New Travel Agency Taxes Damage Tourism and Are Illegal
As Digital Liberty’s Katie McAuliffe has explained, the internet is the new frontier for higher taxes. Although federal legislation to impose a national internet tax scheme on states and businesses failed to pass in the 112th Congress, many states took notice of the potential for new revenue. Some states are even going as far as imposing their own internet tax schemes.
Tennessee, Indiana, Texas, Pennsylvania, Virginia, New Mexico, Connecticut, Oregon, Utah, and Massachusetts are among the “give me more” legislatures looking to grow state coffers. The focus for these states is online hotel booking agents.
As Katie points out,
Hotels offer a room rate to travel agents, which already has the hotel occupancy tax included in the room rate. They charge the buyer a service fee for locating the room, which is separate from the room rate. It is a fee for the service of finding the room and this fee is taxed under income tax laws because it goes to the travel agents income.
The Online Travel Agent or Store Front Travel Agent’s facilitation of locating a room is a service and not the same as the room provide by the hotel where the traveler will be staying. Attempting to expand the hotel occupancy tax would treat the service provider in the same way as a hotel for tax purposes, obscuring the difference between a hotel room and a service.
Even more, such efforts are illegal. The 1998 Internet Freedom Act prohibits taxes applied only to internet based businesses and not their counterparts.
When laws of this nature have come before the courts, 90% of the time they are struck down because a service charge is different from the rate charged for the room and therefore not subject to occupancy tax. Occupancy taxes are already paid for in full on the amount received by a hotel when a traveler purchases a room from a travel agent.
What’s the big deal, you ask? Katie’s got the answer to that as well:
People booking for large groups, an office retreat, a school trip, or a large family’s vacation, would feel the burdens of this tax increase. They may choose a different state to visit or shorten their stay. The overall cost would increase for a large group by perhaps hundreds of dollars.
This is another faulty attempt by revenue hungry and budgeting shy officials to tax innovative businesses. The likelihood of this tax backfiring and causing a state to lose money in tourism and travel agent business is high; much higher than the revenue that could be gleaned from this taxation attempt.
This innovative tax scheme has been proposed by both Republican-run states and Democrat ones. Perhaps instead of considering new (illegal in many cases) taxes, legislatures should look within their own budgets to cut back in the same manner that millions of Americans have over the last 4 years.
What are your thoughts? Should tourists bear the burden of state legislatures unwilling to cut back on spending, even though millions of Americans have done just that in the past 4 years?
ATR Supports Virginia HB1313
Americans for Tax Reform supports Virginia HB 1313, legislation authored by Delegate Bob Marshall that would prevent two of the twenty tax increases in Obamacare from hitting Virginia taxpayers. We urge Virginia lawmakers to pass the legislation during the 2013 session.
HB 1313 would amend the Code of Virginia to de-conform Virginia tax rules from the Patient Protection and Affordable Care Act (Obamacare). Virginians would then be able to deduct from their state returns the increased costs that result from the new threshold under which medical expenses cannot be reimbursed. Obamacare raised this threshold from 7.5% to 10% of adjusted gross income, costing US taxpayers $15.2 billion over 10 years.
Additionally, HB 1313 would protect Virginians from the heightened costs incurred due to Obamacare’s reduction in the allowance of tax deductible contributions to flex spending accounts. Obamacare caps such tax deductible contributions at only $2,500 – prior to Obamacare, taxpayers could make unlimited contributions to their flex accounts under federal law. This provision in Obamacare is particularly detrimental to families with special needs kids, who have traditionally funded their children’s relatively high education costs through these tax deductible accounts.
HB 1313 would simply preserve present tax rules on Virginia state returns, thereby preventing two tax increases that would have otherwise taken effect with the implementation of Obamacare. While much of the Obamacare’s tax changes are out of legislators’ hands, HB 1313 represents an opportunity for state lawmakers to help cushion the blow of this massive federal tax increase, over 80% of which was scheduled to begin taking effect this year.
HB 1313 is an important and innovative step forward in curbing federal overreach and job-killing tax increases signed into law by President Obama. As such, we urge Virginia legislators stand up for their constituents by supporting and voting for HB 1313.
Anna Bryson Signs the Taxpayer Protection Pledge
School Board Trustee Anna Bryson has signed the Taxpayer Protection Pledge in her bid for California’s 73rd Assembly seat. The Pledge, sponsored by Americans for Tax Reform, commits signers to “oppose and vote against any and all efforts to increase taxes."
Bryson, a 2014 candidate, is the first candidate in the race to sign the Taxpayer Protection Pledge. In her time as a School Board Trustee for the Capistrano Unified Schoold District in Orange County, Bryson has ended prior deficit spending habits in the district and balanced the district budget without raising taxes. In addition, Bryson was successful in reducing the size of the district administration and helped push for greater transparency by posting the district's checkbook and budget online. Her actions exemplify the type of leadership Sacramento desperately needs.
ATR has offered the Pledge to all candidates for federal office since 1987. In the 113th Congress, 39 U.S. Senators and 219 members of the U.S. House of Representatives have signed the Pledge. Additionally, thirteen governors and approximately 1,100 state legislators have signed the Pledge.
“I want to congratulate Anna Bryson for taking the Taxpayer Protection Pledge. Californians already contend with one of the highest state and local tax burdens in the nation and it is clear that the problem in Sacramento is overspending. For decades, politicians in Sacramento increased spending at a rate far beyond that of population growth and inflation,” said Grover Norquist, president of ATR.
“With onerously high tax rates forcing individuals, families, and employers out of the state in droves, it’s time that lawmakers reject more job-killing tax increases. By signing the Pledge, Anna Bryson demonstrates that she understands the problems of hard-working taxpayers of California. I challenge all candidates for office in California to make the same commitment to taxpayers by signing the Taxpayer Protection Pledge today,” Norquist continued.
Governor Bob McDonnell's Transportation Plan: A $2.4 Billion Tax Hike on Virginians
Republican Governor McDonnell’s “Road to the Future” gets one thing right: it begins to prioritize transportation costs as a core government expenditure. Unfortunately, it does so by raising the net taxes paid by Virginians to fund new projects.
Americans for Tax Reform designed an infographic illustration of the plan, which can be seen at www.atr.org/therealroad.
Although the plan eliminates the state gas tax, it overcompensates with new revenue generated by a 16 percent increase in the state sales tax, a $15 annual vehicle registration “fee” hike, a $100 alternative vehicle registration “fee” hike, and pre-emptively opts Virginia into a national internet tax scheme. It is a far cry from a fiscally conservative approach to state spending.
As it stands now, the plan is a violation of the Pledge to Virginians many state legislators took to oppose any and all taxes.
“In a state controlled by Republicans, this is the absolute wrong approach on a path to sustainable transportation spending. When legislators demand higher taxes in exchange for prioritizing transportation costs, they are demonstrating that transportation is their lowest budget priority,” said Grover Norquist, President of Americans for Tax Reform.
“Virginians have rejected this kind of approach before. When voters were asked in 2002 whether they thought that transportation should be paid for with existing state revenue or with higher taxes, they overwhelming rejected Gov. Warner’s call for higher taxes. Virginia does not have a revenue problem. It has a problem prioritizing spending.”
Governor McDonnell's REAL Road to the Future
Virginia Governor Bob McDonnell's new transportation plan, "The Road to the Future," is complicated and seemingly contradictory ("revenue neutral" yet it increases spending by billions.)
Americans for Tax Reform has simplified the plan into an easy-to-understand infographic. If you are a blogger, feel free to put this infographic on your site and, if you're on Twitter or Facebook, we invite you to hit the 'share' and 'tweet' buttons above.
ATR Opposes Virginia Governor McDonnell's Current Transportation Plan
As the bill stands now, Governor Bob McDonnell’s proposed 2013 “Road to the Future” transportation plan is a massive $1.22 billion tax increase that should be defeated by the General Assembly. For legislators who have signed the Taxpayer Protection Pledge, supporting all of the measures advocated in this plan would be a clear violation of the promise made to Virginia taxpayers to oppose any and all efforts to increase taxes unless it is significantly improved.
The governor’s prior attempts to prioritize funding for transportation without raising taxes were defeated by Democrats and a select group of Republican state senators whose last concern is the transportation crisis.
In the past, this wing has required that in exchange for prioritizing transportation as budget expenditure, taxes had to go up. Legislators who demand that more of Virginia’s current revenue be directed to transportation in exchange for higher taxes demonstrate that their lowest budget priority is transportation.
When members of the General Assembly say they are unable to prioritize state spending for transportation, they are referencing opposition from both Democrats and Republicans like Senators Frank Wagner, John Watkins, and Tommy Norment. These are the culprits that have put Virginia in the transportation crisis it is currently enduring.
The Governor’s current plan is designed to win over this wing of the General Assembly. According to the Governor’s own numbers, replacing the gas tax with a 16% higher sales and use tax is a $607 million tax increase. Increasing vehicle registration and alternative vehicle fees is a $614 million tax increase.
Even worse, if the Governor successfully lobbies Congress to implement a national internet tax by passing the Market Place Equity Act, taxes rise by $1.2 billion over 5 years.
This year, as states like Louisiana and North Carolina move in the direction of pro-growth tax reform that lessens the burden of government on taxpayers, Virginia should not take the lead on an alternative course by pursuing massive tax hikes.
Supporters of the governor’s original goals – to prioritize transportation funding as part of currently collected and new growth revenue – should reject the tax hikes in the proposed plan.
Supporting the Governor’s proposed plan otherwise is a massive tax increase that Virginia taxpayers cannot afford.
Governor Bob McDonnell's Transportation Plan
Governor Bob McDonnell (R-VA) has taken a bold step in working to fund Virginia’s transportation crisis. It is clear that he has an interest in leaving a lasting legacy as a governor who prioritized transportation. Unfortunately, his “Road to the Future” is paved with a number of flawed solutions.
First, the good. The plan, which can be seen here, gets one thing right. It begins to prioritize transportation as a core state expenditure. By changing the share of revenue collected from the sales and use tax that is designated to maintenance costs and the Transportation Trust Fund, McDonnell makes clear that transportation deserves a bigger piece of the budget pie.
“Transportation currently receives 0.5 cent of the SUT, and the governor proposes to phase in this share to 0.75 cent over five years.”
According to McDonnell’s own analysis, this will result in more than $811 million over the next 5 years for transportation out of currently collected revenue.
|Increase Existing SUT commitment from .05% to .75% over 5 years||$49.0||$101.7||$158.4||$219.2||$283.2||$811.5|
Next, the tax cut. The Governor proposes eliminating the state 17.5 cents/gallon tax on gasoline. This is a tax cut of about $3.5 billion tax cut over 5 years.
|Eliminate 17.5 cents/gallon tax on gas||($684.1)||($694)||($703.7)||($708.8)||($713.8)||($3,504.4)|
Now, the bad. Unfortunately, this tax cut is replaced by a 16% increase in the state sales and use tax. The Governor’s plan replaces the current gas tax with a .8 cent increase in the sales and use tax. The net tax increase is outlined in the Governor’s own projections:
|Replace 17.5 /gallon tax on gas with .8% NGF SUT increase||$24.6||$109.3||$131.8||$158.4||$182.9||$607.0|
The higher sales and use tax increase is projected to bring in $4.1 billion in additional revenue over 5 years. Subtract current gas tax revenue projections from the increase in projected SUT revenue and you get a $607 million net tax hike.
Now, more bad. The “Road to the Future” includes a $15 increase in vehicle registration fees. This is a 5-year car tax increase of $547 million.
|$15 Increase in Registration Fees||$109.4||$109.4||$109.4||$109.4||$109.4||$547.0|
Did you recently purchase an alternative fuel vehicle in Virginia? Sorry, says McDonnell. $66.6 million in higher taxes for you.
|$100 Alternative Fuel Vehicle Fee||$10.2||$11.4||$13.0||$15.0||$17.0||$66.6|
Next, the horrible. Republican Governor Bob McDonnell is lobbying the 113th Congress to pass the Market Place Equity Act, the internet sales tax.
Creating competition among states for higher taxes and placing greater burdens on businesses to comply with thousands of new regulations is a huge step in the wrong direction. Passage of this federal legislation would result in over $1.1 billion in higher taxes on Virginia consumers.
|Market Place Equity - Transportation||$175.7||$199.1||$207.0||$214.8||$222.2||$1,018.8|
|Market Place Equity - Local Trans||$23.7||$26.9||$28.0||$29.1||$30.1||$137.8|
In conclusion, the proposed plan is a massive $1.22 billion tax increase. With the inclusion of the federal Market Place Equity Act, Virginia taxes will rise by $2.38 billion over 5 years.
ATR is encouraging legislators to amend the “Road to the Future” so that it is not a net tax increase and pass a plan that shifts a greater share of sales and use tax revenue to transportation costs and projects. If transportation is a priority, it's time to allocate current funds in a way that reflects that.
Norquist: Fight Against President Obama's Overspending Is Winnable
With the passage of a bill to avert tax increases for nearly all American taxpayers, nearly every “Bush tax cut” was made permanent. Why weren’t they all extended? Grover explains:
The 2001 and 2003 “Bush tax cuts” were enacted with an expiration date because 60 votes are required in the Senate to make a tax cut permanent. Other tax cuts such as the “patch” limiting the Alternative Minimum Tax and the Research and Development Tax Credit would lapse every two years giving politicians an opportunity to “sell the same horse” again and again to voters and campaign contributors.
Hence the “fiscal cliff” of an automatic tax increase scheduled for Jan. 1, 2013 that would result in taxes increasing $500 billion in that one year alone as all these “temporary” tax cuts lapsed together. Only legislation passed by the Democratic-controlled Senate, the Republican House, and signed by President Barack Obama would stop the tax increases.
The world was upside down. Normally it takes the House, Senate and president acting together to raise taxes. Now it would take all three to stop any or all of the tax cuts from lapsing—and from taxes increasing on all Americans.
This Alice in Wonderland situation flowed from the modern Democratic Party’s hostility to tax reduction. Back in 1981 the Reagan tax cuts were made permanent. The Tax Reform Act of 1986 reduced the top rate from 50 percent to 28 percent—permanently.
The legislation passed by the House, Senate and now signed by the president that makes 85 percent of the Bush tax cuts permanent is a bittersweet victory or defeat. Income tax rates fall for 99 percent of Americans. Those reductions are now permanent. And yet Americans rightly worry about Obama’s ability to force the top rate to automatically jump back to Clinton’s 39.6 percent from Bush’s 35 percent. Obama won his class warfare pound of flesh.
One hundred and fifty seven House Republicans voted “no” on the legislation to make most of the Bush tax cuts permanent out of understandable frustration that there was no vote or action they could have taken to restore the full Bush tax cut.
Now that we have settled the debate on the fiscal cliff and impending tax hikes, Congress is in a position to reverse course on the overspending binge that the President has embarked upon for four years.
Now the tables have turned. The income tax rates and important credits and deductions are now permanent. It takes an affirmative vote by the House and Senate to increase taxes ever again. (Good luck with that, Mr. President.)
And what about spending? Were we not promised jillions of dollars in spending reduction in return for tax increases? Was that not the mantra of the Washington Establishment, the promise of the 2010 bipartisan panel that came to be known as the Simpson-Bowles commission? That was always a fool’s errand, the Lucy-and-the-football ploy that defeated and humiliated Republicans in 1982 and 1990.
We now leave a battlefield where the proponents of bigger government had the upper hand—the default position was a $500 billion a year tax hike—to one where the default position is cut spending.
He goes on to explain the three upcoming virtuous “fiscal cliffs”:
First, the sequester. If Congress does nothing, unless the House, Senate, and President Obama agree on an alternative, there is an automatic sequester of $1.2 trillion over the next 10 years. One hundred billion dollars in spending cuts a year—automatically. House Republicans have already offered an alternative savings package of the same amount that shifts the cuts from defense to other areas.
The second virtuous cliff is the debt ceiling Obama is spending—again—at a rate that runs up more than $1 trillion in deficits each year. He must come back hat in hand to ask for a debt ceiling increase. The “Boehner rule” first applied with great effect in 2011 requires a dollar-for-dollar savings to “pay” for any debt ceiling hike. Obama wants/needs $1 trillion dollars in debt ceiling—so, he needs to come up with $1 trillion in reduced spending. Or not increase in the debt.
In 2011, conservatives won a $2.5 trillion spending cut in return for the higher debt ceiling.
The third lever for conservatives in the fight to limit federal spending is the fact that the Democrats in the Senate no longer do budgets. It is too embarrassing to write and vote on budgets that clearly run up trillions in debt. So our federal government operates on a series of “continuing resolutions” that allow money to be spent for a month or six months or a year.
Now Republicans in the House can offer Obama another month of “allowance” in return for actual cuts in spending. This worked in early 2011 and was abandoned as a strategy only because the slow pace of progress frustrated them. Now Republicans understand that slow progress is the only road to limiting the damage Obama’s spending is doing. There is no partner available for a grand bargain. Obama does not wish to reform entitlements or end his Chicago style “pay to play,” “pork for the boys” tax and spend policies.
Three levers to control spending. This time they are in our hands.
There is great anger that Obama could force higher tax rates on small businesses simply by saying no. Now is the time to channel that anger and energy into the very winnable fight against Obama overspending.
What do you think? Which “fiscal cliff” should Congress use to force the President’s hand to cut spending?
Left Leaning Jim Cramer Finally Comes Around on Taxes
In an interview with Joe Kernen on CNBC’s “Squawk Box,” Jim Cramer said he’s finally content with tax rates. He was asked specifically about two options Congress pretends to weigh at every “cliff”: the need to get entitlements under control versus the ease of raising taxes.
Here’s the back and forth:
Joe Kernan: “Do you think we need to get a handle on entitlements immediately? Should that be what we do with the debt ceiling? Or is it important to -- to raise another $600 billion in tax revenue immediately?”
Jim Cramer: no more tax revenue. NONE!
Joe Kernan interrupted to point out that Obama’s former chief economic advisor says the President is “going to insist on that.”
Cramer went on to say, “There should be no more tax increases. We should be coming up with a new way to be able to, be creative ways to keep costs down on Medicare. Maybe make part B more expensive for people, but no, no Joe, no more taxes.”
Cramer continued, “I mean ‘read my lips’ no more taxes and don’t go back on it because everyone’s going to get them and everyone who’s sat down with their accountant in the last 48 hours in dazzled. Dazzled about what’s gonna happen. And I’m not just talking about the wealthy people because we’re starting to talk about healthcare, small businesses what they’re thinking about at the end of 2013. So no, it’s Medicare, Medicare and then Medicare and it’s all that matters.”
It appears as if 2012 wasn’t the only year for political “evolutions.” From Democrats evolving on middle class tax cuts to Mad Money Cramer finally coming around on the tax debate, it seems that at least a few have given it a rest on the calls for higher taxes. From the guy who predicted Obama would win 440 electoral votes, yes as in 108 more than he did win by, perhaps limited government advocates can count this as a small victory.
[Video credit to MRC and Newsbusters]
The Democrat Evolution on Middle Class Tax Rates
On May 26, 2001, Democrats had the opportunity to demonstrate that they supported across the board tax cuts that significantly reduced the tax burden for groups they claim to care about: the middle and lower classes. At 10:11AM that day, however, 154 Democrats voted No on the Economic Growth and Tax Relief Reconciliation Act (EGTRRA).
This bill had the following implications by 2006: reduction of individual income tax rates from 15, 28, 31, 36, and 39.6 percent to 10, 15, 25, 28, 33, and 35 percent.
28 Democrats that year were sensible enough to vote Yea.
Some balked at the suggestion that the Laffer curve could work under President Bush like it did under Presidents who cut taxes before him. Unsurprisingly though, receipts from individual income taxes did increased by 47% through 2007, when the mortgage crises began.
Some may point out that in 2001 Democrats had a legitimate alternative to the Republicans’ across the board tax relief legislation. This assertion is wrong.
Charlie Rangel offered an alternative bill that would have reduced the 15% tax bracket to 12% on the first $10,000 on a single flier’s return. It also gave everyone a $225 tax credit for joint filers and expanded the Earned Income Tax Credit.
Rangel’s alternative targeted low income earners and taxed most of their income at a higher rate than the Republican plan. What is clear is that Democrats did not have any intention of cutting taxes for middle class workers, let alone those making up to $250,000.
Tuesday’s fiscal cliff vote was significant for the Democrat party. 66 of the same Democrats who voted against EGTRRA in 2001 voted for Tuesday’s fiscal cliff bill. The same party that overwhelmingly opposed a reduction of taxes on middle income Americans in 2001 extended the rates Republicans brought to existence for those making under $400,000 in 2013.
Fast forward to May of 2003.
The Jobs and Growth Reconciliation Tax Act (JGTRRA) passed by a margin of 231 to 200. This legislation lowered the capital gains and dividends rate to 15% and provided a 50% bonus depreciation allowance. Bonus depreciation allows businesses to deduct business expenses like equipment from their taxes, which encourages investment.
In addition to an extension of the bonus depreciation allowance, the fiscal cliff deal preserves the 15% capital gains and investment rate for married couples making less than $450,000 and single people making less than $400,000.
In an ideal world where Democrats didn’t control Washington, these rates would have been extended for everyone. By permanently linking dividend and capital rates together, however, the Tuesday compromise was a partial permanent enshrinement of the 2003 tax cuts that Democrats opposed by a margin of 198-7 in 2001. 97 of those same Democrats who voted against JGTRRA in 2001 voted Yea on the fiscal cliff bill in 2013. Many would consider this an accomplishment.
What now? For years, Democrats have been campaigning on raising the top tax rates. Special thanks to Obamacare, successful business owners and individuals now pay more today than they did under Clinton. Mission accomplished for them. The debt still stands at $16.4 trillion and we’re set to hit the limit in less than 2 months.
As Politico points out, “Democrats readily acknowledge that they’ve exhausted their ability to raise taxes on the richest Americans by jacking up their rates… that politically speaking, there’s virtually no way to keep increasing marginal tax rates.” Taxpayers and small businesses sigh in relief.
The next two months will be strife with conflict as Democrats and Republicans try to figure out how to accomplish that which modern day Democrats have never been willing to do: cut spending.
What are your thoughts? Where should Congress start in the process of identifying cuts? (Obamacare costs at least $1.76 trillion for example…)