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The Late Edition: April 22, 2013
Posted By:  - 04/22/13

Today’s Taxpayer News!

A roundup of last week’s "Tax Week" blogs:

  • A look at the costs of tax complexity in both hours and dollars, which are both on a decidedly upward trajectory.
  • Even members of Congress have their share of trouble trying to make sense of the complex tax code.
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Urgent! Help Stop Harry Reid's Internet Tax Hike
Posted By: Nan Swift - 04/19/13

In case you haven’t heard, Senate Majority Leader Harry Reid is trying to ram a controversial Internet sales tax bill through the Senate. The bill could come to the floor at any time! It is very important that we stop this abuse of power and urge Senators to oppose the so-called “Marketplace Fairness Act" (MFA).

Click here to Take Action!

Anyone who remembers their history will recall that the institution of the Senate was born out of the “Great Compromise” by the framers of our Constitution. James Madison described the Senate as a “necessary fence” against “fickleness and passion.” What is happening in Washington today is a far cry from that noble vision.

Instead, the Senate is preparing to take up a bill that would undo essential taxation principles and expose America’s taxpayers to predatory state revenue administration tactics. By allowing state tax enforcers to demand sales taxes from businesses outside their borders, the unfair MFA would heap heavy burdens on small businesses and hinder tax competition among the states.

Clearly, legislation with such broad-reaching consequences and the capacity to inflict widespread harm should be fully considered via committees and hearings with time for public input – not hastily muscled over the finish line.

Want to learn more about the MFA? Here are some great resources:

If the Marketplace Fairness Act was such a good deal for taxpayers, there would be no need for the underhanded tactics Senator Reid is using. We need to stand up to his legislative bullying. Your urgent help is needed! 

Take Action today!

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The Late Edition: April 17, 2013
Posted By:  - 04/17/13

Today’s Taxpayer News!

NTU recently urged the Arkansas senate to reject the Governor’s costly Medicaid expansion plans.

Minnesota seeks more revenue through a proposal to raise the alcohol excise tax by as much as $2 dollars per 12-pack, says the San Francisco Chronicle.

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Long Arm of Tax Complexity Reaches Overseas
Posted By: Douglas Kellogg - 04/17/13

Being an American taxpayer is always a chore, but for those who may live abroad or have some foreign connection, their status as American taxpayers allows the U.S. government to further invade their lives. This continuing advance of the IRS on foreign residents is a major reason, in addition to high rates, that we’ve seen a rise in Americans renouncing their citizenship.

What is making this situation so, pardon the pun, taxing? Americans abroad have already been subject to a uniquely unfair double-taxation system, where they can owe the IRS income taxes even if they made no U.S.-based income. Now, new regulations, like those in the FATCA law, add to the pain and fear felt by taxpayers outside our borders.

There are many stories about the travails of taxpayers in these situations. A New York Times piece from 2012 highlights a variety of them. One typical example is a Canadian man who has never resided in the U.S., but who could lose his inheritance from his American-born parents because he had not been filing U.S. tax returns (of course making up the returns includes thousands in fees).

That type of difficulty is just the tip of the iceberg, but very much worth noting because it demonstrates how the double-tax standard affects people who are below the threshold for owing income tax but still (unbeknownst to many of them) must make out tax returns.

It is the 2010 FATCA regulations added on top of the 1970 Report of Foreign Bank and Financial Accounts requirement that subject taxpayers abroad to an even more invasive IRS than U.S. residents. And, it goes both ways. As Andy Quinlan of the Center for Freedom and Prosperity put it in a recent Daily Caller piece:

Included as a provision to help pay for the 2010 HIRE Act, FATCA essentially conscripts foreign financial institutions (FFIs) as deputy tax collectors for the IRS, and even expects them to pay for the privilege. FFIs are required to identify all of their American clients, spy on their financial activities, and report their information and activities to the IRS. …

It is this tag team that body slams taxpayers, requiring the full revelation of all foreign bank accounts if one has at least $10,000 total in non-U.S. banks. As a Reason article discusses, this can mean you are responsible for disclosing all your accounts to the IRS if your spouse has an old overseas account with $10,000 in it. Just one example of how easy it is to become subject to these laws that always seem to have been sought in the name of chasing down evil tax evaders.

It is FATCA that has gone so far as to cause foreign-based banks to even refuse to take Americans seeking accounts, even expelling American customers! The law requires the banks to provide the IRS with information on their customers who are “U.S. persons or foreign entities with substantial U.S. ownership.” Otherwise, most FATCA rules take effect in 2014, and with them the beginning of serious penalties non-compliant banks will face:

(paying the IRS) 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.

Is it any wonder Marylouise Serrato is quoted in the Daily Mail saying, “Americans abroad are terrified. We've had people pay tens of thousands of dollars in fines… Now…we're seeing a lot of people speak openly about it (renouncing citizenship) and come to us for information.”

These struggles for our compatriots abroad highlight a couple disturbing trends in tax complexity. First, that no power is too invasive for the IRS; and second, that Congress’ pursuit of  “the rich” continues to ensnare the decidedly non-rich in red tape and tax obligations that are completely unfair.

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Even Members of Congress Can't Figure Out Tax Code
Posted By: Nan Swift - 04/16/13

For taxpayers, NTU’s annual tax complexity report released yesterday wasn’t exactly full of surprises. Anyone who spent the last few days and weeks sorting through financial documents and trying to interpret the dead-language of the Internal Revenue Service in order to simply comply with 16th amendment can attest to the enormous burden imposed by this annual rite. In fact, tax compliance has become so onerous that 9 out of 10 returns filed are now done by paid preparers or tax software – a clear sign that more and more are simply throwing in the towel.

And it would seem that our legislators in Washington also feel the pain – yesterday, TheHill.com reported that “tax forms are too complex for members of Congress to fill out on their own.”

Coming from the very people with the power to overhaul the system, the tales of tax-preparation woe seem almost quaint:

In fact, when broached with the question, “Do you fill out your own tax forms?” most members burst out laughing before admitting it was just too complicated.

“I’m a former business lawyer,” Sen. Rob Portman (R-Ohio) said, adding that he’s served on tax-writing committees during his time in Congress. “I know a lot about tax policy as a result, but I would not dare to do my own taxes.”

Rep. Darrell Issa (R-Calif.) said: “I did taxes for other people for a long time. I could not possibly do taxes now for myself.”

It may be a sign of reforms to come when even lawmakers can’t figure out the laws, or it could be that people who don’t have to face down the mountain of forms and receipts in person might not realize the incredible cost mounting tax complexity is imposing both on individuals and our economy.

Either way, this is a good reminder that the current Tax Code is broken and needs to be scrapped. Luckily, the Ways and Means Committee is well underway on major reforms that will simplify things and hopefully help spur economic growth. But it will be an uphill battle and reformed-minded legislators need all the grassroots help they can get. Please take a minute to send a message to your legislators by clicking here and tell Washington we need to Scrap the Code!

 

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Maryland's "Rain Tax" Will Soon Fall On Property Owners
Posted By: Michael Tasselmyer - 04/15/13

Maryland property owners may not feel like singin' in the rain when they see forecasts for showers and storms this summer.

On July 1, local governments in ten of the largest counties in Maryland -- including Baltimore, Howard, and Prince George's, as well as Baltimore City -- will begin collecting a so-called "rain tax." The fee will be charged to residents according to the square footage of "impervious surface" they own. As explained in The Gazette:

"In 2010 the Obama administration's Environmental Protection Agency ordered Maryland to reduce stormwater runoff into the Chesapeake Bay so that nitrogen levels fall 22 percent and phosphorus falls 15 percent from current amounts. The price tag: $14.8 billion.

And where do we get the $14.8 billion? By taxing so-called "impervious surfaces," anything that prevents rain water from seeping into the earth (roofs, driveways, patios, sidewalks, etc.) thereby causing stormwater run off. In other words, a rain tax."

The Chesapeake Bay is the largest estuary in the United States and has long been a point of focus for environmental agencies' protection efforts. Now, unfunded "clean up" mandates from the EPA and the State of Maryland have left local county governments with a hefty bill. Affected counties will have to determine the rates they'll charge property owners per square foot of runoff surface. According to the report above, satellite imagery will be used to help determine or substantiate the liability that individuals and organizations are responsible for paying. The state anticipates about 75 percent of the tax revenue will come from individual property owners, and the remaining 25 percent will come from non-residential property owners. 

Montgomery County, which borders Washington, D.C., already imposes a "rain tax." Last year it spent the $17 million it collected on various conservation education and training workshops. 

The tax will also be levied on buildings and parking lots belonging to non-profit organizations, such as charities, churches, and community service associations. For groups with multiple locations throughout the state, that could mean a significantly higher financial burden than what they've traditionally had to budget for.

Residential property owners in Maryland can expect to pay between $10-200 per year. Non-residential owners, however, could be looking at many thousands of dollars' worth of fees.

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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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