Conservative Coalition Letter to GOP Leadership: Keep Tax Hikes off the Table
Today, a broad coalition of center-right organizations released a joint letter calling on Republican leaders in Congress to block any attempt to raise taxes in the ongoing debt ceiling negotiations. The letter reminds lawmakers of the budget deals of 1982 and 1990 that raised taxes but failed to deliver on promises to cut spending. In part, the letter states:
“Our organizations represent millions of tea party and limited government activists and scholars from around America. We are all united in one opinion about the on-going debt limit negotiations—tax increases need to be ‘off the table,’ since Washington, D.C. has an over-spending problem, not an under-taxing problem.
Washington, D.C. already spends too much of our money. The historical level of federal government spending has been 21 percent of economic output. According to the non-partisan Congressional Budget Office (CBO), federal spending will be 23-24 percent of economic output each year for the rest of this decade, and then balloon to over 30 percent in the next few decades. Higher taxes to fuel President Obama’s super-sized welfare state will only make this problem worse.
America has a fiscal crisis because Washington spends too much, not because it taxes too little. According to CBO, tax revenues will reach or exceed the historical average of 18 percent of economic output by the end of this decade, even as spending continues to careen out of control. Raising taxes would kill jobs, wreck any hope of an economic recovery, and simply serve to enable an out of control spending elite in Washington, D.C.
Grand compromises to cut spending and hike taxes have failed in the past. In 1982, President Reagan was promised $3 in spending cuts for every $1 in tax hikes. The tax increases happened, but President Reagan was still waiting for the promised spending cuts when he left office. In 1990, President George H.W. Bush was promised $2 in spending cuts for every $1 in tax hikes. He broke his “Read My Lips” tax pledge at Andrews Air Force Base, but CBO numbers prove that not a single penny of the promised spending reductions was realized. Putting tax increases on the table now will only result in real tax hikes on American employers and families, and phony spending cut promises that never get realized. The focus must be on spending, and spending alone.”
Signatories to the letter include (organizational affiliations listed for information purposes only):
Jim Martin of 60 Plus Association
Dick Patten of American Family Business Institute
Tim Phillips of Americans for Prosperity
Grover Norquist of Americans for Tax Reform
Duane Parde of National Taxpayers Union
Susan Carleson of The Carleson Center for Public Policy
Brian Burch of CatholicVote.org
Mario Lopez of Hispanic Leadership Fund
Timothy Lee of Center for Individual Freedom
Andrew Quinlan of Center for Freedom and Prosperity
Chuck Muth of Citizen Outreach
Chip Faulkner of Citizens for Limited Taxation
Richard Viguerie of Conservative HQ
Gary Marx of Faith and Freedom Coalition
Rick Watson of Florida Center-Right Coalition
Jimmy LaSalvia of GOProud
Nicole Neily of Independent Women’s Forum
Tom Giovanetti of Institute for Policy Innovation
Bob Adams of League of American Voters
Colin Hanna of Let Freedom Ring
Seton Motley of Less Government
Amy Ridenour of The National Center for Public Policy Research
William Shaker of Republican Pac
William Greene of RightMarch.com
Karen Kerrigan of Small Business & Entrepreneurship Council
Rick Hendrix of ClearWord Communications Group
Sam Slom of Smart Business Hawaii
David Williams of Taxpayer’s Protection Alliance
Mattie Corrao of Center for Fiscal Accountability
Lisa Miller of Tea Party WDC
What are the Top 10 Largest "Tax Expenditures?"
Over the past few weeks, Sen. Hatch has spoken passionately about his belief in lower taxes for American families and small businesses. First, Hatch explained how Democrats are using underhanded tactics to raise revenue. Then, he offered a defense of the Taxpayer Protection Pledge. From there, Hatch debunked several myths that have been floating around the talking heads in Washington about “tax expenditures.”
Now, the senator from Utah has released a list of the 10 largest “tax expenditures.” The findings will be surprising to some, especially given the Democrats’ dishonest insistence that these “tax expenditures” are merely “loopholes” for millionaires and corporate jets. Here’s a look at the list:
Exclusion for Employer-Provided Health Insurance.
Representing 13 percent of tax expenditures, it’s the single largest tax expenditure. To do away with this would threaten access to health care for families and individuals that have health insurance through their employers.
Home Mortgage Interest Deduction.
Having helped millions of Americans achieve home ownership, this expenditure accounts for 9 percent of all tax expenditures.
Preferential Rates for Dividends & Capital Gains.
Take away this tax expenditure which accounts for 8 percent of tax expenditures, and the rate on dividends will almost triple in less than 18 months, and the rate on capital gains will go up 59%, also in less than 18 months. This will discourage investment in stocks and bonds.
Exclusion of Medicare Benefits.
Accounting for 7 percent of tax expenditures, its elimination would increase taxes seniors’ Medicare benefits.
- Pre-Tax Treatment of Defined Benefit Pension Plan Contributions.This is a tax benefit that reduces the cost for those workers who save for retirement. It represents 6 percent of tax expenditures.
Earned Income Tax Credit.
Designed for low-income people, the Earned Income Tax Credit accounts for five percent of all tax expenditures.
Deduction for State and Local Taxes.
This deduction would hit high-tax states hardest, driving up the marginal rate of taxpayers who take this deduction by as much as 35 percent. It represents 5 percent of all tax expenditures.
Pre-Tax Treatment for Contributions to a 401(k).
At four percent of tax expenditures, this is a significant incentive to families and individuals to save for retirement.
Exclusion of Capital Gains at Death.
If this one goes, death would be taxed twice. First, the decedent’s estate might get hit with the death tax. Then the decedent’s heirs would be subject to tax again on the gain embedded in any inherited asset, should they decide to sell it. This accounts for four percent of tax expenditures.
Deductions for Charitable Contributions.
This is the tax benefit for donations to charities other than education and health care institutions, including donations to religious institutions. This charitable deduction represents four percent of tax expenditures.
Hatch would support elimination of tax expenditures on the critical condition that it is done as part of revenue neutral tax reform -- which is consistent with ATR’s position.
Debunking the Myths of So-Called "Tax Expenditures"
Sen. Hatch explains why “tax expenditures” are neither “spending” nor “loopholes”:
“Some in Washington have claimed that eliminating tax expenditures is the same as getting rid of wasteful spending or closing unwanted loopholes. The reality is somewhat different. Middle-class families would hardly agree that incentives to save for college and retirement or to buy a home are loopholes. Here’s a closer look at the myths of tax expenditures:
MYTH: Tax Expenditures Are Spending
FACT: The federal government cannot spend money that it never touched and never possessed. Tax expenditures let taxpayers keep more of their own money. And only by the public consent is the government permitted to take some of it in taxation to pay for certain public goods. When tax hike proponents say we are giving businesses and individuals all this money in tax expenditures, they are incorrectly assuming that the government has that money to give in the first place, when in fact it does not. To the contrary, the government never touches the money that a taxpayer keeps due to benefitting from a tax expenditure, whereas with spending, the government actually collects money from taxpayers and then spends it.
Another difference between tax expenditures and spending is that reducing or eliminating a tax expenditure without an offsetting tax cut to reach a revenue neutral level will cause the size of the federal government to grow, while reducing or eliminating spending causes the size of the federal government to shrink.
MYTH: Tax Expenditures are Loopholes
FACT: This is deliberately inaccurate. A loophole is something that Congress did not intend and would generally shut down, at least going forward, once it learned of the loophole. Tax expenditures, by contrast, were generally placed by Congress into the tax code deliberately. For example, the largest tax expenditure is the exclusion for employer-provided health insurance and benefits. The second-largest: the home mortgage interest deduction.
Whether you agree with a particular tax expenditure or not, an honest debate requires recognition that tax expenditures were designed by Congress with economic or social goals in mind and are not inadvertent loopholes.”
What do you think about Sen. Hatch’s distinction between “tax expenditures” and government spending? When someone keeps their own money, is that the same thing as getting a welfare check from the government?
Hatch Defends The Pledge, Holds Strong Against Tax Hikes
In another fantastic speech about fundamental tax reform, Sen. Hatch reiterated that he would not vote to eliminate tax expenditures without cutting rates or flattening the tax code at the same time. He explained that “reducing spending through the tax code” is nothing more than a code phrase for “tax increases” – something that would be disastrous for the already-struggling American economy. Hatch emphasized that he would continue upholding his pledge to the people of Utah to not support a net tax increase:
“And make no mistake. Whatever the President wants to call it — reducing spending through the tax code, closing loopholes, or making people pay their fair share — these are tax increases plain and simple. And they are tax increases on the middle class. There has been some criticism in recent days about Republicans for their commitment to a pledge many of them took against any net tax increase. I have to admit I am at a loss here.
Conservative Republicans, convinced that taxes are already high enough, promise their taxpaying citizens that they will never support a net tax increase. They gave their constituents their word, and are sticking to it.
Meanwhile, President Obama, who promised not to raise taxes on the middle class when running for office, vows to break this promise at every opportunity. And yet it is the conservative Republicans who are somehow lacking integrity? Mr. President, I don’t care how many blows I take from sophisticated Washingtonians and professional leftists for sticking by my pledge to the people of Utah. I will resist any effort by the President to include tax increases as part of the deal to increase the debt ceiling. I will do so for a number of reasons. First, our tax code needs a fundamental overhaul. It is a complicated mess that is lacking in fundamental fairness. Yet the President’s proposal to reduce tax expenditures for deficit reduction, is a proposal to maintain a tax code that grows more burdensome by the day. The President’s proposal essentially robs the government of the revenues that it might use later to flatten the tax code and lower rates.”
ATR Supports H.R. 2417, Consumer Choice on Incandescent Light Bulbs
ATR President Grover Norquist sent the following letter to Rep. Barton:
"On behalf of Americans for Tax Reform, I would like to thank you for introducing H.R. 2417, the Better Use of Light Bulbs (BULB) Act. Thankfully, this legislation will put an end to the onerous efficiency standards mandated by the Energy Independence and Security Act of 2007, which amounted to a de-facto ban on incandescent light bulbs. The BULB Act restores consumer choice, fosters free-market competition, and prevents the government from picking winners and losers.
In 2007, when Washington lawmakers attempted to phase out the more popular incandescent bulbs in favor of bulbs with higher “efficiency standards,” they did not consider the possibility that these mandates could only be met through the purchase of bulbs with high levels of mercury. This type of unintended consequence is a common occurrence when the government interferes with private enterprise. Nanny-state solutions usually end up doing more harm than good, and the phasing out of incandescent light bulbs proved no exception to this rule.
The efficiency standards mandated by the Energy and Independence Security Act are set to kick in January of 2012. If Congress acts quickly and passes the BULB Act, millions of Americans can be spared from this destructive energy policy.
The BULB Act is a commonsense initiative that should receive bipartisan support, as it protects consumers in two important ways. Firstly, it eliminates burdensome efficiency standards that will limit personal freedom and favor certain light bulb technologies over others. Secondly, the legislation ensures that no federal, state, or local lighting requirement can mandate the use of bulbs that contain mercury in the future.
It is refreshing to see lawmakers in Washington promoting – not restricting – consumer choice. Thank you for remembering that a competitive market cannot function in an environment of Orwellian mandates and government interference. ATR eagerly awaits final passage of this bill so that families and small businesses can decide on the cost, type, and efficiency of light bulb that works best for their own needs."
Hatch Sets the Record Straight: "Reducing Tax Expenditures" is a Tax Increase, Plain and Simple
In a passionate speech yesterday on the Senate floor, ranking member of the Senate Finance Committee Orrin Hatch warned that Democrats are using underhanded tactics to sneak tax increases into a debt ceiling compromise. President Obama is in favor of reducing or eliminating tax credits in order to raise revenue. Unfortunately for taxpayers, this will amount to a tax increase, since these credits allow for Americans to keep more of the money they have already earned. Unless the reduction of these tax expenditures is combined with tax cuts or rate reductions in other places, the federal government will simply be collecting more money from which they can spend on wasteful, inefficient programs.
Yesterday, Sen. Hatch explained how the Democrats are planning to raise revenue:
“President Obama and his liberal allies are calling for a ‘balanced approach’ and a revenue piece to deficit reduction. We hear this from the press all the time: ‘New revenues need to be a part of any deal to reduce the deficit.’ These are simply code words for a tax hike. It is clear that the professional left is insisting that President Obama include tax increases in any negotiated agreement to raise the debt ceiling.”
In recent weeks, Democrats have spoken about reducing tax expenditures as if they are reducing spending. Hatch was adamant -- and rightfully so -- that the two are not synonymous:
“One crucial myth that I would like to dispel is that tax expenditures are spending… The federal government cannot spend money that it never touched and never possessed. What tax expenditures do is let taxpayers keep more of their own money. The American people are the ones that earn their money through their ideas, their risk, and their labor. Whether you are a successful business owner or a part-time worker just starting out, the money that you earn is yours. It is your money. And only by your consent is the government permitted to take some of it in taxation to pay for certain public goods.
So when you hear tax hike proponents come to the Senate floor and say we are giving these businesses and individuals all this money in tax expenditures, they are incorrectly assuming that the government has that money to give in the first place. The government does not have this money to give. That money belongs first to the people that earn it — those businesses and individuals that are the American taxpayers."
The Senator from Utah explained that tax expenditures can only be eliminated if done so in a revenue neutral fashion – which would involve tax cuts of equal or greater value:
“I am open to looking at eliminating or reducing some tax expenditures as part of comprehensive tax reform, but only if tax rates are lowered enough to reach a revenue neutral level. Alternatively, reduction or elimination of tax expenditures could be balanced with new tax cuts that are of equal or greater value to the revenue generated by the eliminated expenditures. But if tax expenditures are reduced or eliminated, without tax rates being lowered enough to reach a revenue neutral level, that is a tax increase, plain and simple.
Reducing or eliminating a tax expenditure without lowering rates enough to reach a revenue neutral level will cause the size of the federal government to grow, while reducing or eliminating spending causes the size of the federal government to shrink.”
It is simply disingenuous to refer to tax expenditures as mere “loopholes” for the wealthiest Americans. Hatch pointed out that these so-called loopholes are critically important to middle class families:
“As a policy matter, when it comes to tax expenditures, one person’s loophole is another person’s opportunity to save for college and retirement, finance a home, and tithe to your church.”
At the end of the day, Hatch chalked up the argument over tax expenditures to one of differing world views:
“Liberals think that all of the money that you earn belongs to the government. You have no independent right to the fruit of your own labors, because only by dint of big government are you ever able to make something of yourself. This view is foreign to most Americans — Republicans or Democrats. It is a view that Alexander Hamilton, and Benjamin Franklin, and Abraham Lincoln would take issue with. But this is the political philosophy of the modern left.”
What do you think of Hatch’s comments? Where do you stand on the issue of reducing or eliminating tax expenditures?
ATR Applauds the Expiration of "Temporary" Tax Introduced in 1976
Rep. Dave Camp (R-Mich) announced yesterday that House Republicans will not be extending a harmful tax on jobs, known as the FUTA surtax:
“The time was October 1976. KC and the Sunshine Band encouraged Americans to 'Shake Your Booty' and the Bee Gees proclaimed that 'You Should Be Dancing.' And Congress created a supposedly 'temporary' Federal unemployment tax on jobs, sometimes called the Federal Unemployment Tax Act (FUTA) 'surtax.' Today, after 35 years and eight separate extensions of this provision, the surtax will expire as House Republicans, led by Ways and Means Committee Chairman Dave Camp (R-MI) have refused to entertain an extension of this 'temporary' tax on jobs beyond its current June 30, 2011 expiration date.
Discussing the expiration of the FUTA surtax, Camp stated, ‘The death of any tax on jobs – no matter how big or small – is a historic moment and one to be celebrated. The fact that it has taken 35-years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes – once in place, they are unlikely to ever go away. We need employers paying more salaries, not paying higher taxes. And when the surtax expires, job creators will get a little and long overdue relief.’”
Number 1 on the Billboard Hot 100 in 1976:
Needless to say, 1976 was a long, long time ago. ATR is pleased that this horrible surtax has finally expired and will likely never return.
In the comments section, let us know which onerous taxes you would most like to see expire.
"Eliminating Tax Expenditures" is Left-Wing Code for "Raising Taxes"
Cato Institute Senior Fellow Dan Mitchell explains how the left will attempt to raise taxes on American families and small businesses:
“The real threat is back-door hikes resulting from the elimination and/or reduction of so-called tax breaks. The big spenders on the left are being very clever about this effort, appealing to anti-spending and pro-tax reform sentiments by arguing that it is important to get rid of ‘tax expenditures” and “spending in the tax code.’”
Mitchell recommends that the loopholes be closed through a fundamental overhaul of the tax code. He also draws an important distinction between tax breaks and spending:
“I recently warned, however, that GOPers shouldn’t fall for this sophistry, noting that ‘If legislation is enacted that results in more money coming into Washington, that is a tax increase.’ I also explained that tax breaks are not spending, stating that ‘When politicians tax (or borrow) money from one person and give it to another, that’s government spending. But if politicians allow a person keep more of their own money, that’s a tax cut.’
To be sure, the tax code is riddled with inefficient and corrupt loopholes. But those provisions should be eliminated as part of fundamental tax reform, such as a flat tax. More specifically, every penny of revenue generated by shutting down tax preferences should be used to lower tax rates. This is a win-win situation that would make America more prosperous and competitive.”
This analysis is consistent with ATR’s position on the elimination of tax expenditures, which must be revenue neutral and part of a broader tax reform effort:
“There’s a lot of talk in Washington about eliminating some of the $1.2 trillion in annual ‘tax expenditures’ to cut the deficit. Supporters of this approach (like President Obama and Senator Coburn) pretend that this is simply another way to cut spending. It is not. Rather, every deduction and credit in the code which is repealed is a tax increase. Government spending doesn’t go down one penny (in fact, Washington will simply spend the tax hike money). If a credit or deduction is repealed, it should be replaced either with lower rates, or with new/bigger deductions or credits elsewhere. That is called tax reform, and it must be revenue neutral.”
Hatch Looking to Prevent Encore of Disastrous 1990 Budget Deal
Earlier today, Sen. Orrin Hatch (R-Utah) did not mince words in a statement about America’s spending crisis:
“With a fragile economy, tax hikes on our job-creators in the name of debt reduction is bad policy, especially since our debt crisis is fueled by unsustainable spending. We’ve seen this before. Back in 1990, a grand deficit reduction plan that included spending cuts and tax increases was passed. Almost as soon as the ink was dry, the spending shot back up and so too did our deficits.
This is why we have to focus on the spending side of the ledger and why it’s imperative that we fix our bankrupt entitlements that are driving our debt. If we want to make sure we never wrack up this level of debt, we have to pass a Balanced Budget Amendment to the constitution. If we don’t then we’ll be right back where we are today with unsustainable levels of debt that no manner of tax hike can ever solve.”
Sen. Hatch has obviously not forgotten the infamous 1990 budget deal, where spending cuts were promised, but never realized. Unfortunately for American families, Washington lawmakers did follow through on their plans to raise taxes (as they always do). In the end, those in favor of smaller government and reduced spending were left out in the cold.
What do you think our lawmakers should do in order to avoid a repeat of the 1990 budget failure?
Rubio: There's No Way You Can Tax Your Way to Prosperity
In an interview with Larry Kudlow on CNBC, Sen. Marco Rubio (R-Fla.) reiterated that tax increases will not be a result of the debt ceiling negotiation:
“I think clearly many in the Democratic base have said that they want that on the table. Unfortunately for them, and I think fortunately for the country, I don't think there's going to be support for that in Washington, including among many Democrats.”
Sen. Rubio also explained that tax hikes will stunt economic growth. He believes that “soaking the rich” (which is really a tax hike on small business profits) is misguided, ineffective economic policy:
“Number one, there's no way you can tax your way to prosperity. Number two, our tax code is already a source of great uncertainty and worry and concern about the future. And number three, even if [President Obama] wanted to, which I do not, there's no tax they could raise that would accomplish the deficit reduction they're talking about…If you raise to 100 percent the taxes on every rich American under their definition of rich, which is people making over $250,000 or more a year, it still wouldn't make a dent on the debt.”
What do you think about Rubio’s tough stance on taxes? Does Washington D.C. have an overspending or undertaxing problem?