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Justin Sykes

Roberts Clarifies: Mandate is a Tax...Not a Penalty


Posted by Justin Sykes on Thursday, July 26th, 2012, 2:43 PM PERMALINK


In the weeks following the Supreme Court's ruling on the healthcare mandate, President Obama and House Minority Leader Nancy Pelosi have repeatedly stated to the public that the individual mandate contained in Obamacare is not a tax. The Democrats' hard line stance that the mandate is not a tax is illogical, as evidenced by Chief Justice Robert's constitutional analysis of the individual mandate.

Contrary to President Obama and the Democrat's interpretation of the mandate, Justice Roberts made ten key points in his analysis on why the mandate is a tax, and not a penalty:

  1. The Government asks us to read the mandate not as ordering individuals to buy insurance, but rather as imposing a tax on those who do not buy that product.
  2. According to the Government...the mandate can be regarded as establishing a condition - not owning health insurance - that triggers a tax - the required payment to the IRS.
  3. [The mandate] makes going without insurance just another thing that the Government taxes, like buying gasoline or earning income.
  4. The Government asks us to interpret the mandate as imposing a tax, if it would otherwise violate the Constitution.
  5. The exaction the Affordable Care Act imposes on those without health insurance looks like a tax in many respects.
  6. The process yields the essential feature of any tax: it produces at least some revenue for the Government.
  7. The same analysis here suggests that the shared responsibility payment may for constitutional purposes be considered a tax, not a penalty.
  8. The reasons the Court in Drexel Furniture held that what was called a "tax" there was a penalty support the conclusion that what is called a "penalty" here may be viewed as a tax.
  9. The shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.
  10. We have already explained that the shared responsibility payment's practical characteristics pass muster as a tax under our narrowest interpretations of the taxing power.

 

Justice Robert's concluded his analysis by stating that Obamacare's "requirement that certain individuals pay a financial penalty for not obtaining health insurance may...be characterized as a tax."  

 

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Boehner Seeks to Close Loopholes and Lower Taxes


Posted by Justin Sykes on Thursday, July 19th, 2012, 3:51 PM PERMALINK


In a press briefing last week, House Speaker John Boehner (R-Ohio) asserted that he is standing with taxpayers against the spending interests in Washington who want to raise taxes on families and employers. Boehner made his position clear by stating that any increase in tax revenue must be offset by tax cuts.

Speaker Boehner called for Republicans and Democrats to oppose the efforts of Senator Lindsey Graham (R-S.C.) and Senator John McCain (R-Ariz), who want to offset defense spending cuts with revenue raised from closing tax loopholes.

Speaker Boehner advocated that any revenue from closing tax loopholes should be offset by tax cuts, specifically cuts to the corporate and individual income tax rates. Boehner stated that if "we're serious about bringing down rates, both corporate rates and individual rates, closing those loopholes, those special deals and other credits that are in the tax code, needs to come as part of overall tax reform."

The hard line stance that tax loopholes should be closed and those revenues used to offset reductions in the corporate and individual income tax rates, makes it clear that Speaker Boehner is in touch with taxpayers. His stance on overall tax reform is one that should guide other members of Congress going forward.

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Voters Favor Extending Tax Cuts for Everyone


Posted by Justin Sykes on Thursday, July 19th, 2012, 10:46 AM PERMALINK


In an article published by the Washington Post this week, reporter Chris Cillizza commented on the percentage of voters who favor a tax increase on incomes over $250,000.

Cillizza writes that Democrats have publicly proclaimed their willingness to jump off the fiscal cliff this year in defiance of Republicans refusal to end tax cuts for those making over $250,000, and that "the public is on their side."

However, according to a recent McClatchy-Marist poll it is clear this is not the case. As evidenced by the poll results, the majority of voters support extending tax cuts for everyone, including those making over $250,000:

  • 52% of voters polled were in favor of extending the tax cuts for everyone; and
  • 53% of independent voters polled favored extending tax cuts for everyone.

 

Additionally, Marist University polled voters based on household income, education, race, and age:

  • 53% of voters making less than $50,000 were in favor of extending tax cuts for everyone;
  • 58% of voters with no post secondary education favored extending tax cuts for everyone;
  • 62% of Latino voters polled favored extending tax cuts for everyone; and
  • 69% of voters polled between the ages of 18-29 supported extending tax cuts for everyone.

 

The voter sentiment in the McClatchy-Marist poll is echoed in a study released last week by Ernst & Young. The study found that not extending tax cuts for those making over $250,000 "would translate into a decline in GDP of $200 billion and employment by roughly 710,000 jobs."

It is obvious from recent polling that a strong majority of voters favor extending all tax cuts, including those for persons earning over $250,000.

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Don't Raise the Dividend Tax on Middle Class Seniors


Posted by Justin Sykes on Tuesday, July 17th, 2012, 5:01 PM PERMALINK


In a study released by Ernst & Young last week, analysts profiled qualified dividend shareholders based on age and income. Their findings indicate that the benefits of continuing the 2003 Dividend Tax Rate Reductions for qualified shareholders would be far reaching.

Currently, the tax cuts created by The Jobs Growth and Tax Reconciliation Act of 2003 are set to expire on December 31, 2012. Ernst & Young found that "if current rates expire, dividend income will be taxed as ordinary income, with rates rising to as high as 39.6 percent" in addition to a 5 percent increase in the top tax rate on capital gains.

The expiration of current rates on dividend income and capital gains rates will also be further increased by the 3.8% Obamacare surtax on portfolio income. "Obamacare in 2013 also imposes a 3.8 percentage point surtax on" investment income, which would thus make the top dividend rate 43.4% and the top capital gains rate 23.8%.

The study's results from analyzing those who qualify for the lower tax rates on qualified corporate dividends found 25.4 million tax returns included qualified dividends in 2009 which represented "$123.6 billion of qualified dividends."

Overall, the study found that tax returns with qualified dividends had the following age and income profile:

  • 63% are from taxpayers age 50 and older
  • 32% are from taxpayers age 65 and older
  • 68% are from returns with incomes less than $100,000
  • 40% are from returns with incomes less than $50,000

 

In a second study released by Ernst & Young this week, analyst forecast that the long-run macroeconomic impact of not extending the 2003 tax rate increases would "result in significant increases in the average marginal tax rates (AMTR) on business, wage, and investment income." The study found that the tax rate increases would lead to fewer jobs, lower wages, less investment, and an overall smaller economy.

If nothing is done to extend the tax cuts of 2003 prior to the Fiscal Cliff in 2013, an enormous, far reaching sector of the population will be affected. As Americans for Tax Reform has previously stated, "capital gains and dividend rates" should remain at the 15% taxation levels currently in place.

As evidenced by both Ernst & Young studies, the 2013 increase in taxation of dividends as ordinary income, the increase on capital gains rates, and the Obamacare surtax on portfolio income would amount to a top dividend rate of 43.4% and a top capital gains rate of 23.8%. Taken together the tax increases and expirations under Obamacare would deal a crushing blow to the American economy, and stifle economic growth thereby negatively impacting a large portion of the American population.

 

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Conservative Governors Remain Opposed to Obamacare's Medicaid Expansion


Posted by Justin Sykes on Thursday, July 5th, 2012, 3:46 PM PERMALINK


In an article published by the Hill today, 15 Governors were described as expressing opposition to the Medicaid expansion under Obamacare. Half of these Governors have out rightly stated they will not choose to participate in the Medicaid expansion.

Most of those in opposition to the Medicaid expansion cite budget cuts in education and tax increases which will be necessary to sustain such a massive overhaul as their motivation.

Nebraska Governor Dave Heinemen released a statement last week citing his concern that the expansion will cause budget shortfalls, such that if the Medicaid expansion were implemented, "aid to education and funding for the University of Nebraska will be cut or taxes will be increased."

Florida Governor Rick Scott has also made it clear Florida will not participate in the Medicaid expansion, stating "Florida will opt out of spending approximately $1.9 billion more taxpayer dollars required to implement a massive entitlement expansion of the Medicaid program." In a press release following the Supreme Court ruling, Governor Scott cited job creation and cuts to education spending as his primary concern in opposing the Medicaid expansion.

Governor Scott Walker of Wisconsin released a statement following the ruling in which he outlined concerns that Wisconsin's participation in the Medicaid expansion would not only drive up the cost of health care for citizens of Wisconsin, but that participation would "increase the size and cost of government, decrease the quality of health care and, in our state, reduce access for those truly in need of assistance."

Kansas Governor Sam Brownback has also joined the fight against implementing Obamacare's Medicaid expansion, stating on the Governor's website that "stopping Obamacare is now in the hands of the American People. It begins with electing a new president this fall."

Similar to Governor Brownback's call to arms, Governor Bobby Jindal of Louisiana made it clear that "the American people did not want or approve of Obamacare then, and they do not now. Americans oppose it because it will decrease the quality of health care in America, [and] raise taxes."

Governor Terry Branstad of Iowa expressed passionate opposition to the idea of Iowa participating in the Medicaid expansion, stating in a recent press release that "the Supreme Court handed down a disastrous decision to uphold President Obama's destructive health care law, which means a future of higher costs, higher taxes, and increasing debt for Iowans."

In a letter to Senator Jim Demint, Governor Nikki Haley wrote that "South Carolina stands with you and your cosigners in opposing implementation of state-based insurance exchanges." Governor Haley's letter references Senator Demint's efforts to oppose the expansion within Congress.

In addition to the Governors cited above, the Governors of Alabama, Georgia, Indiana, Mississippi, Missouri, Nevada, Texas, and Virginia have informally joined in the opposition to the Medicaid expansion under Obamacare.

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Will President Obama Add 3,690 IRS Bureaucrats to Enforce Obamacare?


Posted by Justin Sykes on Monday, July 2nd, 2012, 2:51 PM PERMALINK


According to President Obama's Budget for the coming year, the Obama Administration is planning to add an additional 3,690 new full-time employees to the Internal Revenue Service payroll.

This means that in 2013, President Obama will now have 96,203 IRS bureaucrats available to enforce and oversee the implementation of Obamacare.

IRS: Full-time Employment Requests

 
IRS Programs: 2011 Actual 2012 Estimated 2013 Estimated
Taxpayer Services      
Direct civilian full-time employment 31,603 30,601 30,636
Reimbursable civilian full-time equivalent employment 515 476 476
Allocation account civilian full-time equivalent employment ... 139 ...
Enforcement      
Direct civilian full-time employment 50,142 47,716 51,713
Reimbursable civilian full-time equivalent employment 161 161 161
Allocation account civilian full-time equivalent employment ... 133 7
Health Insurance Tax Credit Admin.      
Direct civilian full-time employment 13 ... ...
Operations Support      
Direct civilian full-time employment 12,439 11,985 12,609
Reimbursable civilian full-time equivalent employment 106 106 106
Allocation account civilian full-time equivalent employment ... 591 ...
Business Systems Modernization      
Direct civilian full-time employment 512 605 495
Therapeutic Discovery Program Grants & Admin.      
Direct civilian full-time employment 10 ... ...
       
Totals each year: 95,501 92,513 96,203

(The Appendix, Budget of the United States Government, Fiscal Year 2013)

 

http://www.atr.org/taxmageddon-hit-americans-six-months-today-a7005

http://www.atr.org/full-list-obamacare-tax-hikes-listed-a7010

http://www.atr.org/full-list-obamacare-tax-hikes-a6996

 

 

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The ACA: A Tax disguised as a Penalty


Posted by Justin Sykes on Monday, July 2nd, 2012, 12:12 PM PERMALINK


As poet James Whitcomb Riley wrote, if it looks "like a duck, swims like a duck, and quacks like a duck, call that bird a duck." The individual mandate upheld by SCOTUS last week not only looks like a tax, functions like a tax, but it is also enforced like a tax. Any cleverly veiled description of the individual mandate as a "penalty" and thus not a tax, blatantly overlooks the fact that it is a tax.

Thanks to Congress' legal contortions of our system of jurisprudence, the individual mandate has been allowed to limbo under the bar of judicial standing as just a "penalty," and find sanctuary as a "tax" in the arms of Article I Section 8 of the Constitution.

To clarify, there are two key points which the Government and its legal counsel advance, which amount to hypocritical interpretations of their own legislation. First, in order for SCOTUS to hear the challenge to the ACA, the Government had to show that the penalty contained in the legislation was not a tax, such that it is not barred by the Anti-Injunction Act. Second, the method in which the Government was able to successfully argue the merits of the ACA and the penalty it contains, was to prove that Congress could enact such legislation through its power to tax. In short, to get the case heard the penalty is not a tax, yet to get the legislation passed, the penalty is a tax.

Prior to examining the merits of the case, the Government had to overcome the Anti-Injunction Act's bar of suits brought "for the purpose of restraining the assessment or collection of any tax." In other words, for purposes of standing, the ACA's penalty had to be shown by the Government not to be a tax. If the penalty was shown to be a tax, the parties would not have had standing, as the tax is not yet in place and thus no cognizable injury is realized, such that there is no injury or issue for the court to rule on.

Because opposing council on both sides of the health care debate refused to argue that the penalty was a tax, SCOTUS was forced to appoint its own outside council or "amicus curiae" to argue for the penalty being a tax. To quote the court appointed council, "even though Congress did not label the shared responsibility payment a tax, we should treat it as such under the Anti-Injunction Act because it functions like a tax." The amicus brief further states, the penalties "shall be assessed and collected in the same manner as taxes."

However compelling the argument that the penalty is a tax, and thus barred by the Anti-Injunction Act, SCOTUS found for purposes of standing, the language crafted by Congress evidenced a penalty, not a tax, and the suit was not barred from being heard on the merits.

Once the Government was able to overcome the hurdle of the Anti-Injunction Act, however, their approach took an immediate 180. The Government was prepared with two arguments: (1) First, that Congress had the power to enact the mandate under the commerce clause; and (2) Second, "that if the commerce power does not support the mandate, we should nonetheless uphold it as an exercise of Congress' power to tax."

At first glance, these arguments seem destined to fail, and indeed SCOTUS found Congress could not enact such legislation under its first argument as the Commerce Power did not provide for such legislation. However, the second argument, that Congress could enact such legislation under its Power to Tax, was successful. To any layperson this seems odd, as the Government's principle argument, which allowed the legislation to pass the bar of the Anti-Injunction Act, was that the penalty was not a tax. Yet, the Government's principle argument in seeking to enact the legislation was that it was a tax and as such Congress could enact the legislation under its Power to Tax.

The Government was thus able to get the ACA in to court as a penalty, not a tax, while simultaneously getting the ACA passed by arguing the penalty was, for all intents and purposes a "tax."

While the Government's argument is an impressive display of legal gymnastics, it opens our legal system up to situations in which Congress can hypocritically craft two versions of the same legislation in a manner that benefits the passage of legislation, even though it is based on two contrary and conflicting logical interpretations.  

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Why the ACA will fail absent the individual mandate


Posted by Justin Sykes on Wednesday, June 27th, 2012, 4:49 PM PERMALINK


On Thursday, June 28th SCOTUS will give a final opinion the Patient Protection and Affordable Care Act (ACA). The drastic and sweeping effects of this ruling will decide the future of American Healthcare and Congress' ability to force American citizens to buy a product from a private company.

Stemming from the 11th Circuit's ruling in 2011, which held that the individual mandate is unconstitutional, the Supreme Court is poised to rule on the issue of severability. In order to determine the severability of the individual mandate, SCOTUS will look to the legislative intent of Congress in enacting the ACA.

As put forth by the American Center for Law & Justice in its amici curiae brief, Congress did not intend the ACA to go forward absent the individual mandate. Two obvious issues are inherent with the notion that the ACA could go forward without the mandate: (1) The severability provision contained in the first Affordable Health Care Act was consciously removed from the final version of the ACA while the individual mandate provision remained in both; and (2) "Congress could not have intended a constitutionally flawed provision to be severed from the remainder of the statute" where the legislation itself would be incapable of functioning properly and effectively without the mandate.

The effects of severing the mandate would be catastrophic to health insurance companies. If the individual mandate is severed from the ACA, "the Act is projected to impose a total net cost of $360 billion on health insurance companies from 2012 through 2021." Without the individual mandate, the cost to insurance companies imposed by the ACA would include $77 billion over ten years stemming from the "slacker mandate", $90 billion in excise taxes on health insurers, and $218 billion as a result of the "Cadillac" tax.

Yet the inevitable cost of advancing the ACA absent the mandate will not fall squarely on the shoulder of health insurers. For consumers, "a steep increase in insurers' costs would necessarily result in an increase in premiums" charged to consumers. Additionally, "hospitals and drug manufacturers face reduced reimbursement for certain Medicare expenditures" likely resulting in increased costs being passed to consumers.

Thus, the individual mandate is fatally necessary for the ACA to have any possible effect in line with Congress' intent. The 2011 holding by the 11th Circuit, in which it found the individual mandate to be an unconstitutional violation of Article I of the U.S. Constitution lends no aid to preserve what remains of this failed legislation.

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Baucus vs. Ryan on Tax Reform


Posted by Justin Sykes on Tuesday, June 12th, 2012, 5:01 PM PERMALINK


In a press release Monday, Senate Finance Committee Chairman Max Baucus (D-Mont.) likened the U.S. tax code to Hydra, the "mythical Greek beast." While the complicated U.S. tax code is reminiscent of an ancient multi-headed water beast, Senator Baucus' suggested methods of slaying such beast will prove ineffective.

Senator Baucus' goals for tax reform suggest measures of increased spending and revenue. While in line with the tax reform measures of the Obama Administration, Baucus' means of achieving such goals run contrary to the budget proposed by the House Budget Committee Chairman Paul Ryan. As stated in the Ryan Budget, "Washington has a spending problem, not a revenue problem."

By analyzing the reforms of Baucus, Obama and Ryan against the backdrop of the three Reagan Criteria for tax reform, it is evident the increased spending and revenue measures suggested by Baucus and Obama are not the logical solutions for tax reform in the U.S.

1. Fairness

Singling out and imposing higher taxes on one group of taxpayers is contrary to any interpretation of fairness, and is not likely to make any substantial progress in reducing the deficit or raising revenue.

  • Baucus' plan for reform alludes to a tax increase on the "top one percent of taxpayers" much like The Buffet Rule.
  • The Obama Administration's Buffet Rule imposes a tax on families earning $1 million or more.
  • In line with the criteria for fairness, the Ryan Budget focused instead on closing loopholes and deductions in order to promote fairness in the tax code, as opposed to increasing taxes.

2. Efficiency

The Baucus and Obama tax reform measures reflect a lack of efficiency, especially with regard to U.S. corporations. In Baucus' press release, he references the ever growing inadequacy of the U.S. tax system and its corporate income tax rates, which as Baucus states are "the highest statutory corporate tax rates in the world."

  • Even so, Baucus' measures hinge on increasing "tougher rules against shifting profits" while ignoring the fact that the real reason the U.S. is losing corporate investment is the high tax rates imposed by the government.
  • Additionally, the Obama Administration is seeking to impose taxes on the Medical Device Industry in 2013, further exacerbating the problem of companies shifting their operations abroad to countries with low corporate tax rates such as Japan.
  • The Ryan Budget sets forth a transition to lower the corporate income tax rate to 25 percent and end the "double taxation" of corporate business profits to encourage domestic investment by multinational corporations.

3. Complexity

The complexity of the U.S. tax code contributes to both its lack of fairness and inefficiency.

  • Under Obama, the complexity of the U.S. tax code will be further increased in 2013 once the effects of Taxmageddon are felt, which will include a $4.5 trillion tax increase, the impact which would be felt instantaneously by U.S. workers.
  • In addition to the complexities increased by Taxmageddon legislation is that the current "total cost of complying with the individual and corporate income tax amounts to over $160 billion per year."
  • In order to increase efficiency of the U.S. tax code, the Ryan Budget seeks to consolidate the current six individual income tax brackets into just two lows brackets at just 10 and 25 percent, in addition to repealing the AMT.

As Senator Baucus stated in his press release Monday, the "need to overhaul the U.S. tax code seems obvious." Yet neither Senator Baucus nor President Obama seem to be on track with their proposed tax reform measures. In order to slay the mythical beast that has become the U.S. tax code, both Baucus and Obama should take note of the fairness, efficiency, and simplicity inherent in the Ryan Budget. 

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Obamacare's Medical Device Tax Kills Jobs


Posted by Justin Sykes on Tuesday, June 5th, 2012, 11:20 AM PERMALINK


Following close on the heels of the latest dismal jobs report this week is a House vote to repeal the Medical Device Tax. The Protect Medical Innovation Act, or H.R. 436, was introduced by Representative Erik Paulsen (R-MN) and thanks to bipartisan support, including 233 co-sponsors, was approved by the Ways & Means Committee by a vote of 23-11 last week. H.R. 436 will now go to the House floor for a vote sometime this week.

H.R. 436 seeks to repeal the Medical Device Excise Tax included as part of Obamacare legislation. As part of the Obamacare bill, a 2.3 percent tax increase on medical device manufacturers will begin in 2013, and could equate to $29 billion in additional taxes on medical device manufacturers, a cost which will inevitably be passed to the consumer. As H.R. 436 proceeds to the floor this week for a vote, House members on both sides of the aisle should vote in support of this repeal effort in order to protect healthcare manufacturing jobs, the healthcare manufacturing industry, and innovative efforts to improve healthcare in the United States.

The Employment Situation Summary released by the Bureau of Labor Statistics last week evidenced a stagnant unemployment rate of 8.2 percent under President Obama. However, the two sectors showing upward trends in employment, healthcare and manufacturing seem to be the targeted industries under Obamacare. Last month the healthcare industry added 33,000 jobs, with the manufacturing sector adding an additional 12,000 jobs to the labor force for a total of 45,000 jobs. If the Medical Device Tax goes forward this week, "the tax could result in job losses in excess of 43,000." The Medical Device Tax under Obamacare would not only work a direct burden on job creation, but would also work a hardship on the Medical Device Manufacturing Industry and create a virtually impenetrable economic barrier to innovation, placing most innovators in the red.

The industry as a whole would suffer as the Medical Device Tax would make for a $3 billion increase in taxes paid by medical device firms. The tax increase would cripple domestic medical manufacturers, leading to cost-cutting measures including job loss and outsourcing of medical manufacturing jobs and plants. Additionally, the $3 billion tax increase would inevitably lead to manufacturing costs being passed along to consumers and patients leading to increases in the costs of everything from bedpans to tongue depressors.

The effect the Medical Device Tax would have on innovators in the medical field is that medical device manufacturers may end up paying taxes on "devices sold at a loss." For example, Analogic, which specializes in innovative medical technology production, earned $3.7 million in net income last year. Under Obama's Medical Device Tax, Analogic would have paid roughly $7.5 million in taxes last year, amounting to a $3.8 million loss. The effect of this tax is unsustainable, killing innovation and jobs.

Thus, the negative effect the Medical Device Tax under Obamacare would have would be to discourage medical innovation, while also cutting job growth in two industries vital to the American economy. House members should vote in support of H.R. 436 this week in an effort to support American job growth and encourage medical innovation in the United States.

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