Virginia Should Look to Florida as it Prepares for Special Session on Medicaid Reform
As Virginia gears up for a special session next month to reform the state’s Medicaid program, legislators should take note of the success in Florida. First signed into law in 2005 under Governor Jeb Bush, Florida’s five pilot counties for Medicaid reform saved taxpayers over $100 million annually. In 2011, Governor Rick Scott signed into law a statewide expansion of that pilot program where savings could reach nearly $2 billion annually.
The pilot program in Florida shifted the risk of abuse from the taxpayer to the private market by replacing fee-for-service with premiums. Patients saw predictable rates and chose between Health Maintenance Organizations (HMOs) and Provider Service Networks (PSNs). PSNs are owned by doctor groups or non-profits rather than insurers. While both resulted in lower expenditures for the reform program counties, with reduced costs by 18 percent, those with a PSN saved on average an additional $7 more per month.
In the pilot counties, patients could choose between two and 16 different plans. This lowered monthly expenditure for the elderly and disabled by $200 and $30 a month for mothers and children. The reform program also provided incentives of up to $125 a year for healthy behaviors.
Besides saving the taxpayer millions of dollars, Florida’s Medicaid reform lead to higher patient satisfaction across the board. 100 percent of patients with PSNs were at or above the national benchmark in satisfaction.
With one-third of the 2011-2012 Florida state budget spent on Medicaid, eliminating abuse and saving taxpayer dollars was a must. The 2011 reform expanded these cost effective solutions statewide, just as Virginia should do next month. Florida was divided into 11 regions with multiple care organizations to choose from. A low-income pool was created as well as tort reform, capping practitioner liability at $200,000.
Currently 300.000 Floridians are under the Medicaid reform system with 2.9 million expected to enroll. Because of these reforms, Florida is estimated to save between $500 million and $1.9 billion annually. Virginia legislators should build off of Florida’s accomplishment when drafting Medicaid reform next month.
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Governor Cuomo Opposes New York Energy Renaissance
New York Governor Andrew Cuomo (D) is hunkering down against fracking even while Democrats across the country are realizing that is a naive stance. While New York businesses suffer due to harsh regulations and high taxes, fracking provides a solution for upstate New York workers looking for well-paying jobs and a reduction in energy costs.
In Colorado, Pelosi lapdog, Rep. Jared Polis has already lost his battle against American natural gas. He is pulling down his two ballot initiatives against fracking at the urging of Democrats, including the vulnerable Governor John Hickenlooper (D) and Senator Mark Udall (D). Both face strong, principled opponents in their battle for re-election.
Smart Democrats know it is politically dangerous to oppose this boom in American energy which is producing thousands of jobs and providing cost relief for millions of Americans. New York’s neighbor, Pennsylvania – for instance – gained over ten thousand jobs from 2009-2011 with average earnings of $70,000 a year due to their fracking boom. Nationally, the price of natural gas dropped drastically from a 2003-08 average of $7.20 per million BTUs down to $2.80 in 2012. American families saved $32.5 billion in 2012 while green energy mandated Europeans have seen their energy costs skyrocket.
Fracking creates well-paying jobs and encourages investment into American, rather than foreign, energy. Contact Governor Cuomo here and call him at (518) 474-8390 to tell him that fracking is the right solution for New York.
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Philly Mayor Wants Schools Dependent on Smokers Not Quitting
Faced with an $81 million school budget deficit, Philadelphia is hoping for $45 million in revenue from a $2 per-pack cigarette tax increase. This seemingly quick fix is misguided for a number of reasons.
The Pennsylvania legislature must authorize a local tobacco tax increase in Philly, and this week Pennsylvania House leadership decided not to call a vote due to a lack of consensus. While Philadelphia Mayor Michael Nutter is in panic mode over the legislature’s delay, it’s good that lawmakers are taking a step back.
First, Philadelphia should not be making education funding increasingly reliant on more people smoking. Second, such a tax hike would be borne by those who can least afford it, as the average income of smokers is well below the overall workforce average. Third, tobacco taxes are a declining and volatile source of revenue. Tobacco taxes often miss their revenue projection due to the ease of tax evasion and they incentive black markets. Even if Mayor Nutter gets his tobacco tax hike, it will likely only serve as a placeholder for future tax hikes on the general populace.
Additionally, Philadelphia’s school budget problems are on the spending, not the revenue side of the ledger. The Commonwealth Foundation recently published findings on Philadelphia school district spending over the last decade. Since the 2002-2003 school year, revenue for the school district has increased by over $1 billion to $2.97 billion. Meanwhile, there has been no improvement in testing scores since 2009, and a staggering 80 percent of students are not proficient in both math and reading.
Mayor Nutter stated there will be 1,300 face layoffs as well as a delayed start to school if the money isn’t given to them. The numbers tell another story.
Over the last decade there already have been layoffs in the schools despite a $1 billion revenue increase. Philadelphia has witnessed a 6.71 percent decrease in teachers per classroom as well as a much more staggering drop of 25.32 percent in enrollment. That has brought the student teacher ratio down to 15.63, far lower than the predicted 40 students in a classroom Nutter is predicting.
Why the drop in students? Because families are fleeing the district. Currently 44,000 students are on waiting lists for better performing charter schools. The problem lies not in lack of tax revenue, but with the education system itself. Higher taxes will not rectify the achievement gap of Philadelphia students compared to those across the country and globe.
After being hit with over 20 federal tax increases over the last five years, the last thing Philadelphia needs is higher taxes at the local level. Only reform, not more revenue, will cure what ails Philadelphia schools.
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Following Passage of State Income Taxes, Size of Government Increases
Americans for Tax Reform conducted research to see if the introduction of a state income tax leads to bigger state government. The most recent states to impose an income tax since 1967 are: Michigan, Nebraska, Connecticut, Illinois, Maine, Ohio, Pennsylvania, Rhode Island, and New Jersey. Looking at the 10 years before and the 10 years after implementation of a state income tax, we compared the size of state government (measured as state spending as a percentage of Gross State Product). The source of state spending and tax rate information is derived from the U.S. Census Bureau and Gross State Product figures are derived from the Bureau of Economic Analysis, Samuel H. Williamson, "The Annual Real and Nominal GDP for the United States, 1790 - 2013," and compilation at usgovernmentspending.com. The numbers show that the size of state government grew significantly faster in 10 years after imposition of the income tax than in the previous decade.
- The size of government grew 4.64 percent faster on average in the decade after these states imposed an income tax. State spending on average was 4.78 percent of GSP 10 years prior, 5.99 percent on average at the time of income tax implementation, and 7.25 percent 10 years after.
- Sans New Jersey, which is an aberration, the size of government grew 59.2 percent faster on average in the 10 years after income tax imposition compared to 10 years prior income tax. On average, government was 5.04 percent of GSP 10 years before the income tax, 5.92 percent at time of income tax implementation, and 7.33 percent 10 years after imposition.
- Additionally, five of these nine states introduced a corporate income tax the same year: Michigan, Nebraska, Illinois, Maine and Ohio. Not surprisingly they saw the largest average growth in size of government.
- Most of the states increased their tax rates 10 years after the income tax was introduced. This trend is similar to what was seen following passage of the federal income tax. The top tax bracket originally was 7 percent in 1913, swelled to 94 percent in the mid 1940s and currently sits at 39.1 percent.
- Comparing spending in states with an income tax to those without, state spending per-resident was 49 percent greater in 2012 in states with an income tax. Average spending per resident was $2,491 in states without an income tax, while spending reached $3,702 per-resident in states with an income tax.
- New Jersey, an aberration, introduced its income tax in 1976, at the end of the 1973-75 recession. The recession caused an additional increase in government spending followed by a temporary slowdown at the recession’s end by most states; New Jersey was no different. 10 years prior to passage of its income tax in 1966, New Jersey implemented a sales tax and witnessed a boom in tax revenue- increasing 125% (adjusted for inflation) to 826 million in 1976, paralleling New Jersey’s 138% increase in the size of state government. Unlike New Jersey, none of the other states introduced a sales or corporate tax in the ten years prior to the income tax.
In conclusion, size of these state governments grew at a greater rate following the institution of a state income tax. Additionally, once in place, these tax rates also tend to rise over time. When a new source of revenue is introduced, it is often abused by state spending addicts and only pumps into government faster. As Milton Friedman stated best, "Politicians will always spend every penny of tax raised and whatever else they can get away with."
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Paul Davis Supports $341 Million Tax Increase
Kansans are beginning to see much needed tax relief. Gubernatorial candidate Paul Davis (D), however, wants to freeze the current tax rates where they are at rather than letting them phase down further. This would slap a massive $341.4 million tax hike on hard working Kansans over the next five years, stopping the Kansas recovery in its tracks.
Kansans have already seen their income tax brackets consolidated from three to two rates. Governor Brownback slashed rates from 6.45, 6.25, and 3.5 percent down to 4.9 and 3 percent. These rates will continue to drop down to 3.9 and 2.3 percent, letting the hard workers of Kansas keep more of what they earn.
If the Brownback tax rates continue to drop as scheduled, the average household, which makes about $65,000 a year, will save an additional $417 a year for a grand total of $752 saved a year. If Paul Davis doesn’t believe $417 can go a long way to help a household buy food, pay a mortgage, or send their kid to college then he certainly is out of touch with Kansas.
Having previously opposed tax reform in Kansas, Davis now proposes to freeze the current rates, while remaining conveniently silent on whether he is open to returning to the old, higher tax rates . Davis has a fairly consistent record of defending the status quo income tax rate, whatever it happens to be at the time. So what tax rate does Davis actually want?
Governor Sam Brownback has laid out a clear vision for economic prosperity. With an unemployment rate down to 4.9 percent, Kansas is besting its neighbors of Colorado and Missouri and quickly closing the gap with Oklahoma. Additionally, Kansans have seen their disposable personal income increase over 10.8% per capita since 2010.
Call Paul Davis at 785-296-7630 and tell him you don't want your taxes increased.
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DC Council Approves Historic Tax Cuts
Earlier this week the DC Council voted 12-1 to override Mayor Vincent Gray’s budget veto. The budget vetoed by Mayor Gray includes historic tax cuts not been seen by DC residents in 15 years. Americans for Tax Reform applauds the DC City Council for restoring this much needed tax relief for District residents.
The budget includes triggers for tax cuts if revenue targets are met, providing tax relief for District employers and residents. Key provisions of the plan include the following:
- Middle class taxpayers (making between $40,000 and $350,000) will see their top marginal tax rate drop from 8.5 percent to 7 percent next year and then 6.5 percent the year after that.
- Those earning up to $1 million will see their top rate fall from8.95 percent to 8.75 percent.
- Increase of standard deductions and person exemptions.
- Childless low-income workers will see their Earned Income Tax Credit increase from 40 to 100 percent of the federal credit.
- The business tax will drop from 9.975 to 9 percent in 2016, 8.5 percent by 2018, and finally to 8.25 percent by 2019. This places DC business taxes in line with Maryland’s.
- Death tax threshold will increase from $1 million $5.25 million to match the federal death tax exemption threshold.
The $225 million tax cut is offset partially by the $67 million in new revenue from expansion of the sales tax base, leaving the majority of tax relief facilitated by spending restraint in the $10.6 billion budget, down from $12.85 billion in FY 2014.
There has been a lot of uproar over the alleged yoga tax included in the budget. But District yogis should fear not. There is no special wellness tax going into effect; the new tax plan merely applies the local sales tax to yoga and gym glasses, along with other previously exempt services. The amount of income tax cut far exceeds higher sales tax collections that this base broadening will generate. This newly increased disposable income will allow Washingtonians to afford even more yoga sessions.
The DC Council should be commended for clamping down on Mayor Gray’s expensive pet projects, such as his citywide streetcar service plans. Former mayor and current councilmember Marion Barry recently stated that taxpayers would have to pay $2,000 to subsidize each ride on the only existing streetcar line, a line which is yet to open even after years of planning and construction.
It appears that Washington’s business tax climate has become so onerous that even the DC Council realizes the status quo is unacceptable. ATR applauds the DC Council members for overriding Mayor Gray’s veto of much-needed tax relief. After being hit with over 20 federal tax hikes signed into law by President Obama over the last four years, Washingtonians need tax relief at the local level now more than ever.
Proposed Business Flat Tax Promising for New Hampshire
The New Hampshire Center for Economic Policy recently unveiled a proposal to consolidate multiple state business taxes into a single Business Flat Tax (BFT). One gubernatorial candidate, Andrew Hemingway (R), has decided to make this revenue-neutral restructuring of the New Hampshire tax code a center point in his plan to revitalize the state’s economy.
The plan put forth by Hemingway and the New Hampshire Center for Economic Policy eliminates the 8.5 percent Business Profits Tax, the 5.5 percent Medicaid Enhancement Tax and restructures the Business Enterprise Tax to a 2 percent flat rate while cutting the Interest and Dividends Tax from 5 percent to 2.3 percent.
Meanwhile, not-for-profits, such as universities and hospitals, and state government would be subject to the tax for the first time. A 2006 report estimates almost 100,000 are employed by not-for-profits, a huge tax base. If these two loopholes were closed for the current business enterprise tax, the tax rate would fall from 0.75 percent to 0.55 percent.
Americans for Tax Reform supports this effort to simplify and reduce taxes on businesses while also curbing government’s cost for tax collection. If this proposal were enacted, the compliance cost for business is greatly reduced. The proposed businesses flat tax can be filled out on a post-card sized sheet and all business establishments are treated equally, regardless of organizational structure.
Another benefit of this proposal is that savings and investment are exempt from the BFT. This makes it theoretically possible for a business to pay no tax if all revenue was invested.
Hemingway noted, “In order to make New Hampshire more competitive both nationally and globally, we must restructure out tax rates.” Simplifying and flattening New Hampshire’s business tax code will give the state a huge advantage against its regulation heavy neighbors like Massachusetts.
Both Hemingway and his primary opponent, George Lambert, signed the Taxpayer Protection Pledge, a written commitment to New Hampshire voters to oppose and veto any and all efforts to raise taxes. Revenue-neutral tax code restructuring, such as Hemingway’s is consistent with this important commitment to taxpayers.
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The Ted Kennedy Death Tax Loophole
Forbes recently reviewed how the billion dollar Kennedy family actively avoids the death tax by their cunning use of various accounting gimmicks and family trusts.
The Kennedy hypocrisy is astounding given the average American can’t afford such pricey lawyers and investors to protect their savings. Small business owners and farmers could lose 40% of their life savings by the death tax, on top of additional taxes, crippling their ability to pass on the American Dream to their children and grandchildren.
Despite living large as the very type of family he claimed should be taxed more, the late Senator Ted Kennedy cried out, “The tax system is stacked against the average taxpayer.” He was absolutely right; Ted Kennedy’s votes in the Senate did safeguard a tax system stacked against Americans.
Ted Kennedy ensured this by voting against raising death tax exemptions in March 2007, against the permanence of the Bush years death tax cuts August 2006, against a repeal of the death tax June 2006 and against extending tax cuts on capital gains and dividends November 2005. The list goes on.
Meanwhile through coolly calculated transactions, Forbes concluded, the Kennedy trust could maintain an un-taxable fortune indefinitely.
For the farmer, the small business owner, and the grandparents of America, there remains hope. Representative Kevin Brady (R-Tex) is pushing for H.R. 2429 to repeal the Death Tax. ATR encourages all members of Congress to co-sponsor this legislation.
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Governor Chris Christie Signs Budget After Vetoing Democrat Tax Hikes
Yesterday, New Jersey Governor Chris Christie signed a $32.5 billion budget after vetoing $1.6 billion in proposed tax hikes. New Jersey taxpayers and business owners have something to celebrate since the Democrats do not hold the votes necessary to override the line-item vetoes.
The Democrat’s proposed income tax hike would have pushed the top tax bracket from 8.97% to 10.75%. The tax increase would have placed New Jersey as the third highest state income tax rate after only California and Hawaii. Not to be outdone, the proposed 15% corporate income tax surcharged would have crippled the “Jersey Comeback.”
The 800-pound gorilla in the room is this broken entitlement program which eats away at billions of taxpayer dollars a year. If Democrats want to show they are serious on closing future budget shortfalls they need to implement the pension reform Governor Christie is advocating for.
Democrats in the legislature sought to put a Band-Aid over the state pension’s open wound, and not a very good one at that. Hiking taxes across the board would have driven away even more residents and businesses. The last thing New Jersey needs is a flood of wealth and residents heading to Florida and Texas’ business friendly climates, where income taxes aren’t imposed.
Besides avoiding new and exorbitantly high corporate and income tax increases, New Jersey residents won’t see a 75% e-cigarette tax increase either. Instead, these vapor products will continue to be subjected to a much lower sales tax rate, a victory for small businesses, especially convenience stores.
With the start of the 2015 fiscal year, New Jersey residents can breathe a short sigh of relief. There still remains much work to be done. The state pension system’s long term underfunded liabilities require real reforms, not short-term revenue increases that would have long-term negative economic consequences. Democrats will have to work with Governor Christie to enact meaningful reform if New Jersey’s fiscal problems are ever to fully subside.
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E-Cigarette Tax Hikes Threaten State Revenue, Public Health
A number of states over the past two years have attempted to impose new and higher taxes on e-cigarettes and vapor products. Though many legislative efforts have been thwarted, potential e-cigarette tax increases continue to pose a threat to state revenue, businesses, and public health.
States are scrambling to find new funding to replace the decline in tobacco tax revenue. Earlier this year the Surgeon General published a 980-page report predicting an eventual end to cigarette smoking in the United States. Whether those predictions come true or not, what’s clear is that as tobacco use declines, consumers are transitioning to healthier products like e-cigarettes. Higher excise taxes on these products will result in cross-border sales and even less revenue for states.
New and higher e-cigarette taxes are not serious public policy alternatives to declining tobacco revenue. The sale of these products is highly mobile due to the popularity of online sales. That’s precisely why state efforts to generate more revenue from these products are misguided. Massachusetts’s proposed 90% wholesale tax hike and Vermont’s proposed 92% would have crippled the industry and further harmed small businesses, like convenience stores, who are already suffering from a decline in tobacco related purchases had they become law.
For tobacco sales, tax evasion is a significant issue for states. The Washington Department of Revenue estimated $376 million in tax revenue was lost in 2012 due to tobacco tax evasion. A combination of tax evasion and higher online sales (not subjected to sales taxes) may become a growing issue for states if they impose higher in taxes on e-cigarettes and vapor products. States like Washington have taken note. The state Senate this year rightfully rejected a 95% tax on e-cigarettes and vapor products, preventing a further loss of revenue for convenience stores and brick and mortar vapor shops as a result of the fleeing of consumers across state lines.
Besides hurting taxpayers and diminishing state coffers, e-cigarette tax hikes also pose a threat to public health. Overtaxing products accredited to potentially saving lives makes little sense. In opposition to former New York Mayor Michael Bloomberg’s hypocrisy on public health for raising taxes on these products, ATR’s Patrick Gleason wrote:
Studies have shown that electronic cigarettes stand to improve health and prevent disease. By choosing to “vape” e-cigs instead of smoking cigarettes, consumers get their nicotine fix without the combustion and smoke — responsible for much of the negative health effects of tobacco cigarettes. For smokers already addicted to nicotine, e-cigs provide an alternative delivery mechanism that does not come with the proven harm that results from smoking.
Lawmakers like Bloomberg claim to champion public health and crusade against rising health care costs, yet they miss the irony of their contradictory legislation. While saying they seek to encourage smokers to successfully move away from tobacco products, their proposed higher taxes on e-cigarettes and vapor products are contributing to the high health care costs associated with a lifetime of smoking cigarettes. With e-cigarettes, neither tobacco nor second hand smoke poses a threat to anyone.
Despite the evidence staring them blankly in the face, there are still legislators and governors attempting to make money off of this growing industry. Democrats like Rep. Reuven Carlyle (D-WA) vow to revive failed attempts in future legislative sessions for tax hikes. ATR encourages Ohio, New Jersey, and legislators across the country to kill all bills aimed at increasing e-cigarette and vapor product taxes. These tax hikes will not result in new revenue, but instead declining economies.
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