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Obama on how we win the future
Posted By:  - 01/25/11

Obama on how we win the future: "We need to out-innovate, out-educate, and out-build the rest of the world. We have to make America the best place on Earth to do business. We need to take responsibility for our deficit, and reform our government. That’s how our people will prosper. That’s how we’ll win the future"

While these are all true and noble goals, I hope that the President realizes that this will be achieved by allowing the private sector to innovate and compete, when the government keeps the budget manageable, and the scope of government is limited.

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Obama praises tax cuts?
Posted By:  - 01/25/11

President Obama says this about the recent tax cut package.

"Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year."

Hopefully, this is a sign that he recognizes that high tax burdens cost the economy and will continue to push for tax relief in the next two years.

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Tune into NTU's State of the Union Coverage tonight
Posted By:  - 01/25/11

Tonight at 9 p.m. EST, the National Taxpayers Union's crack government affairs and policy analysis teams will provide special online coverage of the President’s State of the Union Address, and we want you to be there and be a part of the discussion. We will be breaking down the President's proposals and what they will mean for taxpayers. Details on how you can join the conversation are below.

  • If you have a Twitter account, use the hash tags #NTUSOTU and #SOTU to link to our discussions and analyses. Hash tags are like keywords for Twitter. Just use them in each of your messages to link to the ongoing dialogue. Remember to also follow @NTU and @NTUF for all the latest commentary!
  • You can also log onto NTU’s Facebook page, where we will constantly update our newsfeed with links, comments, and memorable quotes. Be sure to join our page by clicking "Like"!
  • Even if you don’t have a Twitter of Facebook account, you can still share your thoughts and opinions by going to our special chat room. Join the chat here.
  • NTU will also be updating our blog, Government Bytes, as the night progresses. You can comment on each post as well! Just click on the “Post a Comment” link and speak your mind.

We look forward to seeing you online tonight at 9 p.m. EST!

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Where do our taxes go?
Posted By:  - 01/21/11

Ever wonder what our taxes pay for? Ned Flanders, our favorite neighbor from the Simpsons, knows exactly what taxes pay for and provides us with some fun for Friday.

 Thanks to my colleague Dan Barrett for bringing this insight to my attention.

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While Illinois raises taxes, Georgia reforms them
Posted By:  - 01/21/11

While Illinois was busy raising taxes, Georgia was busy finding ways to make the tax code simpler, fairer, more stable, and more competitive for the 21st century. On January 7, the Special Council on Tax Reform and Fairness for All Georgians released its final report of recommendations for reforming Georgia's antiquated, agriculture-based tax system. Sometime in the next few weeks, the legislature will act on the Council's recommendations. From NTU's perspective, there are some good recommendations but also some proposals that need attention.

As NTU stated in a letter to Georgia lawmakers, the positive recommendations include a proposal to reduce the personal and corporate income tax rates. The report calls for the elimination of the current six tax brackets and a substantial reduction in the personal income tax (from the current highest marginal rate of 6 percent) over time. The Council envisions a rate that does not exceed 4 percent in 2014, at which point the income tax changes should (by the Council’s estimates) be revenue neutral. Additionally, the report calls for the corporate income tax rate to maintain parity with the personal income tax. As we said in our letter, "Flattening, simplifying, and reducing the income tax rates will help spur investment, lead to more job growth, and provide more revenue stability."

But while NTU supports the income tax reductions, there are several aspects of the Council’s report that we have concerns with. For example, we are concerned that the plan’s recommendation of an income tax rate higher than the revenue-neutral level of 4 percent for several years after the plan’s adoption would lead to substantially higher tax collections, an outcome that we cannot support because it is not fair for taxpayers. Furthermore, as we stated in the letter, the Council's call for "a flat communications service excise tax fails to take into account the unique aspects of how each service is delivered. Communications taxes differ because the communications technologies themselves differ in how they interact with public resources. Satellite television, for example, does not utilize public rights of way, so imposing a 7 percent tax on over one million satellite television subscribers in Georgia to pay for something they don’t use makes no sense. Additionally, the proposal to increase the cigarette tax is misguided because it can disproportionately harm the poor and small retailers without raising the projected revenue. Such has been the case in numerous places, among them New Jersey and the District of Columbia."

Reforming the tax code to alleviate the burdens on taxpayers is a worthwhile pursuit. The best possible reform is one that remedies the distortive and burdensome aspects of a tax code, but remains revenue neutral. There are some questions about this tax code that the legislature can and should address in the weeks ahead. Georgians are counting on their lawmakers to build a better tax code for a stronger, more prosperous economy.

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State Budgets Getting Worse Before Better
Posted By:  - 01/14/11

First the good news: state revenues are rising. After three years, state revenues that dried up due to the Great Recession have increased steadily and helped to fill state treasuries. The flow of revenue has been so solid that some states, such as Maryland, have reported surpluses at the end of the last fiscal year.

 

But here’s the bad news: despite the growth in revenue, states should expect to confront another round of massive budget deficits, some of which will be even worse than what the states have encountered thus far. States already face budget shortfalls in excess of $82 billion, according to the National Conference of State Legislatures. But that figure will likely be higher as state budget officials review their fiscal figures over the next several months.

 

Revenue collections, according to Stateline, have fallen so much in this recession that it will take years for the collections to return to precession levels. But another problem is that the cost of government is increasing, especially in healthcare, education, and public safety budgets. Given the nature of the political process, governors and state lawmakers will try to balance budgets and forestall cuts by resorting to tax increases, one-time fixes, borrowing, and accounting gimmicks. To name just one example, California’s Governor Jerry Brown is already talking about putting on the ballot a measure that would extend several unpopular tax hikes.

 

But it is also possible that the dire circumstances states find themselves in will finally force state officials, regardless of their party affiliations, to have the difficult conversation among themselves and with constituents about what services government can and should provide. For examples, Arizona’s Republican governor and New York’s Democrat governor are examining ways to reduce the size of their Medicaid programs by limiting eligibility, an idea once thought to be impossible.

 

The road back to the pre-recession days will be long and hard. Predictions for economic recovery are grim, especially as the Federal Reserve projects that unemployment will be at 8% through the end of 2012. Further, the rate of growth will have to be consistently higher than historic levels. By one estimate, Oregon’s revenues will not return to pre-recession levels even after a decade of growth.

 

What all this means for states is that Great Recession will have a greater impact than originally thought and state officials must factor this into their policies. No longer can states spend without restraint or under the assumption that revenues will quickly return to fix fiscal problems. The states must adjust to a new normal by having an honest conversation with taxpayers about the tough decisions ahead.

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Illinois' tax hike fallout
Posted By:  - 01/14/11

Shortly after Illinois Governor Pat Quinn, Speaker Michael Madigan, and Senate President John Cullerton rammed through a $7 billion income tax hike, the largest in state history, Scott Walker, Wisconsin’s new governor, had three words for Illinois businesses: Escape to Wisconsin. The phrase comes from an old Wisconsin tourism campaign. But the phrase is very appropriate for right now.

 

Illinois’ multi-billion dollar tax hike, which includes a 46% increase in the state’s corporate income tax, will fall heavily on Illinois businesses. In fact, according to the Tax Foundation and the Illinois Policy Institute, the corporate income tax rate, when combined with the federal corporate income tax and property replacement tax, gives Illinois the dubious honor of having the highest corporate income tax in the industrialized world. No wonder then that employees of Illinois-based heavy manufacturer Caterpillar sent 1,200 e-mails in opposition to the tax hike to just one state lawmaker.

 

Now that Illinois’ lawmakers have decided to increase the cost of doing business there, officials in other states like neighboring Wisconsin are trying to lure business away by emphasizing lower taxes relative to Illinois. Walker has proposed a complete elimination of the corporate income tax for two years for firms that move to Wisconsin. He is also pushing a series of proposals to reduce state spending and limiting tax increases.

 

Of course, Wisconsin’s Walker will not be the only state governor looking to take advantage of Illinois’ recent actions. Indiana’s governor Mitch Daniels, who has made a name for himself by pairing back spending, reforming health care, and signing budgets without tax increases, has talked about tax reform and has extended an invitation for Illinois businesses to relocate to the Hoosier state. Michigan’s Rick Snyder is already working on a proposal to reform his state’s dreaded business tax surcharge, which many observers say has stifled job growth in the state. Even Chris Christie in far away New Jersey has been promoted his state as a haven for businesses who want to flee the tax and spend culture in Illinois.

 

Of course, as businesses flee Illinois it will only mean less revenue for the state as the taxpayers Quinn, Madigan, and Cullerton are counting on to finance their overspending take their money elsewhere.

 

One of the great things about our federal system is that is allows states to experiment and compete, which yields the best ideas and policies. When a state does something right, it is copied widely. But when a state does something wrong, states avoid it or poach from its mistakes. Given the reaction so far, Illinois has clearly done something wrong with increasing taxes and other states will take full advantage of it.

 

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Happy Payroll Tax Holiday!
Posted By:  - 01/14/11

Many of you may have noticed a slight bump in your paychecks this month. No, it’s not an accident! The payroll tax cut, signed into law under last year’s tax cut compromise, just went into effect for more than 159 million American families. As you may recall, December’s tax package included a 2% cut in the employee portion of the payroll tax.

According to The Hill, “Under the payroll tax holiday, the average worker will see an annual paycheck increase of about $700, and the average family will see an increase of more than $1,000.” Furthermore, “Economists estimate the U.S. is likely to see economic growth of 3 percent to 4 percent in 2011.”

While we had grave concerns surrounding many of the provisions in the “compromise,” we were very pleased to see the payroll tax cut included. It’s a pro-growth measure that is much needed as our nation continues to face high unemployment and a dismal economic climate.

Enjoy! For the next 12 months anyway.

And in case you missed it, go here for a closer look at additional provisions within the tax deal.

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Compromise is Costly
Posted By:  - 01/13/11

As many of you know, we at NTU are ardent supporters of full repeal of the onerous death tax. The levy destroys hard-earned savings and pushes small and family-owned businesses into bankruptcy. Economists have acknowledged that the tax's adverse effects on the economy exceed generated revenues, and studies show that permanent repeal would create 1.5 million jobs and slash the unemployment rate by a full percentage point over the next two years. One of our biggest concerns with the tax cut compromise that passed Congress in late 2010 was the resurrection of the death tax from 0 to a 35% rate and $5 million exemption. Mind you, this "deal" expires in 2012, at which time the tax will return to pre-2001 levels (55% rate and $1 million exemption).

There is talk that some will fight for a permanent arrangement of current rates (again, 35% rate and $5 million exemption) to avoid a more devastating blow to American taxpayers, but we don’t believe that’s the answer. The only way to truly protect taxpayers and spur economic growth is through full, permanent repeal.

A new study by our friends at the American Family Business Foundation highlights the number of small businesses, farms and households susceptible under the new law and how the impact of the death tax is growing faster than inflation, subjecting far more individuals to the levy than originally intended.

Here are a few key findings from the report:

  • Up to 67% of estates vulnerable to the tax include farm and small business assets;
  • Up to 22,000 farms, 14,000 real estate partnerships, and 29,000 privately-held corporations will be susceptible;
  • 170,000 total households will bear the burden; and
  • By 2048, half of U.S. households will have sufficient assets to be at risk of having to pay the tax.

I encourage all of you to check out the new study for a more detailed explanation. The American Family Business Foundation has provided another great resource for the death tax debate, and we look forward to continuing to work with them as we push for full, permanent repeal in the 112th Congress.

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Illinois jumps off a cliff
Posted By:  - 01/12/11

Well, they did it despite our urging to the contrary. Just hours before a new General Assembly took office, Illinois legislators, at the urging of Governor Pat Quinn, narrowly approved a massive 67% increase in the personal income tax and a 46% increase in the state's corporate income tax. The tax hikes will take $6.8 billion from Illinois taxpayers to help fill up state coffers and finance $12 billion in borrowing to close an expected $15 billion budget gap.

Proponents claim that the tax hikes are necessary and temporary to address the state's budget crisis.

But notably absent from the plan was any real reduction in any state government spending. Without a reduction in spending from state programs or pension obligations, there is nothing to reduce the pressures on the budget that lead to the tax hikes. Worse, the tax hikes are so large and broad that they could seriously harm the economic recovery in Illinois by driving companies and jobs out of the state. The Illinois Policy Institute estimates that the tax hikes will cost at least 100,000 jobs. Perhaps that is why the Chicago Tribune's editorial assessing the tax hikes is entitled, "Goodbye, jobs."

While I disagree with the result, it is the result and I have to live with it. I just hope Illinoisans understand what has happened and realize the consequences of these tax hikes by the time of the next election. As I stated in NTU's press release on the subject, "Illinoisans already have to bear the 14th-highest state and local tax burden per capita in the nation. It makes no sense to pile more onto such a heavy load, especially in a down economy. Unless Governor Quinn and the State Legislature agree to reverse their destructive tax policies and significantly reduce state spending, residents are in for even tougher times ahead."

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