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Rhett Brooks

Tax Foundation Denounces TPC Analysis of Romney Tax Plan


Posted by Rhett Brooks on Friday, October 5th, 2012, 3:14 PM PERMALINK


In the Tax Foundation’s Weekly Tax Update, an analysis was done on the revenue and economic growth implications of the Romney tax plan.

Among other things, the update addresses alleged discrepancies levied against the tax plan, specifically the Tax Policy Center’s (TPC) claim that for the plan to stay revenue neutral, taxes would have to rise on middle-income earners.  The analysis states that although the TPC report may have credibility “among Washington score keepers,” it has “no credibility among academic economists.”  According to the analysis, the report lacks credibility because of its assumption that tax rates have no impact on economic growth. The assumption made is contrary to economists’ belief that taxes significantly affect consumer and investor behavior:

“Economists recognize that there is more to a tax cut than the immediate increase in wealth of the recipient. There is a change in incentives because there is a change in the law. If investment taxes are lowered, investment increases, because investors expect to keep more of their after-tax returns, and more people become investors. If taxes on wages are lowered, more people work and more people work harder. The benefits from these things spill over beyond the immediate actors. Businesses invest in equipment and new hires, leading to more productive workers, higher wages, and ultimately satisfied customers. If this is “trickle down” economics, as the president contends,[4] this is also economics according to every major textbook and treatise since Adam Smith” - Tax Foundation Weekly Update.

As noted above, supply-side economics or “classical economics”, as it is better known, is part of economic theory and is not exclusively an idea backed by fiscal conservatives. In spite of this fact, the TPC and Obama campaign continues to contend that if taxes are lowered then revenue inevitably drops; however, history has proven this belief to be short-sighted and lacking validity.

For instance, President Reagan experienced revenue increases during his administration after lowering taxes.  As shown in the table below, tax revenue when adjusted for inflation was $1,197.3 at the end of the Carter administration and then bottomed out at 1,113.4 in 1983.  Then, after Reagan cut taxes from 1981-1983, there was a gradual increase and peak of $1,420.7 in 1988, a 15% increase. 

For democrats to disregard supply-side economics as being conservative fantasy is disingenuous and defies economic theory.

 

Fiscal Year

Tax Revenue Adjusted for Inflation(in Billions)

1980

1,197.3

1981

1,251.1

1982

1,202.6

1983

1,113.4

1984

1,173.9

1985

1,250.5

1986

1,277.2

1987

1,375.0

1988

1,420.7

 

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Taxmageddon: Families and Small Employers to be Hit by $3,500 in Tax Hikes


Posted by Rhett Brooks on Thursday, October 4th, 2012, 10:06 AM PERMALINK


With many families suffering financially from a long and bearish recovery, a recent report conducted by the Tax Policy Center (TPC) doesn’t help to ease families’ fears that they will keep even less of their earnings. The TPC report estimates that if scheduled tax hikes take effect in 2013, taxes will increase by $536 billion dollars. As a result of the massive tax hikes, nearly 90% of all families will suffer a $3,500 tax increase.

According to the TPC, the two largest tax hikes set to hit the majority of families include “the temporary cut in Social Security taxes and the expiration of the 2001/2003 tax cuts.”

Both tax hikes combined with remaining hikes represent a tremendous shock to families and could prove to be troublesome to the U.S. economic outlook. The TPC report states that the “resulting macroeconomic tightening [from tax increases on families and businesses] could well push the country back into recession in 2013," an observation made by both the CBO and Fed.

Below is a table showing the impact that tax hikes will have on the average family:

 

Table

 

Average Provisional Tax Burden on Families

 

Tax Provision

 

                         Total in Dollars

 

1. Payroll Tax

 

$721

 

2. ACA Taxes

 

$171

 

3. 2003 - High Incomes

 

$146

 

4. 2001 - High Incomes

 

$334

 

5. 2009 Tax Provisions

 

$144

 

6. Tax Extenders

 

$367

 

7. Estate Tax

 

$161

 

8. Rest of 2001-03 Cuts

 

$1,120

 

9.  AMT Patch

 

$281

 

Total for All Provisions

 

 $3,446

 

Total Taxmageddon Burden

 

                             $536 Billion

Source Urban Brookings Tax Policy Center Microsimulation Model (Version 0412-7)

 

 

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The Washington Post Reveals Its True Colors in Ryan Hit Piece


Posted by Rhett Brooks on Monday, October 1st, 2012, 3:39 PM PERMALINK


This is an excerpt from Keith Hennessey at Real Clear Politics. Click here to learn more.

Lori Montgomery from the Washington Post portrays Paul Ryan in her article “Amid debt crisis, Paul Ryan sat on the sidelines” as being both an idle legislature and one who is more content with touting conservatism than reaching bipartisan compromise.  While others on both sides of the aisle tried to solve the 16 trillion dollar debt crisis, “Ryan sat on the sidelines glumly predicting their efforts were doomed to fail because they strayed too far from his own low-tax, small-government vision”, said Montgomery. As evidence, Montgomery references Ryan’s vote against Bowles-Simpson recommendations and his request not to be named to the “congressional ‘supercommittee’ that took a final stab at bipartisan compromise last fall.” 

At face value these instances of alleged partisan behavior by Ryan may appear to be valid; however, when further examined, the flaws in the examples given by Montgomery become evident.   

Fact Check:

1. Ryan’s Idleness during debt crisis. Over the past two years Ryan had two pieces of legislature pass the House both written by him:  the FY 2012 budget resolution and the FY 2013 budget resolution.  Unfortunately, due to non-compliance and laziness on part of the Democrat-controlled Senate neither passed.  Ryan's success and efforts in passing both budgets were in stark contrast to Senate Budget Committee Chairman Kent Conrad's (D), who has not passed a Senate budget resolution in the last three years. Montgomery can’t in good conscience paint Ryan as being idle when he has been more active in trying to resolve the debt crisis than his Senate counterpart.

2. The Bowles-Simpson recommendations. Montgomery neglects to mention that Senate Finance Committee Chairman Max Baucus (D) also voted no to the legislature, and that subsequent to voting no, Ryan gave his own long-term solution.  It should also be noted that Obama ignored the Bowles-Simpson recommendations making it impossible for Ryan, Camp, and Hensarling to support the legislature without having to compromise.

3. Congressional supercommittee. Montgomery omits the fact that although Ryan requested not to be on the congressional "supercommittee", he gave supercommittee member, Hensarling, his budget committee staff director to aid him. Ryan also assisted Boehner during the Grand Bargain negotiation by giving behind-the-scenes technical support to the Speaker.

Conclusion:

In an attempt to tarnish Ryan’s credibility during his tenure as a legislature, Montgomery’s hit piece revealed the facade behind the Washington Post’s claim to nonpartisanship. The timing of Montgomery’s attacks on Ryan are an obvious example of the Washington Post’s bias against the Romney campaign. Like many in the mainstream media, the Washington Post has resorted to becoming a mouthpiece for Democrats.

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IMF Chief Advocates Avoidance of Taxmageddon


Posted by Rhett Brooks on Thursday, September 27th, 2012, 3:50 PM PERMALINK


In remarks to the Peterson Institute for International Economics on Tuesday, head of the International Monetary Fund, Christine Lagarde, voiced her concern over the January 1, 2013 Taxmageddon.  Lagarde warned of the devastating affect Taxmageddon would have on the U.S. economy if not dealt with.  According to Lagarde, Taxmageddon would result in a 2 percentage point decline in GDP that would in essence eliminate any expected growth in the U.S. for 2013.

Lagarde told those in attendance that action needed to be taken “to avoid the fiscal cliff.” Lagarde’s statement mirrored many economists and institutions, including the CBO and Federal Reserve.

In regard to the global repercussions of Taxmageddon uncertainty, Lagarde said, “This is true everywhere. But the current uncertainty presents a serious threat for the United States and, as the world's largest economy, for the global economy.” 

Lagarde urged Congress to resolve uncertainty caused by Taxmageddon negotiations.  In light of the imminent threat of a domestic and possible global recession, Lagarde said:

"So we all hope that, despite political calendars, which anywhere in the world entail a degree of uncertainty and unpredictability, there will soon be enough political clarity and no political games in order to actually focus on removing this uncertainty and making sure that both the issue of the fiscal cliff and the issue of the debt ceiling are addressed properly."

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Tax Policy Center's Analysis of Romney's Tax Plan Inaccurate


Posted by Rhett Brooks on Wednesday, September 26th, 2012, 5:29 PM PERMALINK


The Tax Policy Center (TPC) released a report in March of 2012 detailing the effects of the Romney tax reform plan on taxpayers.  The conclusion reached by the Tax Policy Center stated that the Romney tax reform plan would cut taxes for high-income taxpayers and raise them for middle and lower-income earners.  Since the report was released, President Obama and his team have ran with it and used it to undermine the credibility of Romney’s plan.   

Senior Analyst in Tax Policy at the Heritage Foundation, Curtis Dubay, released his rebuttal of the TPC report yesterday which revealed many of the flaws in the report.  According to Dubay, the primary problem with the report is that the majority of it is based on assumptions and “carefully made choices”. 

 “The TPC report’s conclusion resulted from a series of decisions and assumptions that frame the analysis in a carefully chosen manner. The authors’ choices and assumptions, not the underlying nature of the Romney plan, led to their selected result,” said Dubay.

One of the more blatant instances of “carefully made choices” contained within the report is its claim of an $86 billion increase in taxes for middle and lower-income earners. The inflated estimate was based on the assumption that the Romney plan would include certain tax deductions and credits favoring high-income taxpayers, including exclusions of interest on life insurance savings and municipal bond interest.  According to Dubay, if these tax preferences favoring high-income taxpayers had been eliminated, it would have accounted for at least a $45 billion drop from the $86 billion estimateFurthermore, when exclusions of interest on life insurance savings and municipal bond interest are combined with the step-up error made in the TPC report, the amount is $64 billion of the $86 billion total. As for the leftover $22 billion, it would have also been eliminated if the Tax Policy Center had chosen tax preferences and policies not accounted for in the report.

Although this report may fit President Obama's agenda to frame Governor Romney as anti-middle class, it does not hold its validity when it makes claims that are based on information that is both incomplete and carefully chosen.  

Click here to learn more.

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Economists Opposed to Taxmageddon


Posted by Rhett Brooks on Tuesday, September 25th, 2012, 9:08 AM PERMALINK


The National Association for Business Economics (NABE) recently surveyed 236 business economists on fiscal policy issues, including the looming Taxmageddon and Obamacare.  The results of the survey reflect a clear divide on taxes between economists and Democrats in Congress.

According to the survey, a majority of respondents support the extension of “payroll tax cuts, current marginal income tax rates, and current tax rates for dividends and capital gains for most or all taxpayers through 2013.”   Furthermore, between 35 and 45 percent favor the permanent extension of income, dividends, and capital gains at their current rate.

On the issue of tax reform, respondents advocated a plan akin to that of Romney’s that broadens the tax base by reducing or removing tax deductions and credits.

When questioned on deficit reduction, respondents showed a preference towards spending cuts with over 40 percent supporting a plan that reduces “the deficit only or mostly through spending cuts.”

The survey also revealed some interesting results regarding the panel’s opinion on Obamacare.  For instance, almost 60 percent believed it would result in fewer employers providing health care coverage to their employees.  This is not a good sign for an Act that is supposed to have the opposite effect by increasing employee coverage.  

Provided Obamacare is not repealed, roughly three-quarters of respondents expect health care costs to grow as a percentage of GDP in the coming decade.

The survey is indicative of the fact that the majority of experts see tax hikes as a grave mistake when implemented during a recovery.  Democrats in Congress should take note of the experts’ opinion on Taxmageddon and oppose all tax hikes. 

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Fiscal Cliff Tops Euro Crisis as Biggest Concern for Investors


Posted by Rhett Brooks on Thursday, September 20th, 2012, 1:57 PM PERMALINK


A recent survey conducted by BofA Merrill Lynch Fund Manager reflects growing pessimism over the looming 2013 fiscal cliff. A total of 253 panelists with $681 billion in managed assets participated in the September survey.

For the month of September, 35 percent of investors surveyed listed the fiscal cliff as their biggest concern in contrast to the EU debt Crisis at 33 percent. The EU debt crisis had previously been listed as the biggest concern for investors at 48 percent for August. But as concern over the debt crisis in the EU subsides, investor focus has shifted to Congress' budget negotiations over tax cuts.

"Investors now view the U.S. fiscal cliff as a greater threat than the eurozone -- and the upcoming election is putting these fears into sharper focus,” said Michael Harnett, chief investment strategist at BoFA Merrill Lynch Global Research

Although disheartening, the survey’s results shouldn’t be surprising, as many within the government and private sector, including the CBO, Federal Reserve, and Moody’s, have made it known that if scheduled tax hikes go into effect, a double-dip recession will be inevitable. 

Investor trepidation over fiscal cliff has resulted in a significant decrease of their U.S. equity holding.  According to the survey, investors reduced their exposure to U.S. equities from 13 percent in August to 11 percent overweight for September.  September marked the third consecutive month investors reduced their exposure to U.S. equity, indicating a trend among investors to resort to a bearish view of the U.S. market.  

The private sector’s loss of confidence in the U.S. economy will continue to occur unless families and businesses can be assured that their taxes will not increase. Not only is this necessary to avoid a recession, it is also needed to restore confidence in the U.S. economy.

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Tax Compliance for Obamacare Amounts to 80 Million Hours


Posted by Rhett Brooks on Monday, September 17th, 2012, 12:37 PM PERMALINK


The House Committee on Ways and Means has compiled an estimate of the total amount of hours it will take to comply with the taxes contained in Obamacare.  Based on IRS estimates, it will take nearly 80 million hours for families and businesses to comply with Obamacare taxes.   To put this in perspective, according to Ways and Means, it is the equivalent of the Empire State Building being constructed 11 times, a building which took 7 million man-hours to build.

To make matters worse, Ways and Means has concluded that over half of the burden of tax compliance for Obamacare will fall on small businesses. 

The IRS's numbers have led many, including former IRS Commissioner Fred Goldberg to express their disapproval with Obamacare.  At the Ways and Means hearing last Tuesday, Goldberg stated:

"I believe the ACA in its current form will be a needless administrative and compliance quagmire formillions of Americans and that the ACA's powerful financial incentives will lead to significant unintended consequences that policy makers very much want to avoid."

Below is the number of hours each tax component of Obamacare will take for compliance and the aggregate amount at the bottom.

Regulation 

 Annual Burden in Labor Hours

1545-0023 Quarterly Federal Excise Tax Return

4,366,381

1545-0047 Return of Organization Exempt From Income Tax Under Section 501(c), 527, or 4947(a)(1) of the Internal Revenue Code (except black lung benefit trust or private foundation)

25,766,156

1545-0090 Form 1040-SS, U.S. Self-Employment Tax Return; Form 1040-PR, Planilla Para La Declaracion De La Contribucion Federal Sobre El Trabajo Por Cuenta Propia-Puerto Rico; and Anejo H-PR

 2,801,605

1545-0895 Form 3800, General Business Credit

 5,307,500

1545-2172 Affordable Care Act Enrollment Opportunity Notice Relating to Extended Dependent Coverage

411,000 

1545-2175 Form 8942 - Application for Certification of Qualified Investments Eligible for Credits; Notice 2010-XX - Qualifying Therapeutic Discovery Project Credit

 14,545

1545-2177 Indoor Tanning Services; Cosmetic Services; Excise Tax

 10,000

1545-2178 Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan under the Patient Protection and Affordable Care Act (TD XXXX)

 323,000

1545-2179 Patient Protection and Affordable Care Act Enrollment Opportunity Notice Relating to Lifetime Benefits

1,300 

1545-2180 Affordable Care Act Notice of Rescission

 25

1545-2181 Affordable Care Act Notice of Patient Protections

 33,000

1545-2182 Affordable Care Act Internal Claims and Appeals and External Review Disclosures

 150

1545-2192 Form 8947 - Report of Branded Prescription Drug Information

 3,584

1545-2198 Form 8941 - Credit for Small Employer Health Insurance Premiums

 40,189,456

1545-2209 Branded Prescription Drugs

 1,800

1545-2232 Health Insurance Premium Tax Credit   

 1


ANNUAL TOTAL BURDEN HOURS: 79,229,503

 

 

 

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U.S. Credit Rating in Danger over "Fiscal Cliff" Negotiations


Posted by Rhett Brooks on Thursday, September 13th, 2012, 4:01 PM PERMALINK


Today, Moody’s, one of the largest credit rating agencies, released a statement warning of a downgrade to the U.S. debt.

Although the U.S.’s current rating is a Aaa, the highest rating given by Moody’s, Moody’s warned in their statement that the U.S. retention of its rating is contingent on what happens with budget negotiations. 

“If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable”, says Moody’s.

Moody’s threatened that if policies of this nature are not implemented, then the U.S. would more than likely have its rating downgraded to an Aa1, the next highest rating given by Moody’s.

One fiscal policy scenario entertained in Moody’s statement is the coming fiscal cliff.  According to Moody’s, the most realistic scenario for the “temporary maintenance” of the U.S. rating would be an “immediate fiscal shock—such as would occur if the so-called "fiscal cliff" actually materialized.” 

One of the problems with the conclusion reached by Moody’s is it doesn’t fully account for the negative impact that austerity of this magnitude would have on the U.S. economy.  The CBO and Federal Reserve both came out recently to warn of an almost certain recession if tax cuts are not extended.  In light of this, how can Moody’s improve the outlook for an economy expected to experience a double dip recession in the scenario given? 

Moody’s may be coming at this from the perspective that the U.S. needs to take drastic measures to improve the outlook of the U.S. debt situation; however, how can the U.S. be expected to service a tremendous debt load during a recession? 

Debt is much easier to service during times of prosperity than recession.  Therefore, the last thing that the U.S. needs is one of the largest tax hikes in its history amid a recovery.

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Bernanke Echoes CBO's Report of "Massive Fiscal Cliff"


Posted by Rhett Brooks on Monday, September 10th, 2012, 3:59 PM PERMALINK


At the Federal Reserve’s last conference meeting in Jackson Hole, Wyoming, Federal Reserve Chairman Ben Bernanke gave the Fed’s outlook for the U.S. economy. 

Taxmageddon was one of Bernanke’s biggest concerns, as he warned of a “massive fiscal cliff.”  Bernanke suggested that Congress “figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.”  Bernanke’s statements echoed the CBO’s latest report on the economy that also warned of a “massive fiscal cliff”, one that would undoubtedly lead to a recession in 2013.

Bernanke has made it clear in his past warnings to Congress that Taxmageddon’s impact would be counterproductive to the recovery.  Earlier this year, Bernanke told the Senate Banking Committee that Taxmageddon “would probably knock the recovery back into a recession and cost a lot of jobs, and would greatly delay the recovery that we’re hoping to facilitate.”

Although the Federal Reserve is doing its best to facilitate a recovery, Former Fed Governor, Robert Heller, stated that the “Fed will not act before fiscal cliff resolved.” If true, the Fed will continue to stall any significant monetary action until Congress reaches a decision on tax cuts.   No action by the Fed could lead to a dire predicament, however, as the recovery continues to be hindered by negative job reports, depressing economic growth, and a looming fiscal cliff.

With 380,000 leaving the labor force in August, the weariness of the general public over the economy is evident.  The August job report is not only troubling for the Department of Treasury, but it is worrisome for the Federal Reserve who is responsible for maintaining full employment.   

It is imperative that Congress prevent next year’s massive series of tax hikes.  This would be beneficial to families and small employers and would help with the Federal Reserve’s efforts to facilitate economic growth.

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