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Obama Budget Could Call for Massive Tobaccco Tax Hike
Posted By: Brandon Arnold - 04/09/13

Yesterday, my colleague Nan Swift weighed in on some of the leaked information about President Obama’s forthcoming budget.  She noted in her blog post, “Among the big-ticket taxes the President is touting is another massive hike in federal tobacco taxes to fund the universal pre-K program the President spoke of during his State of the Union address earlier this year.”

So we know Obama will call for a huge increase in the tobacco tax.  But just how big a hike are we talking?

Well if the Republican staffers at the Senate Budget Committee are correct, the President intends to spend an additional $100 billion on the pre-K program and finance all of this new spending with higher tobacco taxes.  Last year, the Congressional Budget Office (CBO) evaluated a hypothetical 50-cent per pack tax increase on tobacco – from $1.01 to $1.51.   The analysis estimated that this would net the federal government $38 billion in new tax revenues plus an additional $3 billion in reduced expenditures.  So this hypothetical massive tax increase would fail to cover even half the cost of the new pre-K program.  Fully paying for it, as the Obama administration has insisted it would do, would likely require at least a doubling of the current federal tobacco tax – presumably pushing it to more than $2 per pack. Keep in mind, this astronomical rate would not include state and local taxes, which can reach almost $6 per pack in some jurisdictions.

In this weak economy, a huge tax hike on tobacco would be particularly troubling for the poor. Lower income Americans are more likely to smoke and spend a much larger percentage of their disposable income on tobacco products.  Smokers and non-smokers alike should oppose this steeply regressive tax increase.   Remember, as he pushes for a tax that would particularly burden poor Americans it was only a few years ago when President Obama promised he would never raise taxes on those making less than $250,000.

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The Late Edition: April 8, 2013
Posted By:  - 04/08/13

Today’s Taxpayer News!

NTU’s Pete Sepp weighs in on a cigarette tax hike plus an extension of parking meter hours that could hurt Alexandria, Virginia, residents in this Washington Examiner article.

This Fiscal Times article takes a look at how the ObamaCare law relies on two relatively unpopular taxes, one on individuals and one on employers,  in order to work.

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Obama’s Big Plan: Higher Taxes for Programs that Don’t Work
Posted By: Nan Swift - 04/08/13

Only two months late and almost three weeks after the House and Senate passed their own versions, President Obama will unveil his budget this Wednesday. While specifics have been sparse, some of the details that have leaked over the past few days indicate more of the same tax and spend agenda taxpayers have come to expect from this Administration.

Among the big-ticket taxes the President is touting is another massive hike in federal tobacco taxes to fund the universal pre-K program the President spoke of during his State of the Union address earlier this year. The minority staff at the Senate Budget Committee explains the numbers over at the Weekly Standard:

"…  $100 billion for tobacco taxes to pay for universal pre-K.  We don’t know what the President’s exact proposal will be, but we know those taxes can be set to hit whatever number the President needs to pay for his pre-K policy.  The media today reports that the president will raise tobacco taxes to pay for universal pre-K.  We know from earlier reporting  that the President’s pre-K plan could cost between $10 and $25 billion, so $100 billion over 10 years is a reasonable number for the first 10 year cost of the program, and the new taxes needed to pay for it.”

NTU has written previously about the questionable notion of universal pre-K, essentially a massive expansion of the already costly and ineffective Head Start program.  To quote Time’s Joe Klein again, “Head Start simply does not work.” Bloomberg.com has a more recent look at early childhood education and Head Start in particular and finds that:

As of 2013, no one knows how to use government programs to provide large numbers of small children who are not flourishing with what they need. It’s not a matter of money. We just don’t know how.

To raise taxes and set an agenda for additional spending on something “we just don’t know how” to do is far from a responsible use of taxpayer dollars. Especially at time of sky-high debt and extremely sluggish economic growth, the government shouldn’t be raising taxes, especially not to fund programs with dubious results.

Calling for a new tax on cigarettes is an extremely blatant cash-grab on the part of the Obama Administration. Raising taxes on a relatively unpopular minority of the general public is a sure sign that an administration is out of ideas and hopes that few will speak-up to oppose the tax hikes. Even if you aren’t a smoker, it’s important to remember that tobacco taxes are a bad policy with widespread consequences.

Cigarette tax hikes are regressive, burdening poor households disproportionately. It’s also inherently unfair to fund a program purportedly for the use of all with a punitive tax on a small group of people. Besides, if the Administration wants people to boost the economy by spending more, it should leave some money in our pockets!

Small businesses also feel the pain of rising tobacco taxes. The National Association of Convenience Stores reports that sales of tobacco products comprised more than “42 percent of in-store revenue dollars for U.S. convenience stores in 2011.”  When taxes go up, sales go down due to cessation or because tobacco commerce moves to the black market.

These factors make tobacco taxes a historically unreliable source of revenue. Whether you are a state desperate to fill a budget gap or a President who wants to fund a new universal pre-K program, when tobacco taxes go up, the funding usually doesn’t meet expectations, thus leaving taxpayers, once again, holding the bag for bad policy and poor planning.

Instead of rolling out unnecessary, expensive new programs and imposing further pain on taxpayers and the economy in the process, President Obama should be focusing on where he and Congress can agree on entitlement reform and other measures to cut the debt that has a stranglehold on growth.

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No Joke: One Year Later U.S. Still Has Highest Corporate Tax Rate
Posted By: Nan Swift - 04/03/13

What do you get the government that already has everything? The traditional gift for one-year anniversaries is paper, but a picture posted in early March by Sen. McConnell’s (R-KY) office indicates that they already have plenty of that.  Though, truth be told, the fact that just one year ago Monday the U.S. became the proud owner of the highest corporate tax rate in the developed world is more cause for dismay than celebration.

Clocking in at a hefty 35 percent, with ongoing moribund economic growth and persistently high unemployment you might be excused for thinking that maintaining high taxes on job creators was some kind of terrible April fool’s joke. Unfortunately, the economic and political toll is all too real.

The United States’ high corporate income tax rate is making a serious dent in our competitiveness resulting in higher costs for consumers, a loss of jobs, and lower growth. On Monday, the RATE coalition, a group of concerned businesses working toward reducing the corporate income tax, summed up the problem in a letter:

“Today, at 35%, the top federal statutory corporate tax rate is 10 percentage points above the OECD average and nearly 15 points higher when state and local taxes are included,” says the letter, referring to the 34-nation Organization for Economic Cooperation and Development, and signed by 21 CEOs. “The costs to our economy are significant and already being realized. According to a new Ernst & Young study, GDP in 2013 is expected to be between 1.2 and 2.0% lower as a result of our OECD-leading corporate tax rate. Simply put, the U.S. can no longer afford to stand still.”

A great article here at the Tax Foundation explains that in the past the U.S. lowered rates in response to the tax policies of other similar countries to help sustain competitiveness, making the U.S. an attractive place to do business.  A 2012 Ernst and Young report found that:

For the last decade, high corporate tax rates have been driving an increasing amount of U.S. businesses overseas, to incorporate themselves in foreign tax havens. Between 2000 and 2011, the U.S. experienced a net loss of 46 Fortune Global 500 company headquarters, according to a report by Ernst and Young.

The Wall Street Journal confirms the findings, writing that “tax bills remain a primary concern” for companies:

Since 2009, at least 10 U.S. public companies have moved their incorporation address abroad or announced plans to do so, including six in the last year or so, according to a Wall Street Journal analysis of company filings and statements. That's up from just a handful from 2004 through 2008.

The growing loss of domestic jobs, especially at a time when they are needed most, should be alarming to leaders in Washington. Instead, our cash-strapped federal government has become too dependent on the revenue stream from corporate income taxes to see the bigger picture.  As the Tax Foundation writes the hidden costs can easily outweigh the “benefit” of those funds:

In general, a lower rate decreases the distortion and deadweight loss created by the corporate income tax rate. Distortion arises when businesses opt to remain as sole-proprietors, partnerships, or S-corps in order to avoid the corporate tax instead of expanding and structuring themselves as a corporation. Deadweight loss results from the increase in the price and the reduction in the quantity of goods or services produced by corporations below the welfare maximizing market equilibrium. The cost of the taxes can be passed on to consumers through higher prices and fewer goods and services, to the employees through lower wages or fewer jobs, or to capital holders through lower rent or returns on property, stocks, bonds, dividends etc. Thus, society, as a whole, loses.

The flip side of the corporate tax coin is the political fallout from this bad policy. Opponents of lower corporate tax rates are quick to point out that few large corporations end up paying the highest taxes. Armed to the teeth with lobbyists, corporations and industries with the means to do so are quick to jump at a wide variety of loopholes to help limit their tax liability. The Washington Post recently reported:

About 440 corporations and business groups spent tens of millions of dollars lobbying Congress and executive branch agencies on tax reform in the third quarter of last year, a Washington Post analysis shows. And that number continued to rise in the final three months of the year, up nearly 10 percent, the analysis shows.

The budget passed by the Senate just over a week ago tried to raise revenues by eliminating some tax loopholes. But instead of doing so across the board, the budget tried to wield the tax code as a punitive measure to raise taxes on some less favorable industries. For instance, the budget aimed to eliminate the Section 199 deduction - widely available to all manufactures – only for certain oil and gas companies to raise the cost of traditional fuel sources. The constant carve outs for special interests and tax code giveaways creates a toxic environment of crony capitalism in Washington that leaves smaller businesses without the right political connections or the resources to fund aggressive lobbying campaigns holding the bag for big tax bills.

Across the board lower corporate income taxes would both eliminate the need for “loopholes” and other tax credits or deductions at the same time it would spur economic growth.  Funds currently paid to tax attorneys, accountants, and lobbyists could be better allocated toward capital investments and productive aspects of business.

This kind of corporate tax reform would be an enormous boon to corporations and taxpayers alike, especially when accomplished in conjunction with the kind of broad tax reform overhaul being proffered by the House Ways and Means Committee. Corporate taxes are only one part of the bigger problems brought on by a dysfunctional Tax Code. The sooner we finally scrap the code, the better, because our current uncompetitive corporate taxes are killing the proverbial golden goose.

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The Late Edition: April 2, 2013
Posted By:  - 04/02/13

Today’s Taxpayer News!

NTU’s Pete Sepp discusses the proposed budgets of Representative Paul Ryan and Senator Patty Murray, and how each stacks up when shooting for budget balance in this CBS21.com article.

Cigarettes for $10.50 a pack?  NYC mayor Michael Bloomberg has proposed hiking the price of a pack of cigs to the highest in the nation, according to the Boston Herald

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The Late Edition: March 28, 2013
Posted By:  - 03/28/13

Today’s Taxpayer News!

NTU’s Lee Schalk explores Oklahoma’s new tax reform plans.

NTU’s Michael Tasselmyer on medical device excise taxes.

The opposition to the Marketplace Fairness Act, including NTU, is still fighting the tax increase according to My Fox NY

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What “Conservative Split” on the Marketplace Fairness Act?!
Posted By: Douglas Kellogg - 03/22/13

There has been some confusion, with a hand from the pro-unconstitutional Internet sales tax folks, over a so-called “split” amongst conservatives on the “Marketplace Fairness Act” (MFA). The reality is however, that there are precious few (if any) legitimately fiscally conservative groups, or groups with serious tax policy chops, that favor MFA.

Let’s take a look at the rundown

Fiscally conservative groups opposed to MFA (a.k.a. unconstitutional Internet sales tax scheme):

American Commitment

Americans for Prosperity

Americans for Tax Reform

Campaign for Liberty

Center for Freedom and Prosperity

Center for Individual Freedom

Competitive Enterprise Institute

Digital Liberty

Freedomworks

Heartland Institute

Heritage Action

Institute for Policy Innovation

Less Government

National Taxpayers Union

NetChoice

R Street

Rio Grande Foundation (New Mexico)

Taxpayers Protection Alliance

Credit is also deserved by Red State’s Erick Erickson who has courageously called out the interests behind this tax disaster.

After that list, what conservatives are even left to be enthusiastic about this bill?

Groups like American Conservative Union, sure, but where are the fiscally conservative tax wizards?:

American Majority

Americans for Job Security

Association for Christian Retail

Hudson Institute

And…?

The lists speak for themselves. Don’t fall for this talking point as the fight to protect the Internet, small businesses, the Constitution, and your pocketbook continues.

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The Late Edition: February 25, 2013
Posted By:  - 02/25/13

Today’s Taxpayer News!

NTU’s Pete Sepp explains why Congress should honor the spending cuts in the upcoming sequester, but should carefully choose which areas can best sustain the cuts instead of enacting across-the-board reductions. Read more from Stars and Stripes.

On Saturday, Republican Virginia Governor Bob McDonnell put his stamp of approval on the largest tax hike in the state’s history, estimated to cost taxpayers $1.13 billion per year. Read more from Breitbart.

The recent payroll tax hike, combined with rising gas prices and persistently high unemployment, has hit lower-income Americans the hardest according to this article by WND Money.

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Virginia Gov. McDonnell’s Tax Hike Plan Reaches ‘Taxpayer Nightmare’ Status
Posted By: Lee Schalk - 02/20/13

Thanks to leaders in the Virginia House and Senate, Governor McDonnell’s transportation funding scheme has gone from bad to worse. Just weeks ago, I detailed why McDonnell’s billion dollar tax hike was a bad idea. Here’s how it just got worse.

Instead of scrapping the gas tax, the plan now includes a 3.5 percent wholesale gas tax and a 6 percent wholesale tax on diesel fuel. Additional car taxes abound – a $100 annual “fee” for Virginians with cars that run on alternative fuels and a motor vehicle sales tax hike from 3 to 4 percent. All retails sales will be taxed at a higher rate of 5.3 percent (the current rate is 5 percent).

In order for McDonnell and his cronies to make this multi-billion dollar tax hike a reality, they are relying on Congressional passage of dangerous online sales tax legislation to reach even deeper into taxpayers’ wallets. Passage of the so-called Marketplace Fairness Act would make Virginia part of a predatory tax collection scheme that will ultimately hurt small Internet-based businesses and, undermine the principles of tax competition that have benefitted the Commonwealth.

But what if this federal legislation fails to become law? Well, then taxes are going up…again. The latest proposal states that if the Marketplace Fairness Act fails, the wholesale gas tax will jump from 3.5 to 5.1 percent.

Governor McDonnell’s plan thankfully avoids an income tax boost, but given the bevy of tax increases it includes, this plan must be adamantly opposed by Virginia taxpayers. As leaders in states like Louisiana and North Carolina seek pro-growth, revenue-neutral tax reform, it is especially disconcerting to see Richmond pushing a 5-year, $6.1 billion tax increase.

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Money Walks, and Here's Proof
Posted By: Brandon Arnold - 02/19/13

Just a few weeks ago, Phil Mickelson made headlines when he said he might pack up his golf clubs and move out of California.  The reason for his possible move? In November, California voters approved a ballot measure that pushed its already high top income tax rate from 10.3 percent to 13.3 percent – now the highest in the nation.  This means that Mickelson might be one of many high-earners leaving the Golden State.

To better understand California’s problem, look at nearby states like Nevada and Washington where there is no state income tax. And to Arizona, where the top rate is a relatively low 4.54 percent.  These states have far better business tax climates than California, too.  The Tax Foundation says California’s climate is the third-worst in the nation. By contrast, Nevada’s is the third-best and Washington’s is the sixth-best.

What are the effects of this huge tax disparity between California and other states in the region?  Thanks to research by Travis Brown and his book, How Money Walks, we’re finding out.  Travis has tracked the flow of wealth and population over the past 15 years to find where people – and their bank accounts – are moving.

His research suggests to us that California’s high tax rates have had a significant impact on wealth migration and that Mickelson’s potential move would be part of an ongoing trend.  From 1995 to 2010, the Golden State has experienced a net wealth loss of $37.8 billion.  The bulk of that money is moving to states with low or no income taxes, like the aforementioned Nevada ($8.2 billion), Arizona ($6.3 billion) and Washington ($3.9 billion).  Even no-income tax states that are much farther away like Texas ($4.8 billion) and Florida ($2 billion) are drawing considerable wealth away from California.

Speaking of Florida, a state with no income tax and the fifth-best business tax climate, it has been a major beneficiary of poor tax policies in other states. Over the same 15 year period that witnessed an exodus of wealth and population from California, Florida gained $86.4 billion in wealth and more than 900,000 residents. The majority of these dollars and people are coming from high-tax states like New York, New Jersey and Illinois.

Across the country, many states are considering major tax reform measures in 2013.  Policymakers should study the research at www.HowMoneyWalks.com before they enact any changes and learn about how low tax rates could help their state attract wealth.  

To learn more, please watch this brief video clip featuring NTU’s Pete Sepp and Travis Brown.

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