Kelly William Cobb
Reform, Don't Repeat, Failed Dairy Programs
As Congress begins to review the Farm Bill, which guides federal agriculture programs, members of the House Agriculture Committee are looking to replace failed, market distorting dairy programs that substantially raise consumer prices with equally distortionary ones. Worse, the newly introduced Dairy Security Act of 2011 (H.R. 3062) would enact what is for all intents and purposes a new tax on dairy farmers. Below is ATR's recent letter to the committee strongly opposing the measure and calling for ag programs to move in a free-market direction.
Dear Members of the House Agriculture Committee,
I write strongly opposed to the recently introduced Dairy Security Act of 2011. The bill takes money directly out of farmers’ pockets and establishes new, market distorting spending programs with the intent of manipulating supply and setting prices for dairy products.
According to a preliminary CBO score, the proposed Dairy Market Stabilization Program (DMSP) would take $493 million out of farmer paychecks. As profit margins for producers decline and production rises above a quota, farmers would have to pay into a government fund. The producers and cooperatives that oversee this fund could then spend the money to purchase their own dairy products off the market.
ATR relies upon CBO and JCT scoring to determine a tax increase. However, we believe CBO has incorrectly scored this bill and a better review would show H.R. 3062 as a tax increase, as much of the money painted as an offsetting receipt should be described as a tax. ATR advises you to regard this CBO score with deep reservations.
In addition, the Dairy Security Act creates a second government spending program that provides subsidies to farmers totaling over $550 million. The Dairy Producer Margin Protection Program (DPMPP) differs from today’s failed MILC payment program in that payouts are not capped and are based on farmers’ profit margins, not prices.
Finally, any reform of federal dairy policies should involve the elimination of the antiquated Federal Milk Marketing Order (FMMO) system, which arbitrarily prices milk based on region and class of use. Unfortunately, instead of Congress reforming FMMOs, this bill gives farmers a vested stake in perpetuating the system and little ability for companies regulated by the law to make improvements.
While we strongly oppose the creation of DMSP and DPMPP, we support the bill’s termination of the current Milk Income Loss Contract program and the Dairy Product Price Support Program. These programs already severely distort the dairy market, work at cross-purposes, and substantially increase consumer prices. However, the termination of current market distorting programs should not come with the creation of equally distortionary ones.
American dairy policies require reform, not a tweaked continuation of the government’s intrusive role in the market that increases consumer costs, sets prices, spends millions in taxpayer dollars, and enacts what is effectively a new tax on farmers. I urge you to reject H.R. 3062 and other proposals that fail to reform America’s dairy policies in a free-market direction. If you have any questions, please contact Kelly William Cobb at 202-785-0266.
Debt-Limit Package Shouldn't Contain New Ag Spending Programs
As the debt-limit debate continues, Agriculture Committee Ranking Member Collin Peterson has floated the inclusion of a new agriculture spending program that would raise some revenue for the U.S. Treasury through what appears to be a new tax on farmers.
The Dairy Market Stabilization Program would take money directly from the pockets of farmers when their profit margins decline, then put half the revenue in the U.S. Treasury for deficit reduction. The other half would go toward a new market-distorting spending program that buys dairy products off the market to artificially inflate consumer prices.
Needless to say, while negotiators are looking for new revenue as part of the debt limit agreement, it should never come in the form of a new tax and spending program. See below for a letter from ATR to Speaker John Boehner and Majority Leader Eric Cantor urging them to reject this new agriculture program in the debt limit package.
Dear Speaker Boehner and Leader Cantor,
As you work to craft a debt-limit package that reduces spending and keeps tax increases off the table, I encourage you to reject including the Dairy Market Stabilization Program (DMSP), as proposed by Agriculture Committee Ranking Member Collin Peterson.
The DMSP appears to constitute a new tax on farmers coupled with a government spending program, though the CBO’s score of the measure is being withheld. As profit margins for producers drop, the program takes money directly out of the pocket of producers and diverts it to a government fund. The U.S. Department of Agriculture would then spend half the money on purchasing dairy products off the market – artificially driving up prices – and direct the remaining half to the U.S. Treasury.
While new revenue for the Treasury may be an attractive addition to a debt-limit package, it should never come in the form of an apparent tax on farmers and a new market-distorting spending program.
Termination of the Milk Income Loss Contract Program and the Dairy Product Price Support Program, which together severely distort markets, work at cross-purposes, and increase consumer prices, is a noble goal. These programs artificially put upward pressure on prices and subsidize farmers, with the aim of government generally setting producer prices for dairy products.
However, the proposed DMSP is no different, only this time the program would not be based on prices, but profit margins. DMSP would continue government’s intrusive role in the dairy market, inflate consumer prices, constitute a new spending program, and – worst of all – act as an effective tax on farmers. I urge you to reject the DMSP’s inclusion in a debt limit package.
Thank you for your continued leadership on behalf of American taxpayers to rein in overspending and reject higher taxes.
President, Americans for Tax Reform
Committee Approves Bill to Prevent States Taxing Out-of-State Businesses
The House Judiciary Committee today moved forward critically important legislation to curb state efforts to force out-of-state, non-resident businesses to pay income tax. The Business Activity Tax Simplification Act, or BATSA (H.R. 1439) would prevent states from reaching across their borders by setting a uniform physical presence threshold for when a state may target an out-of-state business for income tax.
States across the country have begun to throw their tax burdens onto out-of-state businesses and individuals to collect more tax revenue and grow the size of government. In doing so, they have gradually replaced the “physical nexus” standard for tax collection with a nebulous “economic nexus,” allowing them to go after companies with mere economic activity in a state.
The shift to an economic nexus is an attempt by states to raise tax revenue beyond what their own economies and taxpayers can sustain. Economic nexus poses a direct threat to the principles of democracy and republican governance by the people, shifting the cost of government to non-residents. It also violates the “benefits principle” by pushing the tax burden onto those that receive no direct benefit from the state.
BATSA, sponsored by Rep. Bob Goodlatte (R-VA), helps to create certainty for businesses and states alike by keeping the long arm of income tax collectors restrained in their respective states. In approving the bill, Reps. Goodlatte and Dan Lungren (R-CA) fought back against attempts by Democratic Reps. Judy Chu (D-CA) and Jerrold Nadler (D-NY) to delay or strip the physical footprint standard from the bill, as they favor instead a vague economic nexus for states. The issue of Internet taxation was also touched on by Democrats in favor of an economic nexus, as Congress is considering the so-called “Main Street Fairness Act" that would allow states to reach across their borders to collect sales tax on Internet and other sales.
For more information, check out ATR’s letter of support below.
I write in support of strengthening the physical nexus standard for tax collection as contained in the Business Activity Tax Simplification Act, or BATSA (H.R. 1439). The measure, sponsored by Rep. Bob Goodlatte, would not only create uniformity in the states and certainty for business, but would help to quell the multitude of states inappropriately attempting to shift their tax burdens to out-of-state companies and individuals.
BATSA establishes a clear physical presence standard for taxing multistate businesses engaged in cross-border transactions. The bill will help to foster inter-state economic activity by eliminating the burden for businesses of having to comply with varying and complex state income tax laws. As nearly half of states have already sought to loosen their physical nexus standard, BATSA could not come at a more critical juncture.
In lieu of a physical nexus, states are adopting policies that force new tax liability onto those with a mere “economic nexus.” Codified in many different forms across the country, the economic standard grants nebulous authority to force out-of-state, nonresidents to comply with a state’s tax code. The gradual shift to economic nexus is an attempt by states to raise tax revenue beyond what their own economies and taxpayers can sustain. Economic nexus poses a direct threat to the principles of democracy and republican governance by the people, shifting the cost of government to non-residents. It also violates the “benefits principle” by pushing the tax burden onto those that receive no direct benefit from the state.
It is critically important that Congress takes steps to reaffirm and strengthen the physical nexus standard, and to avoid attempts to weaken it. Already, efforts in Congress are underway to dissolve the physical footprint standard for sales tax collection through the so-called “Main Street Fairness Act.” This legislation would reverse the U.S. Supreme Court’s longstanding precedent in Quill v. North Dakota by forcing out-of-state businesses and individuals to collect and remit sales taxes.
Congress has well-established Constitutional authority to protect against economically destructive state tax laws. We urge you to exercise it by passing the Business Activity Tax Simplification Act (H.R. 1439). If you have any questions, please contact Kelly William Cobb at email@example.com.
President, Americans for Tax Reform
Note to Center for American Progress: It's the Economy, Stupid
The Center for American Progress (CAP) is touting a myopic economic analysis claiming that a 10 percent cut in state spending actually leads to a 1.6 percent decline in private sector jobs. They even have fun scatterplots. But what CAP conveniently ignores for political gain is that correlation is not causation.
In fact, the reverse of their argument is true: diminishing economic growth, rising unemployment, and reduced consumption all cause state tax revenues to decline, and spending to drop with it. In short: it’s the economy, stupid.
Unlike our federal government that spent itself into debt, every state except Vermont has a balanced budget amendment tying expenditures to revenues. Tax revenues plummeted in the last recession – well beyond prior ones – forcing states to take at least some austerity measures to maintain balanced budgets.
The reason spending cuts became the major focus was because states were on a spending joyride in the run-up to the recession, pushing expenditures well beyond what their economies could handle. In 2007, when the recession first set in, annual state spending growth had hit 4.3 percent, while GDP growth was half that at 2.1 percent. In a glaring sign of fiscal irresponsibility, even when the recession became evident during 2008 and GDP growth had tumbled to 0.4 percent, states ramped up year-over-year spending by another 4.2 percent. Meanwhile, the real employment level had started declining in 2006, and by the time states started merely slowing the rate of spending growth in 2008, job losses were already a problem.
States adjust budgets and cut spending after economic realities set in, as the data and graph above show. Spending cuts followed massive drops in economic growth and employment; meaning unemployment was high before and occurred regardless of spending cuts.
Finally, I take issue with the fact that CAP excludes federal transfers to states in their calculation, making the supposed draconian cuts appear more severe than they actually were. In fact, most of the cuts didn’t exist at all. State budgets are traditionally based off prior projected increases in revenue and spending, so reductions aren't actually year-over-year, but rather a cut from what lawmakers anticipated or wanted to spend. While some states did trim their budgets, total state spending actually increased nationwide by 8.4 percent between 2007 and 2010 (even adjusted for inflation). Much of this increase was the result of the federal “stimulus” that allowed states to avoid cutting actual year-to-year spending, keeping their spending baselines on the rise.
Bigger spending cuts do not create weaker economies or higher unemployment, as CAP argues. Rather, weaker economies and high unemployment can’t sustain the tax revenue necessary for big government spending.
ATR May Rate a Vote on DeMint Amendment to Repeal Dodd-Frank
Americans for Tax Reform (ATR) may rate a vote in their annual Congressional Scorecard in favor of Sen. Jim DeMint’s amendment (S. Amdt. 394) to the Economic Development Revitalization Act (S. 782) that would fully repeal the Dodd-Frank financial takeover act.
Dodd-Frank will do more to negatively impact the economy than to minimize any future financial crises. Instead of attacking the root of the subprime mortgage crises, Dodd-Frank forces taxpayers to foot the bill for the continued existence of Fannie Mae and Freddie Mac, while preserving taxpayer-backed “too-big-to fail” bailouts.
The act contained two thousand pages of yet-to-be-written regulations that insert significant, long-term uncertainty into the U.S. economy. Further, Dodd-Frank regulations are poised to dramatically increase consumer costs midst anemic GDP growth, high unemployment, and grim consumer confidence about the economy. Amongst other ill-conceived provisions, the forthcoming implementation of price controls on debit card swipe fees and “qualified residential mortgage” rules originating in Dodd-Frank will force businesses to pass enormous new costs onto Americans.
Senator Jim DeMint’s Amendment 394 will completely scrap the Dodd-Frank financial takeover act and the regulations, uncertainty, and increased consumer and taxpayer costs that come with it. ATR urges all Senators to support the DeMint amendment.
California's Internet Tax Trio
The following op-ed was originally posted in California's FlashReport.
This marks the third year in a row Sacramento’s elite have pushed a tax on Internet sales. Yet, the three bills contending for leader of the pack this year are far more overreaching than ever before; greatly expanding the state’s power to reach across borders for more revenue.
It’s no surprise that politicians, Board of Equalization (BOE) members, and Sacramento’s spending interests are salivating over the opportunity to find new tax revenue by targeting those outside of California. A recent Public Records Request from Americans for Tax Reform uncovered email on the subject between now BOE Chairman Jerome Horton’s office and SEIU Local 1000, the state’s largest public employees union. And BOE Board Member Betty Yee is not just an official sponsor, but a vocal proponent of the vaguest bill that would give her even more taxing power.
At issue is the U.S. Supreme Court decision Quill v. North Dakota, which ruled that attempts to force out-of-state companies to collect taxes is a violation of the Commerce Clause. But that court ruling hasn’t stopped California.
Earlier last month, the California Senate passed legislation that ducks the question on exactly how to tax Internet sales, instead handing enormously vague power to the Board of Equalization (BOE). The bill, from Senator Loni Hancock (D-Oakland), would allow the long arm of the tax collector to reach across the state border and force anyone it feels has “substantial nexus” in California to collect sales tax on residents, regardless of whether the business has ever set foot in the Golden State.
Then last week, the Assembly approved two more Internet tax measures. This includes a perennially introduced bill by Assembly Member Nancy Skinner (D-Berkeley) whereby an out-of-state retailer must collect taxes simply for contracting with a California-based Internet advertiser. In every state where this was tried, retailers severed their ties with advertisers to avoid the tax and lawmakers ended up putting their own constituents out of business.
Another, from Assembly Member Charles Calderon (D-Whittier) would force out-of-state retailers to collect tax if they merely own or invest in a separate subsidiary company in the state. Good luck asking out-of-state companies to invest in California if this passes.
Of these unconstitutional money grabs, Hancock’s bill appears worse by far, effectively saying that whatever the BOE decides is what constitutes a “physical presence.” Should it pass, the most likely outcome is a series of costly lawsuits funded by California taxpayers. Watch for the BOE and out-of-state retailers to spend years going back and forth between regulatory actions and subsequent court challenges. Nevertheless, each of the bills will harm in-state businesses, drive them out of the state, or discourage outside companies from investing or moving in.
Perhaps most disconcerting are the measures’ prospects for passage. Bills that explicitly raise revenue are supposed to be subject to the state’s two-thirds supermajority vote to raise taxes, but have fun telling that to the California legislature. Each of the bills has passed either the Senate or Assembly already, despite raising revenue. Hancock’s bill claims the revenue estimate is “unknown.” Never mind that the BOE’s analysis says the bill would raise taxes by $374 million a year.
To be sure, California is not alone in this effort. Well over a dozen states – at the behest of big-box retailers – are pushing measures to circumvent Supreme Court jurisprudence and enact loose interpretations of what it means to have a footprint in the state. Thankfully for taxpayers most have failed. Yet, none give as much vague authority to the state taxing agency – or are as ripe for abuse – as the California trio.
Legislation raising taxes and handing state agencies nebulous authority is bad enough. But forcing non-residents – who can’t vote these politicians out of office – to comply with California tax laws is an affront to both the democratic process and the Constitution.
ATR Will Rate a Vote on Tester Interchange Fee Amendment
Today, Americans for Tax Reform (ATR) announced that Senators will receive a positive rating in the annual Congressional Scorecard for supporting Sen. Jon Tester’s (D-Mont.) amendment to delay and further study price controls on debit card transactions.
The Section 1075 (Durbin Amendment) price controls that were contained in the Dodd-Frank financial reform act are poised to dramatically alter the market for debit cards. Capping the interchange fee substantially lower than current levels will shift enormous costs onto consumers and smaller banks, potentially leading to the elimination of services.
The interchange fee regulations violate free-market principles and property rights, setting below-cost price controls and depriving card issuers of a return on capital invested. For this reason, 33 prominent free-market think tanks, advocacy groups, and other organizations previously sent a letter to Congress supporting efforts to roll back these onerous regulations.
Sen. Tester has proposed a reasonable measure that will delay the implementation of these burdensome rules and further study their impact on consumers and markets. This is a prudent step considering that the Government Accountability Office has already found that similar price controls in Australia cost consumers in higher annual fees.
ATR urges all members to support the Tester amendment to delay implementation of interchange price controls. Failure to support this measure is a failure to stand up for free-markets and American consumers.
A vote in favor of the Tester amendment will be scored positively in Americans for Tax Reform’s annual Congressional Scorecard.
Gov. Perry Vetoes Internet Tax Bill
Texas Gov. Rick Perry has vetoed legislation attempting to force out-of-state businesses like online retailers to collect the state’s sales tax. Perry’s move is a huge victory for taxpayers, who watched the legislature pass the measure with surprisingly large margins. However, the language is now included in the fiscal matters bill before a special legislative session, giving it another chance to become law.
House Bill 2403 is a net $61 million tax hike and a reversal of Texas’s consistent and pro-jobs tax environment that has made it the best state for business in recent years. Perhaps worse, the bill would significantly liberalize the physical nexus standard for tax collection. From ATR’s letter urging Gov. Perry to veto the bill
HB 2403 partially dissolves the physical nexus standard for tax collection, despite the U.S. Supreme Court’s ruling in Quill v. North Dakota that expressly forbids states from forcing out-of-state businesses and individuals to collect and remit sales taxes. HB 2403 pushes the long arm of the tax collector past this appropriate boundary.
Loosening the physical nexus standard to reach across state borders and force non-residents to collect or pay taxes is a philosophy rooted in states wholly unlike Texas. Other states attempting to weaken the nexus standard, such as California and New York, are doing so to explicitly tax Internet sales and non-resident populations. These desperate attempts to raise revenue are occurring as their taxpaying populations flee oppressive tax and regulatory regimes. Texas neither has this problem, nor should be following their lead.
Taxpayers Need Protections in Fannie & Freddie Bailout
Americans for Tax Reform submitted testimony today as a House Financial Services Subcommittee takes a look at multiple measures that would protect taxpayers following the fall of government-backed secondary mortgage market giants Fannie Mae and Freddie Mac. The Subcommittee on Capital Markets and GSEs is reviewing bills that would, for example, cap the amount they can receive from taxpayers, scale back the GSE's spending, and take steps to ensure they pay taxpayers back. Below is an excerpt and the full testimony can be found here.
When the Housing and Economic Recovery Act of 2008 (HERA) authorized the Treasury Department to purchase the obligations of Fannie and Freddie, it stated that such actions must be necessary to “protect the taxpayer." Yet, since the Treasury Department put Fannie and Freddie in conservatorship, the two institutions have already cost American taxpayers $162.4 billion, a number that is expected to rise even further. There are relatively no protections for American taxpayers caught footing the bill. If one thing has become clear, it’s that the implied guarantee that the federal government would bail out Fannie and Freddie should they become insolvent is now an explicit guarantee.
...Congress should take steps to ensure taxpayers are repaid for any and all funds received by Fannie and Freddie. Similar to bailouts of other industries, Treasury has become the primary stockholder of Fannie and Freddie, and pays back the Treasury through dividends or (should they emerge from conservatorship) the sale of stock. To date, Fannie and Freddie have paid dividends of $24.1 billion, a mere 15 percent of what they have drawn from the U.S. Treasury.
Click here for ATR's full testimony.
Uncle Sam Wants Your Mortgage
A group of federal agencies is considering regulations (PDF) that would restrict a vast number of homebuyers from securing private home loans, unless approved for a “Qualified Residential Mortgage.” To meet this standard, homebuyers would have to have a whopping 20 percent down payment to get a mortgage. Homebuyers also can not have been more than 60 days late on a credit card payment in the past two years or spend more than 28 percent of their income on the house.
Failing to meet these and other tests means your lender will have to hold a certain percentage of your loan on their books, forcing them to charge you – the homebuyer – a much higher interest rate. So, you can either pay a higher rate, or go to the one lender exempt from these onerous rules: the government.
The rule – authorized in the ill-conceived Dodd-Frank financial act – creates enormous risk for taxpayers. Already, the Federal Housing Administration insures over 37 percent of all mortgages – up dramatically from a mere 7 percent in 2007. This rule would expose taxpayers to even greater risk by placing virtually every loan that the government considers "too risky" for private lenders onto government balance sheets. This puts American taxpayers on the line to bail out future, defaulting mortgages.
In a nutshell, the rule will force young, first-time homeowners, and all Americans that can’t pay at least 20 percent of a home price up front, onto a government loan. Just how many people would that be? In 2010, nearly three-quarters of homebuyers put less than 20 percent down. By exempting themselves from these regulations, the federal government is effectively undercutting the private sector, nudging Americans into government-run, taxpayer-backed loans.
Take Action Now. Write the federal agencies and demand that they stop trying to take over home loans.