Patrick Gleason

North Carolina Gov. Pat McCrory Signs Historic Tax Reform into Law


Posted by Patrick Gleason on Tuesday, July 23rd, 2013, 10:06 AM PERMALINK


While the chattering classes discuss whether tax reform can happen in Washington, legislators in the Tar Heel State are showing lawmakers on Capitol Hill how it's done. This afternoon, North Carolina Gov. Pat McCrory (R) will sign into law a historic overhaul of the North Carolina tax code. The final deal moves the state from a tiered personal income tax with a top rate of 7.75 percent, the highest in the South, to a flat 5.75 percent over two years. The plan also reduces the corporate tax from 6.9 percent to 5 percent over two years. If certain revenue targets are met, the corporate rate will fall to as low as three percent by 2017.

The final deal, which the North Carolina legislature passed last week, is the result of more than a year of planning and months of negotiations. North Carolina currently has one of the worst business tax climates in the nation; after Gov. McCrory signs this tax overhaul into law today, the state will have one of the best.

Americans for Tax Reform and other supporters of the plan contend that this tax overhaul will boost economic growth and make the state more attractive to employers and investors. Currently, North Carolina has the highest unemployment rate in the region.

“For decades in North Carolina, taxes only went in one direction: up,” said Grover Norquist, president of Americans for Tax Refrom. “Fortunately for North Carolina taxpayers, the state is under new management and, as this pro-growth tax plan demonstrates, open for business again. North Carolina lawmakers will head home from Raleigh this Summer having delivered on one of their top campaign promises. Members of Congress and national pundits continue to debate the prospects for tax reform in Washington, I commend North Carolina lawmakers for demonstrating what pro-growth tax reform looks like.

Already we are seeing officials in other states point to North Carolina's tax reform as a model. New Jersey Senate Republican Leader Tom Kean Jr. made the follwing remarks the same day the North Carolina tax reform act was approved by the legislature last week:

“Tax cuts and rate overhauls authored by state leaders in North Carolina mirror proposals created by Senate Republicans and Gov. Chris Christie to make New Jersey more affordable for families and attractive to job creators...If Senate Democrats continue to block tax cuts and legislation sponsored by Republicans and Democrats, then New Jersey can expect to endure a continuation of outmigration that is splitting up families and chasing innovators away to our competition states, namely North Carolina, which has significantly lower business and personal tax rates.”

Below is a breakdown of the tax changes and how this reform will change in North Carolina's business tax climate ranking:

Individual Income Tax

  • Flatten and lower rate to 5.75 percent by 2015;
  • Increase standard deduction to $7,500 (for singles);
  • Allow full deductibility of charitable contributions;
  • Fully exempt Social Security income from state income tax;
  • Allow for certain itemized deductions (total of mortgage interest and property taxes paid would be capped at $20k); and
  • Retain current child credit of $100 for those earning $40k and increase credit to $125 for those earning under $40k.

Corporate Income Tax

  • Reduce rate to 5 percent by 2015;
  • If certain revenue targets are met, rate would decrease to 4 percent in 2016 and 3 percent in 2017.

Other Changes

  • Retain full sales tax refund for nonprofits;
  • Cap gasoline tax; and
  • Fully repeal estate tax

The plan would improve North Carolina’s State Business Tax Climate Index score. Currently, North Carolina ranks 44th in the country. The new agreement would move the Tar Heel State up to 17th best. Scores for other tax categories are found below:

 

Current Law

New Plan

Overall

44

17

Corporate Income

29

17

Individual Income

43

17

Sales

47

47

Unemployment Insurance

5

5

Property

36

27

 

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Tax Reform Deal Reached in North Carolina


Posted by Patrick Gleason on Monday, July 15th, 2013, 6:26 PM PERMALINK


This afternoon, North Carolina Gov. Pat McCrory (R), standing alongside Senate President Pro Tem Phil Berger (R) and Speaker Thom Tillis (R), announced that he and legislative leaders have reached a final agreement on a historic overhaul of the North Carolina tax code. The final deal moves the state from a tiered personal income tax with a top rate of 7.75 percent to a flat 5.75 percent over two years. The plan also reduces the corporate tax from 6.9 percent to 5 percent over two years. If certain revenue targets are met, the corporate rate will fall to as low as three percent by 2017.

The final deal, which the legislature is set to pass and send to the governor later this week, is the result of more than a year of planning and months of negotiations. North Carolina currently has one of the worst business tax climates in the nation; after Gov. McCrory signs this tax overhaul into law, the state will have one of the best.

“North Carolina voters made a decision last November to elect a more taxpayer-friendly and economically-literate state government. Today that decision is paying dividends, with the announcement this afternoon that Gov. McCrory and leadership in the General Assembly have reached a final agreement on a plan that will provide significant and much-needed tax relief for individuals, families, and employers across North Carolina,” said Grover Norquist, president of Americans for Tax Reform. “The compromise plan presented by Gov. McCrory, Speaker Tillis, and Senate President Berger today represents a huge improvement over the current tax code. Thanks to hard work by members of the legislature and their staffs, North Carolina will no longer have the highest income taxes in the South after the legislature adjourns later this month.”

Americans for Tax Reform and other supporters of the plan contend that this tax overhaul will boost economic growth and make the state more attractive to employers and investors. Currently, North Carolina has the highest unemployment rate in the region.

“For decades in North Carolina, taxes only went in one direction: up,” continued Norquist. “Fortunately for North Carolina taxpayers, the state is under new management and, as this pro-growth tax plan demonstrates, open for business again. North Carolina lawmakers will head home from Raleigh this Summer having delivered on one of their top campaign promises. Members of Congress and national pundits continue to debate the prospects for tax reform in Washington, I commend North Carolina lawmakers for demonstrating what pro-growth tax reform looks like.

Below is a breakdown of the tax changes implemented by this plan, as well as the change in North Carolina's business tax climate ranking as a result of the deal: 

Individual Income Tax

  • Flatten and lower rate to 5.75 percent by 2015;
  • Increase standard deduction to $7,500 (for singles);
  • Allow full deductibility of charitable contributions;
  • Fully exempt Social Security income from state income tax;
  • Allow for certain itemized deductions (total of mortgage interest and property taxes paid would be capped at $20k); and
  • Retain current child credit of $100 for those earning $40k and increase credit to $125 for those earning under $40k.

Corporate Income Tax

  • Reduce rate to 5 percent by 2015;
  • If certain revenue targets are met, rate would decrease to 4 percent in 2016 and 3 percent in 2017.

Other Changes

  • Retain full sales tax refund for nonprofits;
  • Cap gasoline tax; and
  • Fully repeal estate tax

The plan would most definitely improve North Carolina’s State Business Tax Climate Index score. Currently, North Carolina ranks 44th in the country. The new agreement would move the Tar Heel State up to 17th best. Scores for other tax categories are found below:

 

Current Law

New Plan

Overall

44

17

Corporate Income

29

17

Individual Income

43

17

Sales

47

47

Unemployment Insurance

5

5

Property

36

27

 

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Opponents of Tax Reform in NC Not Making Much Sense


Posted by Patrick Gleason on Thursday, July 11th, 2013, 1:07 PM PERMALINK


The temperature and rhetoric in Raleigh is heating up as the 2013 session of the North Carolina General Assembly hits the home stretch. As lawmakers get close to finalizing a tax relief package, opponents of tax reform appear to be getting desperate, so much so that their arguments are getting more incoherent by the day. Take the News & Observer’s Chief Political Writer Rob Christensen, a vocal critic of the tax reform plans passed by the House and Senate. Christensen penned a column last week attempting to discredit the Tax Foundation’s Business Tax Climate Index, which has been cited frequently by Republicans making the case for tax reform. Here's Christensen's critique:

“So what is the Shangri-La that North Carolina is now searching for?

Wyoming, a state with about the same number of people as Raleigh and Cary.

The Tax Foundation considers it the perfect state as far as taxes. Rounding out its top five of the lowest tax states for business are South Dakota Nevada, Alaska, and Florida.

And what are the states North Carolina is trying to avoid? The worst state, according to the Tax Foundation, is New York, followed by New Jersey, California, Vermont and Rhode Island.

Now you may have varying ideas about those states. But few people would argue that Wyoming, South Dakota and Nevada are the nation’s economic engines and that New York, New Jersey and California are the nation’s economic backwaters.”

Other than his personal preferences for certain states over others, Christensen offers no empirical or methodological critique of the Tax Foundation’s state business tax climate index, which ATR frequently cites. As it would happen, a look a Bureau of Economic Analysis data shows that the economies of the states that score the best on the Tax Foundation’s index and that Christensen derides for no apparent reason– WY, SD, NV, FL, and UT – grew by 66.9% on average in the ten years from 2002 to 2012. Meanwhile, the five states ranked as having the worst business tax climates – NY, NJ, VT, CA, and RI – saw average economic growth of only 39.7%.

Over the last decade, economic expansion in the five states with the most hospitable tax climates outpaced the five least welcoming by 68%, which is significant. Furthermore, the average unemployment rate amongst five states with the worst business tax climate is 7.5, while the five states that score the best on the Tax Foundation's index have a far lower average unemployment rate of 5.9%, well below the national average. Mr. Christensen might not personally want to live in WY, SD, NV, FL, or UT, but it’s clear that they are doing something right when it comes to tax policy and are outperforming the bottom five states on the Tax Foundation’s index. Left-leaning members of the media might thumb their noses at states they don’t consider to be hip or cosmopolitan, but a look at the facts indicates a tax code overhaul that left North Carolina with a more competitive business tax climate, as both the House and Senate plans would do, would be good for the state economy.

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Another Reason for NC to Adopt a Flat Tax: Preventing Trickle Down Taxation


Posted by Patrick Gleason on Monday, June 17th, 2013, 11:33 AM PERMALINK


The North Carolina Senate is expected to give final approval this week to a historic tax reform package that would significantly reduce personal income tax rates and phase out the corporate tax by 2017. The Senate plan, which passed second reading last Thursday, would scrap the state’s progressive income tax code, with a current 7.75% top rate, and replace it with a flat rate of 5.4% that would go down to 5.25% in 2015.

Left-of-center political pressure groups are up in arms over the proposal, portraying it as some sop to the wealthy, but the fact is that everyone would get a tax cut under the Senate proposal, just as they would under the plan that passed the House earlier this month, which moves to a flat 5.9% personal income tax.

North Carolina Democrats and other flat tax opponents claim that those who have higher incomes should pay more in taxes. Well, they do under a flat tax. Under a 5.25% flat tax, an individual making $40,000 a year would owe the state $2,100, whereas someone making $100,000 in a year would pay $5,250 in state income tax.

Furthermore, both tax reform plans put forward by North Carolina Republicans are more charitable to the least among us than the status quo. Currently North Carolina taxes income starting at dollar one. The plan set to pass the Senate does not tax incomes below $15,000, while the House-passed plan exempts the first $12,000 earned.

The very blue state of Massachusetts, whose voters preferred Barack Obama by 61% over their own former governor last November, gets by just fine with a flat tax of 5.25%, well below NC’s top rate. Ballot measures to create a graduated income tax system have been put before voters in this bastion of liberalism five times and five times Massachusetts voters have decided to keep their flat tax in place. The Bay State’s ever-so-progressive voters, who have voted for the Democratic candidate in the last seven presidential elections, seem to like their flat tax just fine and don’t want to get rid of it. If flat tax opponents truly believe their own hyperbolic rhetoric, they must consider places like Boston and Cambridge to be some dystopian wasteland.

Tax Foundation economist Scott Drenkard, in testimony before the North Carolina Senate Finance Committee last week, described the large body of research showing that flatter taxes are more conducive to economic growth:

“The economic literature on progressive income taxes is especially unkind. For example, the OECD study finds that reductions in the top marginal rate of income taxes would be beneficial to long term growth. Examining the period 1969-1986, Mullen and Williams (1994) found that higher marginal tax rates reduce gross state product growth. This finding even adjusts for the overall tax burden of the state, lending credence to the principle of broad bases and low rates.”

Not only will a lower, flatter income tax boost the North Carolina economy, it will also provide a defense against trickle down taxation. Don’t tax you, don’t tax me, tax the man behind the tree who cleared $200K last year. That statement sums up the approach to taxation shared by the White House, Nancy Pelosi, Harry Reid, and also Democratic legislators in Raleigh. But experience has shown that it leads to higher levies on everyone in the long run. This is known as trickle down taxation and ATR president Grover Norquist explains that Massachusetts voters of all income levels were wise to reject proposals to impose higher rates of taxation on incomes beyond an arbitrarily-set level:

“Voters were quite sophisticated in their reasoning and understood that dividing Bay Staters into different groups would allow them to be mugged one at a time.”

After the Senate plan passes third reading, a conference committee will be appointed to work out the differences between the House and Senate plans by month’s end. There are seven states with a flat tax and they have an average unemployment rate well below North Carolina’s. If Speaker Thom Tillis and Senate President Phil Berger are successful, the Tar Heel State will soon join their ranks and be free of the dubious distinction of being home to the highest income taxes in the South.

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North Carolina Senators Propose a Compromise Tax Plan That Provides Greater Tax Relief


Posted by Patrick Gleason on Thursday, June 13th, 2013, 7:54 AM PERMALINK


Following passage of HB 998 in the North Carolina House of Representatives on Monday night, the state senate is now taking up the historic tax reform plan and has amended it so that it provides even more tax relief to individuals, families, and employers in the Tar Heel State. The senate substitute to HB 998, which was passed out of the Senate Finance Committee yesterday, would phase out the state corporate tax and personal income taxes would be reduced further than the House plan. The Senate plan takes the state to a flat 5.25 percent personal income tax, down from the current top rate of 7.75 percent, while the House-passed plan sets the rate at a flat 5.9 percent. 

The Tax Foundation has put together a helpful chart showing how the senate substitute compares to current law, the House-passed plan, and the original Senate proposal in terms of what they would do to NC's ranking on the State Business Tax Climate Index:

Ranked 44th in the nation on the non-partisan Tax Foundation’s business tax climate index, North Carolina has one of the least hospitable state business tax climates in the country. While the House plan would move the state up to 19th, the new senate compromise plan would result in an even bigger improvement, giving North Carolina the 6th best business tax climate in the country.

“North Carolina taxpayers are reaping the benefits of voting in a more taxpayer-friendly legislature that is doing what it was sent to Raleigh to do, which is improve the state’s outdated tax code and reduce the state's anticompetitive tax rates,” said Grover Norquist, president of Americans for Tax Reform.

The new senate plan will get a floor vote later today and is expected to pass. A conference committee will then be formed to work out the differences between the House and Senate plans so that a compromise plan can be passed out of both chambers by the end of the month and sent to Gov. Pat McCrory's desk.  

“I applaud the senate for recognizing the onerous nature of the state’s current tax code and moving forward with a pro-growth plan that seeks to provide as much relief as possible to North Carolinians,” added Norquist. “The Senate plan, if approved, would rid North Carolina of the dubious distinction of having the highest income tax rates in the South. I applaud North Carolina legislators for leading by example and showing Washington and the rest of the country what real tax reform looks like.” 

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Organizations from Coast to Coast Call on the EPA to Reject an Unprecedented Decision on Pebble


Posted by Patrick Gleason on Tuesday, June 4th, 2013, 5:00 AM PERMALINK


This morning a nationwide coalition of non-partisan organizations sent a joint-letter to acting-EPA administrator Bob Perciasepe regarding a pending decision by the EPA that could, if handled incorrectly, cost the U.S. thousands of high-paying jobs and prevent billions in much-needed economic growth.

The EPA is currently considering whether to deny permits to develop what would be Pebble Mine in Southwest Alaska. What’s unique about this is that Pebble Partnership has yet to even submit a permit application. What environmental lobbying organizations are pressuring the EPA to do is preemptively reject Pebble Mine under its Clean Water Act authority before the project has had a chance to go through the permitting process and have a fair hearing. Such a preemptive veto would be unprecedented and portend grave uncertainty for all sorts of projects in every state, in addition to having a negative effect on investment in this country.

This new coalition letter highlights new research on the significant economic boost that would result from development of Pebble Mine:

“Making matters worse, the actions undertaken by the EPA threaten the creation of thousands of well-paying, private sector jobs in an economic sector that is starved for gainful employment. In fact, studies have shown that the initial construction stages of the mine would create over 4,000 jobs. When completed, Pebble Mine would generate another 3,000 jobs paying an average of $80,000 per year. Not only will jobs be created in Alaska, Pebble Mine would support up to 11,000 jobs in the lower 48 states. The EPA’s present course of actions threatens to kill these jobs before they are even created, or create a false pretense to do so in the future.”

Most of the focus has been on the debate over Keystone XL pipeline, but the EPA’s decision on Pebble Mine will show whether the Obama administration places the DNC’s ability to fundraise in San Francisco and New York City above this country’s need for family-sustaining jobs and economic growth.

To read the letter in it's entirety, click here.

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Tax Reform Train Rolls On in North Carolina


Posted by Patrick Gleason on Friday, May 31st, 2013, 4:16 PM PERMALINK


North Carolinians are being rewarded for voting in a more taxpayer-friendly state legislature and governor last November. Two bills were introduced in the North Carolina General Assembly this week that would move the state to a flat tax. While the proposals vary in the degree of base broadening and rate reduction, both plans move in the right direction and would generate significant tax relief.

SB 677, introduced by Senator Bob Rucho (R), would move the state from a progressive income tax code with a top rate of 7.75 percent to a flat 4.5 percent over the next several years. A House plan introduced by Rep. David Lewis (R) would move the state in a similar direction to a flat income tax of 5.9 percent. Both bills would also reduce the state corporate income tax rate.

These proposals will be the focus of debate in the closing weeks 2013 session of the North Carolina General Assembly, as lawmakers work out the differences between the plans and reach a consensus. The good news for North Carolina taxpayers is that both proposals would be a huge step in the right direction and improvement over the current tax code. It is clear that North Carolina, home to the highest personal and corporate income tax rates in the Southeast, desperately needs rate-lowering tax reform to become more economically competitive regionally, nationally, and globally.

North Carolina has higher income tax rates than all of its neighbors. Not coincidentally, it also has the highest unemployment rate in the Southeast and one of the worst in the country. In fact, only six other states have a less hospitable business tax climate. North Carolina’s onerous tax rates have been a drag on the state’s economy in recent years. A look at data from the Bureau of Labor Statistics shows that not only do North Carolina’s lower tax neighbors have healthier unemployment rates, they saw jobs come back at a greater clip since the height of the recession:

State

Top Marginal Income Tax Rate

2009 unemployment rate

2013 unemployment rate

Percentage change from 2009 to 2013

North Carolina

7.75%

10.4%

8.9%

14% drop in unemployment

South Carolina

7%

11.5%

8.0%

30.4% drop in unemployment

Georgia

6%

9.8%

8.2%

16% drop in unemployment

Virginia

5.75%

6.9%

5.2%

24% drop in unemployment

Tennessee

0*

10.7%

8.0%

25% drop in unemployment

 

 

 

* TN does not tax ordinary wage income, but it does tax dividends

Gov. Pat McCrory (R), a Taxpayer Protection Pledge signer, has come out in support of efforts in the legislature to reform the tax code in a way that reduces rates, increases efficiency, and makes the state a more attractive place to invest and create jobs.

If things continue on their current course in Raleigh, it looks as though North Carolina will no longer have the dubious distinction of having the highest tax rates in the Southeast after the legislature adjourns next month. While gridlock continues to be the name of the game in Washington, D.C., states like North Carolina, Wisconsin, and Kansas are showing Congress what it looks like to do pro-growth tax reform. 

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Louisiana House Proposes Self-Inflicted Economic Wound


Posted by Patrick Gleason on Wednesday, May 8th, 2013, 9:50 AM PERMALINK


The 2013 session of the Louisiana legislature took a turn for the worst from the taxpayer standpoint this week, with House Republicans proposing a package of bills that would impose over $300 million in higher taxes per year. Americans for Tax Reform (ATR) announced today its opposition to the proposal. On the heels of the Obamacare federal tax hikes that hit Louisiana taxpayers just a few months ago, the last thing that the Pelican State economy needs is a massive tax hike at the state level.

This new proposal from House Republicans would siphon money from the private sector and reduce the job-creating capacity of Louisiana employers. Simply put, this new proposal would take the state in the wrong direction and is even more misguided when put into context of what is happening in states that Louisiana competes with.

Next door in Texas the legislature is planning to cut taxes on employers before the end of the current legislative session. This will only make Texas, which already has the advantage of having no income tax, an even more attractive destination for companies looking to relocate or expand to the region.

“Texas, North Carolina, Kansas, Indiana, and a host of other states are cutting taxes this year and making their states more economically competitive. The response from the Louisiana House is to counter that with a massive tax hike on in-state employers? Really?” said Grover Norquist, president of Americans for Tax Reform. “Let’s get rid of deductions and credits as a way to make the tax code more efficient and bring down rates overall; that’s what real tax reform is all about. This new proposal from the Louisiana House shows that too many lawmakers in Baton Rouge view tax reform the same way that Nancy Pelosi and Harry Reid do: as a Trojan Horse to raise taxes,” added Norquist.

As it is currently presented, Americans for Tax Reform will be rating this new proposal from House Republicans as a tax increase and a violation of the Taxpayer Protection Pledge. However, as problematic as this proposal is, it could be fixed. Were this proposal amended to include a drawdown of the personal and corporate income tax or some other form of offsetting tax relief that made it so this bill did not result in a net revenue increase for the state, it would no longer be considered a tax hike and Pledge violation by ATR. There are no less than ten bills pending before the legislature that would phase out the personal and corporate income tax. ATR encourages legislators to consider incorporating those proposals into their budget. But as the House proposal currently stands, it is massive tax increase.

Mark Twain once remarked that “no man's life, liberty, or property are safe while the legislature is in session,” and that is certainly proving true in Louisiana this year. ATR will be following this issue closely and educating Louisiana taxpayers on how their representatives in Baton Rouge vote on this important matter.

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ATR Urges Texas Legislators to Repeal the Margin Tax


Posted by Patrick Gleason on Tuesday, March 12th, 2013, 1:09 PM PERMALINK


Like a lot of people this week, you might be sick of seeing your friends’ tweets and Facebook posts about the great time they are having at SXSW 2013, which is currently taking place in Austin, TX. However, the coolest thing going on in Austin right now (from ATR’s standpoint at least), is legislation at the Texas capitol that would eliminate the state margin tax, which, as ATR pointed out in a letter sent to TX legislators today, “is the one major blight on the state’s otherwise stellar business tax climate.”

With a reported $8 billion dollar budget surplus, now is the perfect time for legislators to unlock the Lone Star State’s full economic potential by repealing this onerous tax, which economists of all political stripes agree is one of the most economically harmful ways for a state to raise revenue.

See below for a copy of the letter ATR sent to all members of the Texas legislature in support of SB 113 & HB 607, legislation that would repeal the Texas margin tax: 

     "Dear Members of the Texas Legislature,

I write today to urge you to rid Texas of the margin tax during the 2013 legislative session by supporting SB 113 & HB 607, legislation introduced by Sen. Craig Estes & Rep. Scott Turner that would do just that. The Lone Star State has been a model for other states on numerous matters of governance, and for good reason, but the margin tax is the one major blight on the state’s otherwise stellar business tax climate and now is the perfect time to unlock the state’s full economic potential by repealing this misguided tax.

The margin tax reduces the job-creating capacity of Texas businesses and does so in an incredibly onerous way at that. As the Texas chapter of the National Federation of Independent Businesses put it, the margin tax is "crippling the small and mid-sized businesses” throughout the state. In addition to the harm it does to employers, economists of all political stripes agree that it is one of the worst ways to raise revenue. Professor John Mikesell, an expert in public finance at Indiana University, has described the margin tax as a "badly designed business profits tax...combin[ing] all the problems of minimum income taxation in general—excess compliance and administrative cost, penalization of the unsuccessful business, undesirable incentive impacts, doubtful equity basis—with those of taxation according to gross receipts."

The tax is so complex – it applies variably to different industries and types of businesses –that the costs for some employers to comply with this levy are actually greater than their tax liability. One of the more egregious aspects of the margin tax is that it applies to companies without regard as to whether a profit was generated, meaning that businesses that lost money can still end up having a margin tax liability.

Other states are eager to compete with Texas for jobs and the state stands to fall behind if the margin tax is not repealed. In fact, Louisiana Gov. Bobby Jindal has put forward a tax reform plan that, if passed this year, would give your neighbors to the east essentially the same tax code as Texas, but with the advantage over the Lone Star State of not having a gross receipts tax. It is important for Texas lawmakers to not rest on their laurels. In order to stay of ahead of states that wish to entice employers away from Texas, it would behoove legislators in Austin to repeal the margin tax this year.

It’s time to eliminate this unnecessary impediment to private sector growth and job creation. Americans for Tax Reform will continue to follow this issue closely throughout session and will educate your constituents as to how you vote on this important matter. 

Onward,

Grover Norquist"

 

To view a PDF copy of the letter, click here.

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Austin, TX Bag Prohibition Faces Legal Challenge


Posted by Patrick Gleason on Friday, March 8th, 2013, 4:25 PM PERMALINK


lawsuit was filed in court last week that would strike down the ban on plastic and paper shopping bags in Austin, TX that went into effect last Friday. The Texas Retailers Association, which filed the suit in Travis County court, argues that the ban is in direct violation of the Texas Health and Safety code, which explicitly prevents local governments from restricting or prohibiting the “sale or use of any container or package in a manner not authorized by state law.” The Retailers also argue that there is no Texas law permitting the ban of plastic or paper retail bags in any manner.

As it would happen, the Austin bag ban will immediately work against the ostensible purpose of the ban, which is to reduce litter. Any retailer that provides carryout bags to customers will have to discard current inventories and purchase an entirely new stock of government-approved, reusable bags. Businesses that have sizable inventories will be forced to dispose of perfectly good bags.

In addition to the costs employers will incur from purchasing and stocking the more expensive government-approved bags, another significant downside of this heavy-handed law is the provision forcing Austin businesses to furnish signs alerting customers to the new prohibition. Many Austin retailers are concerned about losing valuable floor space as a result of this signage mandate. Bag taxes and prohibitions in other localities have been shown to depress commerce and hurt sales, as customers purchase fewer goods in response to a new charge associated with transporting their purchases.

Austin’s bag prohibition follows in the footsteps of San Francisco, CA, which was the first locality to ban plastic shopping bags in 2007. It would’ve behooved Austin officials to study the results of San Francisco’s bag ban prior to voting on their own last Spring, as San Francisco’s experience proves that bag bans don’t even reduce litter and, in fact, pose great risk to public health.

Litter audits of San Francisco conducted before and after the ban show that share of litter comprised by bags actually went up following the ban. Perhaps most disconcerting, though, is the potential risk that bag bans pose to public health. Bag bans may very well have actual life or death consequences according to a recent study conducted by the University of Pennsylvania. Researchers in that study looked at San Francisco and found that there was a statistically significant increase in ER visits for E. coli infections in San Francisco following the imposition of the city-wide plastic bag ban. This spike in ER visits did not occur in neighboring counties that still permitted plastic bags.

Other studies also show that reusable bags, which bag bans like those in Austin and San Francisco seek to force the usage of, often become petri dishes for bacteria that cause illness. According to a 2010 report published by the Loma Linda University School of Public Health, 12% of randomly sampled reusable bags were contaminated with E. coli. In urban areas like Washington, D.C., which imposes a bag tax, that number was closer to 50%. Yes, half of reusable bags tested in Washington had E. coli in them. The presence of bacteria and viruses present in reusable bags, the researchers conclude, poses a “serious threat to public health.” By all means keep Austin weird, but I doubt many Austinites want their shopping bags getting that weird with bacteria. It seems as though Austin’s bag ban might be better remembered as the “Hug Your Toilet Bowl Austin Act of 2012.

President Calvin Coolidge, who has been in the spotlight lately thanks to Amity Shlaes terrific new biography, once remarked that “It is much more important to kill bad bills than to pass good ones.” Well, the Austin bag ban was a horrible bill that needs to be retroactively killed and this new court case may very well lead to that.

Texas retailers have made a convincing case that Austin’s bag ban is preempted by state law and should be overturned. Here’s to hoping the court ultimately sides with them; for if it does it will be a huge win for Austin consumers, small businesses, and the local economy overall.

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