Time to Eliminate the Texas Margins Tax
Texas is the economic and fiscal envy of much of the nation thanks in large part to its business-friendly tax climate and relatively low tax and regulatory burden. In fact, of the 102 major metropolitan areas in the U.S., only 14 have added jobs on net since the recession began in December 2007. Of those 14, 6 Texas metropolitan areas are in the top 8. However, Texas has one major blemish policy-wise that is preventing the Lone Star State from realizing its full potential: the margins tax.
The margins tax is a burdensome and complicated tax that is levied on employers in the state. Enacted by the legislature in 2006, the margins tax has significantly diminished the competitive advantage that Texas companies have over their out-of-state competitors. Worse, for all the economic harm the margins tax does, it generates relatively little revenue for state government coffers. As the Texas Public Policy Foundation documented in a recent report, the margins has led to higher tax bills and administrative costs that reduce the job-creating capacity of employers across the state.
Fortunately there is recognition of this problem in the legislature, where Senator Craig Estes (R-30) has filed legislation to eliminate the margins tax completely, phasing it out over a 7-10 year period. Senator Estes has been very articulate in explaining why this tax needs to go, describing it as a tax that is “inequitable, costly, and complicated for Texas businesses and has undermined the state’s competitive advantage”.
With Texas Comptroller Susan Combs projecting surpluses for the current and coming fiscal years, now is the perfect time to do away with the margins tax. Also, with Gov. Bobby Jindal, looking to repeal neighboring Louisiana’s personal and corporate income taxes this year, it’s imperative that Texas get rid of its onerous margins tax to keep Texas competitive regionally, nationally, and globally.
ATR fully supports Senator Estes's margins tax repeal bill and will be following this issue very closely during the 2013 session of the Texas legislature.
ATR President Grover Norquist Challenges President Obama to Televise Fiscal Cliff Negotiations
Grover Norquist, President of Americans for Tax Reform, called on President Obama to fulfill his campaign promise of increased transparency in the White House by allowing C-SPAN cameras in the room during the fiscal cliff negotiations. Mr. Norquist stated:
Only C-SPAN cameras can stop the Obama PR team from misrepresenting both the Republican position and their own […]If the C-SPAN cameras were in the fiscal cliff negotiation room then Obama would have a hard time convincing Americans that his budget is serious. He is demanding $1.6 trillion in higher taxes.
Norquist also called for the full text of the agreements to be made available to the public for a full 7 days before becoming law. He stated:
American taxpayers need one other final protection. The final agreement must be put in writing, in actual legislative, legal wording and placed online for every American to read for seven full days […] We cannot be fooled as we were in 1990 and 1982 when we were told there were real, large, and permanent spending cuts to accompany small tax hikes. The tax hikes were large, permanent, and painful, while the spending cuts were a fiction. The spending cuts never happened.
A brief history lesson in “grand compromises” shows that the spending cuts originally promised have never materialized and the American people are simply left with a higher tax burden to shoulder.
To read a full copy of Mr. Norquists’ article, click here.
Some In The Media Recognize Washington's Real Problem: Overspending
While in recent days the mainstream media was busy lambasting the Taxpayer Protection Pledge and promoting the myth of it standing in the way of tax reform, some individuals in the nation’s editorial pages were taking an honest look at the issues and were able to come to far different conclusions.
Editorials in the New York Sun, Investor’s Business Daily, the Wall Street Journal, and various think tanks and blogs praised both the Taxpayer Protection Pledge and president of Americans for Tax Reform Grover Norquist. They also pointed out the danger of breaking their personal written commitment and pointed out the damage it does to the Republican brand. The best example was the disaster that followed when President George HW Bush broke his pledge to not raise taxes.
Investor’s Business Daily stated:
“When President George H.W. Bush broke his "read my lips" pledge in 1990, the Democrat who made him a one-term president didn't just attack him for breaking the pledge. During 1992's final presidential debate, Bill Clinton said, "The mistake that was made was making the 'read my lips' promise in the first place just to get elected."
The New York Sun went on to clear up a commonly repeated liberal attack line on the pledge. They stated:
“A fundamental point of the pledges is that they are not made to Mr. Norquist or his organization. He merely keeps track of them. They are pledges to the legislators’ constituents and to the American people.”
The editorial board of the Wall Street Journal, too, got to the root of the true problem in Washington. Their article reads:
“The one thing Republicans shouldn’t do is join the media and Democratic chorus that Mr. Norquist and his pledge are the root of our political and economic woes. The real problems are a political class that won’t control its spending and economic policies that are retarding growth […]Mr. Norquist’s tax pledge has been one of the few restraints over the years against those bad Beltway appetites.”
Lastly, the Cato Institute pointed out the sheer hypocrisy of Democrats who attack the pledge, but have signed pledges of their own and refuse to put any government entitlements on the table. They write:
“It's worth noting that more than half of Democratic congressmen and eleven senators have signed a pledge to oppose any changes to Social Security or Medicare [...]Republicans are simply negotiating with themselves and with the news media. Democrats haven't even come to the table.”
It seems there are some in the media who understand why the Pledge is an effective tool by which voters may hold their Representatives accountable. Those who signed the pledge should make good on their word, and remember that history has already taught us all we need to know about ‘grand compromises’: they don’t work.
ATR Urges Governors to Reject Obamacare's Exchanges and Medicaid Expansion
The federal government has told the states that they have until the end of the day today to decide whether they will move forward with two costly provisions of Obamacare: Medicaid expansion and the so-called “state run” exchanges. Governors from South Carolina, Wisconsin, Texas, and others have announced that they will not set up exchanges in their states. ATR is encouraging other governors to join them in declining to set up Obamacare exchanges, as such a move will protect taxpayers and employers in their states.
By setting up exchanges themselves, as opposed to letting the Feds do it, governors would expose employers in their states to massive job-killing tax increases. Obamacare imposes a tax on employers of $2,000 per-worker, but, given the way in which Obamacare was hastily crafted, it can only be imposed if a state is setting up the exchange. Furthermore, setting up the exchanges on the state level will cost cash-strapped state governments a significant amount of scarce state resources, between $10-100 million per year, which cause many states to raise taxes to cover additional costs. And lastly, the idea of a “state run” exchange is nothing more than a myth. In reality, the exchanges are still subject to the approval of federal bureaucrats, who must ensure that it is in compliance with the regulations mandated under Obamacare. As Wisconsin Governor Scott Walker said in a letter to the Secretary of Health and Human Services: “If the state option is chosen; however, Wisconsinites face risk from a federal mandate lacking long-term guaranteed funding. […]Unfortunately, operating a state exchange would not provide the flexibility to meet our state’s unique needs or to protect our state’s taxpayers.”
Similarly, ATR urges states to reject the costly Obamacare Medicaid expansion, which is now optional for states as a result of the July Supreme Court ruling on Obamacare. Medicaid costs in the states have skyrocketed from $70 billion in 1990 to $400 billion today. With this entitlement program already on a trajectory to bankrupt the states, it simply makes no sense for states to increase their Medicaid rolls, without any effort to reduce the costs. Doing so is fiscally irresponsible and reckless, and puts the long-term financial wellbeing of states at risk. Many of the same governors who are declining to set up Obamacare exchanges have courageously come out in opposition to this costly and unworkable expansion. For the sake of their states’ fiscal health, ATR urges all other governors to do the same.
To read the statement that Governor Walker made concerning Wisconsin's decision to not set up an exchange, click here.
ATR Refutes False Claims About Taxpayer Protection Pledge Made By South Dakota State Representative
Grover Norquist, President of Americans for Tax Reform, sent a letter today to South Dakota State Representative Steve Hickey, refuting several false claims that Rep. Hickey made about the Taxpayer Protection Pledge. The letter highlighted ATR’s stance on whether user fees are taxes and once again outlined the length of time for which an elected official is bound to the pledge. Mr. Norquist stated:
"ATR does not believe that user fees are taxes, so long as they are true user fees. It is important to look at what a “user fee” is trying to accomplish and there are many instances where it effectively functions as a tax, (i.e. when citizens do not have a way to “opt out” of it). Thus, ATR defines user fees appropriately as when citizens are voluntarily paying for a government service and also have the option to pay for that service in the private sector."
To read a complete copy of the letter, click here.
ATR Urges Cook County Board of Commissioners to Reject Tax Hike
Grover Norquist, President of Americans for Tax Reform, sent a letter to County Commissioners in Cook County, Illinois today, urging them to oppose a cigarette tax hike contained in the budget proposal of Cook County Board President Preckwinkle. The letter highlighted the past failures of tobacco tax hikes in increasing revenue for government, and also noted that it will push business to neighboring states and counties. Among other things, Mr. Norquist stated:
"Washington, D.C. raised its cigarette tax by 50 cents in 2009 and actually realized a net decline in tobacco tax revenue. Even more telling is Cook County’s $1 tax hike in 2006. Studies show that Chicagoans flocked to neighboring Indiana to make their purchases, with an estimated 75 percent of cigarettes consumed in Cook County purchased elsewhere – meaning foregone revenue for local government. Raising the excise tax by another $1 will only drive more consumers to Indiana and neighboring counties, and the county excise tax on cigarettes will continue to become a more unstable source of revenue”
To read a complete copy of the letter, click here.
New Study Highlights the Need for Gov Romney's Energy Plan
A recent study by IHS Global Insight shows that extracting shale gas from the ground via hydraulic fracturing will support up to 3.5 million American jobs by 2035. Unsurprisingly, those states which have aggressively championed fracking (Texas, North Dakota, and Pennsylvania) have witnessed the creation of hundreds of thousands of high-paying jobs in their states.
The study also concludes that fracking will yield over $2.5 trillion to state and federal government coffers by 2035. States that have moved to fully utilize their natural resources have seen enormous economic benefits. Pennsylvania has been a hub of the natural gas boom. As ATR pointed out in the Philadelphia Inquirer, this has “generated more than $7 billion in taxes, royalties, lease payments, and fees in the state over the past five years, along with tens of thousands of high-paying jobs”
Other states are making the wise move to fully realize the benefit of their in-state resources that can now be accessed thanks to technological advances. Just this year the North Carolina legislature passed a bill to permit hydraulic fracturing, which had previously been prohibited in the state. In last night’s final gubernatorial debate before the election, former Charlotte Mayor and likely next governor Pat McCrory advocated “really promoting energy exploration both off-shore and inland in North Carolina” as a way to raise revenue through economic expansion, as opposed to job-killing tax increases.
Gov. Mitt Romney’s plan will move federal policies in the right direction, fully utilizing abundant domestic sources of natural gas. In contrast, President Obama has stepped up efforts to impose onerous federal regulations on the energy industry, and impose mandates that consumers get their energy from more expensive and less viable sources.
To watch an animation of how hydraulic fracturing is used to safely produce natural gas, click here.
Europe's Failed Energy Policies Should Not Serve As A Model for the US
As the coercive environmental lobby pushes for new regulations, mandates, and taxes here in the U.S., it is important to examine the economic damage caused by these policies in Europe, where they have already been tested.
In Germany, consumers are paying the price for policies that prop up the renewable energy industry in the form of higher electric bills. Germany’s electric companies are raising the surcharge on renewable energy by 47%, an incredibly large spike. When market energy prices go down in Germany, the surcharge for renewable energy goes up, leaving consumers on the hook to pay the difference. A recent Wall Street Journal article highlighted this misguided policy:
"The surcharge represents the difference between the fixed feed-in tariffs paid to renewable producers and the price their electricity fetches on the exchanges. So when the market price is down, as it is this year owing to expanded renewable production, the grid operators pay out more—and pass the difference through to consumers. A system that causes electricity bills to rise when energy prices fall can only be called cruelly ironic."
Meanwhile, Socialist politicians in Paris are pushing for legislation that could be even more detrimental to French residents. They would like to empower bureaucrats to determine who uses energy and natural gas in a ‘resourceful’ way and who uses it in a ’wasteful’ way. Those determined to be wasteful will be punished with higher energy costs, paying as much as 600 euros more per year. Unsurprisingly, the prospect of this law’s passage has caused the value of shares in the nation’s largest electric companies to plummet. This legislation is so over-reaching and onerous that French labor unions have spoken out against it.
The examples of France and Germany illustrate the failure of the command-and-control agenda of “green” groups on the Left. When government attempts to mandate which products consumers use, and in what way they use them, it spells trouble for consumers and employers. If policies such as Cap & Trade or a federal renewable energy mandate on utilities are initiated here in the United States, as many special interest groups supporting President Obama would like to see, it would be foolish to think the results would be any different.
ATR Applauds Gov. Nikki Haley's Opposition to Obamacare's Medicaid Expansion
South Carolina Governor Nikki Haley has joined a number of other fiscally responsible governors in making the decision to opt out of Obamacare’s mandated Medicaid expansion. As ATR previously noted, the program is already growing at an unsustainable rate in its current state:
“Nationwide, Medicaid costs are growing at an unsustainable rate, with taxpayers as always being on the hook for covering the soaring tab. According to a study by the John Locke Foundation, total federal and state Medicaid spending has ballooned from $70 billion in 1990 to approximately $400 billion today- -a budget busting 571 percent increase.”
Obamacare does nothing to quell this alarming increase in Medicaid spending. In fact, it simply makes matters worse by adding more individuals to state Medicaid rolls, without any effort to reduce cost or increase efficiency.
In South Carolina, 1 in 4 citizens are receiving Medicaid, and the state simply cannot afford an additional expansion of an entitlement that is already projected to eat up more and more of the state’s budget, squeezing out funding for other priorities such as education and transportation.
According to South Carolina Medicaid Director Anthony Keck, enrolling in Obamacare’s Medicaid expansion could cost taxpayers an additional $2.4 billion from 2014-2020. This expansion would put other important funding areas on the chopping block, and will likely cause some lawmakers to pursue job-killing tax hikes and fee increases. Even without the Obamacare Medicaid expansion, Medicaid spending in the state is still expected to grow in leaps and bounds in the coming years. It was reported in the journal Health Affairs that in SC the “Medicaid program may require almost nine of every 10 newly-available state general fund dollars," and that's even without accepting the Obamacare expansion. The Obama White House now sees fit to pressure South Carolina to expand a program that it is currently struggling to afford.
Americans for Tax Reform urges South Carolina legislators to follow the lead of Governor Haley, who has taken a fiscally prudent position on the issue. Gov. Haley not only opposes Obamacare’s Medicaid expansion, but has also come out in support of block granting Medicaid to the states, which allows states to take control of this runaway entitlement and reform how their tax dollars are spent. Spending interests in Columbia are sure to pressure lawmakers to move forward with the Obamacare Medicaid expansion. Americans for Tax Reform urges legislators to stand with Gov. Haley in defense of hard-working South Carolinian taxpayers.
O'Malley and Hollande: Trans-Atlantic Tax Hikers
Maryland Gov. Martin O’Malley and French President Francois Hollande are trans-Atlantic kindred spirits when it comes to fiscal policy. Unfortunately for French government coffers, Hollande is making the same mistake in Paris as O’Malley did in Annapolis three years ago.
Hollande made raising taxes on upper income households a central component of his platform, and Hollande is now moving forward on his campaign promise to raise tax rates on those who earn over $1.2 million a year, taking the rate from 46.8% to a whopping 75%. Not surprisingly, it looks like we are starting to see results in France that are similar to what occurred in Maryland following Gov. O’Malley’s tax increase on high earners. Just this week it was reported that France’s richest citizen, Bernard Arnault, the CEO of luxury goods manufacturer Louis Vuitton, is applying for citizenship in Belgium. The obvious motivation for this is to avoid Hollande’s tax increase.
Don’t expect Arnault to be the only one fleeing France’s heightened tax burden. Those who fail to learn from history are doomed to repeat it, so the saying goes, and President Hollande’s case is no exception. In fact, Hollande could have anticipated to the unintended consequences of his tax increase had he paid attention to experience of his fellow class warrior, Gov. Martin O’Malley, and what occurred in the aftermath of O’Malley’s tax increase on high income Maryland households, which was detailed by ATR last year:
"In 2008, to address a state budget deficit brought about by Maryland’s structural overspending problem, Gov. O’Malley championed and signed into law a new millionaire income tax bracket, raising the rate to 6.25%. A May 2009 Wall Street Journal editorial described the result of O’Malley’s tax increase one year later-
“One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a 'substantial decline.' On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates."
Taxing the rich might make for a good political talking point, but it is neither fiscally nor economically sound. For instance, a study by the Wall Street Journal shows that if you took all of the income earned by the top 5% in the United States in the economic boom year of 2005, you would get only $1.89 trillion, a mere drop in the bucket that is our $16 trillion dollar debt. This data belies assertions by President Obama and Democrats in Congress that raising taxes on the rich is a panacea to America’s budgetary woes.