strong Balanced Budget Amendment will provide a real long-term constraint on a Congress that has proven incapable of fiscal discipline.

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50 State Flyby Week of July 8th
Posted By: Brent Mead - 07/08/11

Obviously the big news all week was the continuing government shutdown in Minnesota.  NTU sent out an open letter to the Minnesota Legislature to continue to oppose Governor Dayton’s multi-billion dollar tax hike scheme. 

The latest development is the somewhat predictable call for higher taxation from a bi-partisan deficit commission.  The Carlson-Mondale panel called for billions in new taxes, ranging from a cigarette tax increase to an across the board 4% income tax hike.  Overtaxation does not and cannot fix an overspending problem. 

New York

In better news, Governor Cuomo officially signed legislation capping property-tax increases.  The new law caps increases at the lesser of 2% or rate of inflation.  Speaking at the ceremony, Governor Cuomo stated;

"What government has to realize is it can't just continually raise taxes because the taxpayers can't pay it anymore. People are leaving the state, businesses are leaving the state."

NTU supported Governor Cuomo’s efforts when he included a property tax cap in his budget proposal and this week marks a solid victory for Empire State taxpayers.

New Jersey

On the other side of the Hudson, Assembly leaders have called for hearings to examine Governor Christie’s $1 billion in line-item cuts to the $30.6 billion budget.  While Democrats in the legislature lack the necessary numbers to override the vetoes without Republican support, these hearings will be worth tracking to gauge what sort of a path the state is heading down going into this year’s elections.

New Hampshire

In another big win for taxpayers, NTU supported legislation was signed into law granting local municipalities the ability to once again cap property taxes.  NTU testified on behalf of SB 2 and it is good to see local taxpayers back in control.

Elsewhere

Cut, Cap, and Balance is gaining momentum with another Governor, Scott Parnell, signing the pledge.  Governor Parnell joins Rick Perry in Texas, Nikki Haley in South Carolina, and Gary Herbert in Utah in opposition to an unconditional increase of the debt ceiling.  If you haven’t already, take a few minutes and sign the pledge yourself.

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Smart States Liberalize Regulation, Reap Rewards
Posted By:  - 07/08/11

Deficits plague all forms of government from the local to the federal level.  A mixture of lower levels of revenue and continued reckless spending has caused budget fights across the country.  From Wisconsin, where budget negotiations caused Democrats to flee the capitol, to Minnesota, where the state government has been shutdown, America seems to be at a standstill due to the tax increase vs. spending cuts war.

At the federal level, Democrats are insisting that tax increases be part of any debt ceiling agreement.  However, history proves that higher taxes do not necessarily equate to higher revenues.  Another way to increase revenue is to decrease the number of regulations, especially on smaller businesses, which in turn drives sales.

Many states have done just that this year in an effort to boost tax revenues. While 2009 saw many “sin” taxes increase in an attempt to cure budget woes, many Republican majorities who recently took office at the state level have taken the smarter path and reaped the rewards for their constituents.

Tennessee, Washington, California, Michigan, New Jersey and Virginia passed sampling laws, allowing liquor stores or wineries to hold tastings. Many other states have loosened their controlling grip on Sunday sales, either allowing or expanding hours for sales.  Only two states, Texas and Connecticut forbid any sale of alcohol on Sundays. Alcohol sales generate about $41 billion a year for state and local governments according to the Distilled Spirits Council of the United States.

Changes in regulation can have a big effect on sales and subsequently revenue.  “Between 2002 and 2005, 12 states liberalized their laws to permit Sunday sales. According to DISCUS, each state saw an increase in tax revenue of 5 to 7 percent,” reports Stateline, a state level policy organization.

These states should be applauded for finding creative ways to improve their budget situation through free market policies, while avoiding tax increases.

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A "Balanced Solution" We Can All Agree On?
Posted By:  - 07/07/11

Whew! For a few weeks it actually looked like we weren’t going to get a debt ceiling deal. Fortunately, the President seems to have come to his senses by promoting a so called “balanced solution” in which higher revenues are part of a larger compromise.

In fact White House adviser David Plouffe said today,

“Our sense has been to make the numbers work, you’re going to have to have a revenue-positive situation.”

Perfect! So we agree.

In fact, achieving this “revenue positive situation” is as easy as…well…doing nothing.

The Congressional Budget Office’s Long Term Budget Outlook showed that revenues are expected to grow by more than seven percent each year, in large part due to a growing economy and population growth. In fact, by the end of the decade, revenue levels will exceed their historical average of 18 percent or Gross Domestic Product.

So we’ll cut spending by seven percent a year, leave revenues to grow as predicted, and watch as our deficit is erased in no time!

Having run the numbers himself, senior Cato Institute fellow Daniel Mitchell says that we really only need to cut spending by five percent each year in order to completely eliminate our deficit in just five years. In other words, because we conservatives are in such a giving mood, and so happy to compromise now that you’ve accepted a “balanced solution,” we’ll even go so far as to tilt the equation in your favor. In return for seven percent revenue growth you’ll only have to agree to five percent spending cuts.

Mitchell writes,

“So, Mr. President, do we have a deal? Should we use your “balanced approach” and eliminate today’s big deficit by cutting spending and raising revenue by equal amounts? You were serious about your request, right? Hello, is anybody there?

As you already realize, I don’t think the President actually means what he says about a “balanced approach.” Or, to be more specific, I think he’s happy to do a 50-50 deal, but only if “spending cuts” and “revenue increases” are defined in ways that enable the growth of government.”

Sadly, Obama does not mean what he says. He wants to raise revenue, above and beyond the increases that will take place naturally, pushing them to historically high levels. Likewise, he has no intention of actually cutting spending. Instead, he’s using an age-old Washington trick that allows him to call any reduction in the pre-planned growth of baseline spending a “spending cut.” Only in the crazy, mixed up world of Washington could spending be “cut” and yet increase year-over-year.

Conservatives fully support a balanced approach to reducing the deficit, if only the President were honest about what that actually entails.

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What Does Economic Freedom Look Like?
Posted By: Dan Barrett - 06/28/11

Pundits can talk your ear off about what they think, politicians can endlessly tell you how their plans will fix things, and professors can give you their views on what they feel is necessary. Luckily there are real numbers to compare these groups, and their claims, with reality. Economic indicators and statistics can be manipulated to fit arguments and talking points but you’ll always find similarities. Factors such as GDP (Gross Domestic Product) and average income always has the US on the positive side of the scale, while countries like North Korea almost always fall on the failing, or at best struggling, side of global economic comparisons. The difference? Americans can do what they wish, when they want, and in a way they so choose. North Koreas are told how to act, what to say, and even how to think. Americans have significantly more freedoms than, say, North Koreans. This has been our publicized “secret to success.” Here’s hoping more people understand that the more thick the U.S. Code gets with minute instructions and limits to how we handle our money, and thereby our ideas and rights, the thinner our achievements will be in long-term economic development and happiness.

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The "S" Doesn't Stand for Security
Posted By:  - 06/23/11

In case you didn't know the "S" in IRS stands for service not security.  A recent report from the Treasury Inspector General for Tax Administration indicates that the IRS could certainly use a healthy dose of security.  As Robert W. Wood writes at Forbes.com, "I recently asked if your IRS data is at risk.  I suggested it might not be, but I didn’t tell you to start worrying.  Now I’m not so sure." 

Here's a very disturbing finding:  "100% of IRS Databases TIGTA tested are vulnerable to hackers."  At least it's not more than 100 percent.  Fortunately, I suppose, "IRS has agreed with TIGTA’s recommendations and is taking steps to develop strategies to deal with these issues."  Given that hackers have hit Sony, the U.S. Senate, and the CIA recently, does anyone think that the IRS will develop and implement its strategic plan in time to prevent the loss of taxpayer data?

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Odds & Ends for June 23
Posted By:  - 06/23/11

A few odds and ends, things that I've been meaning to get to, and a few things that I've missed and overlooked in my inbox.

Via ACTA's Tim Wise: Cartoonist Scott Adams suggests that the U.S. should create a stupidity tax in an effort to "reduce its prevalence over time." Adams suggests that such an idea is impractical: "No elected official could support a tax on stupidity." I would suggest that politicians are unlikely to make Tax Code changes that are going to lead to dramatically higher tax bills for themselves.

Tim also comments on a story from the Tax Prof Blog where the "IRS allowed 'millions in erroneous car deductions to prisoners, dead people, kid,' citing a report by the Treasury Inspector General for Tax Administration." Check out Tim's post for all of the details.

Perhaps I should have titled this post Tim Wise blogging. A couple of thoughtful quotations that Tim was kind enough to pass along for you to ponder over the approaching weekend:

"[T]he illusion that by means of progressive taxation the burden can be shifted substantially onto the shoulders of the wealthy has been the chief reason why . . . the masses have come to accept a much heavier load than they would have done otherwise."
--Friedrich A. Hayek
"Nothing is more calculated to make a demagogue popular than a constantly reiterated demand for heavy taxes on the rich. Capital levies and high income taxes on the larger incomes are extraordinarily popular with the masses, who do not have to pay them."
--Ludwig von Mises

 

A huge (and belated) thank you to Jim Agresti of justfacts.com for including NTUF's BillTally research in their discussion of the national debt. They have a number of helpful charts, tables, and footnotes so that you know where everything comes from. Please check it out.

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Is House Leadership Trying to Kill a BBA?
Posted By: Andrew Moylan - 06/09/11

The fix is in, my friends. Speculation on Capitol Hill runs rampant that House Leadership is actively undermining the prospects for passage of a Balanced Budget Amendment to our Constitution, effectively eliminating the most powerful tool we have to enforce budgeting discipline into the future. While all 47 Senate Republicans co-sponsored a strong BBA that included a spending limit and a supermajority threshold for tax increases, House Leadership has been either ambivalent or subtly hostile towards real structural budget reform. In interviews, House Speaker John Boehner (R-OH) has said he isn't interested in "gimmicks," which many regarded as a backhanded comment about a BBA or a statutory spending cap.

This bad-mouthing seems to be working. The National Journal surveyed Members of Congress about what they expected from a debt ceiling agreement and only 39% of Republicans thought a BBA would be a part of the deal. For some perspective a recent poll found that 81% of Republican voters support a BBA, so I think it's safe to say that elected Rs appear to not be reflecting the will of their constituents very well.

And now word is leaking that Republican House leaders seem to be rushing through a BBA not in order to actually pass it, but to give it a speedy euthanasia and get it out of their hair. Just this morning, I received an email from a House staffer who said "Leadership is planning on bringing H.J. Res. 1 to the floor for a vote sometime over the next two weeks to delegitimize the BBA and separate it from the debt ceiling vote."

H.J. Res. 1 is the version of a BBA that was sped through a House Judiciary Committee markup last Friday with little notice. NTU has been advocating for a BBA for 40 years and I was one of just three people invited to personally testify in its favor at a House Judiciary Subcommittee on the Constitution hearing last month, yet I heard NOTHING about the proposed markup until the morning it was occurring. That's not how a leadership team that's trying to build support for something operates, it's how you try to sneak something through quickly without a lot of scrutiny.

What's so peculiar about this turn of events is that a BBA is not some controversial too-conservative provision toxic to moderate Members' reelection prospects. This isn't, for example, Medicare reform, where dozens of Republican members had to swallow hard and cast the right vote in support knowing that Democrats would demagogue the issue mercilessly. Simply stated, NOBODY will have to "walk the plank" to vote for a BBA knowing that attack ads await them on the other side. It's a rare combination of good politics AND good policy, yet some Republicans are trying to kill it.

The next few weeks will tell you all you need to know about whether or not Republican leaders actually heard the message that was sent last November. Rushing a Balanced Budget Amendment through without allowing grassroots BBA supporters across the country to weigh in and build support would be a pretty clear indication of their true colors. If leaders in the House of Representatives schedule a vote on the Balanced Budget Amendment in the month of June, I'd consider it the equivalent of a big middle finger to the millions of fiscal conservatives who helped create the majority they now enjoy.

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