THE INTERNET TAX MORATORIUM EXPIRATION

COUNTDOWN

Tell the Senate
to Make the
Moratorium
Permanent.
Click Here to Sign the Petition Before It's Too Late.
00
DAYS
00
HOURS
00
MINUTES
00
SECONDS

Ryan Ellis

VAT Taxes and Shareholders


Posted by Ryan Ellis on Friday, May 29th, 2009, 1:08 PM PERMALINK


This post originally appeared on AmericanShareholders.org

***

There's been a buzz going around this week that some Democrats on the Hill and even in the Obama White House are looking at a value-added tax (VAT) to pay for government-run health insurance.

You can read more about this at ATR.  They also cover how this trial balloon was floated before by Bill Clinton back in 1993, and how VAT rates have risen over time with our major trading partners.

What's been left out of most of the analysis has been the impact on shareholders.  At first glance, there wouldn't seem to be one.  VATs are embedded in the price of a good, and ultimately paid for by the retail consumer.

However, a VAT is merely a very efficient consumption tax on corporate products.  As such, the tax wedge should have a similar impact to that of the corporate income tax (that CBO has said about a third of which is paid for in the form of lower returns to capital).

A VAT will raise the price of goods, and thereby hurt sales.  It's a safe bet that about 30% of any new VAT tax will be paid for in the form of lower share prices and reduced dividends.  That hurts everybody who has a 401(k) or an IRA, not just direct owners of companies.

More from Americans for Tax Reform

Top Comments


VAT Rates Rise Over Time,<br> Bloating Government Tax Coffers


Posted by Ryan Ellis on Friday, May 29th, 2009, 11:32 AM PERMALINK


VAT Rates Rise Over Time

Source: OECD Tax Database

Country VAT Rate 1976 VAT Rate 2009
USA N/A N/A
U.K. 8% 15%
France 20% 19.6%
Germany 11% 19%
Italy 12% 20%
Sweden 17.7% 25%

People who think that VAT would be a good idea for America ought to take a look at the above chart.  In country after country, VAT rates started pretty low, but crept up, up, up (with the strange outlier of France, whose VAT actually declined a bit). 

If you're interested in the full VAT rate data, it can be found at the OECD website.

Someone ought to ask President Obama why his Administration has flatly refused to rule out a VAT to pay for socialized medicine.  Maybe it's the same reason that Bill Clinton had to float this idea back in 1993 to pay for Hillarycare.

More from Americans for Tax Reform

Top Comments


Free Market Health Reform Bill<br> Has Yet to Show Its Face


Posted by Ryan Ellis on Thursday, May 28th, 2009, 11:35 AM PERMALINK


This post originally appeared on RedState

There’s been a lot of talk about the “Republican/conservative alternative” to Obamacare.  Senators Tom Coburn (R-OK), Richard Burr (R-NC), and Congressmen Paul Ryan (R-WI) and Devin Nunes (R-CA) introduced H.R. 2520, the “Patients Choice Act” last week.  While the bill contains several free market ideas (an individual health tax credit, expanded HSAs, a type of Medicaid voucher, dialing back on Medicare, etc.), it also has some fatal flaws (a Massachusetts-light connector, a warmed over version of an individual mandate to purchase insurance, etc.).  These fatal flaws have been supported by the Heritage Foundation and others, and many Republican Congressmen and Senators have bought into them, to their own detriment.

To repeat an analogy I’ve used several times this week to health care conservative leaders in Washington, it’s like starting every drive in a football game at the 50 yard line—the entire game will be played on one half of the field.  The Patients Choice Act is a classic case of negotiating with oneself.  In giving in halfway to Obamacare, it consigns the debate to the socialist side of the field.

To be clear, Americans for Tax Reform (where I serve as Tax Policy Director) has accepted the claims of the sponsors that this bill cuts taxes at least as much as it raises them.  Pending a score or other good evidence that this is not true, there are no Taxpayer Protection Pledge issues to worry about.  The Patients’ Choice Act is clearly better than what President Obama and Congressional Democrats have been proposing.

But is this the best we have?  Is a half-good bill that probably doesn’t raise net taxes the best we can do?  If so, we’re doomed to a future of Dr. Obama and Nurse Sebelius.

Fortunately, there is a better way.  There is a conservative/libertarian/free market plan to fix the nation’s broken health care system, and to do it in a way that maximizes freedom, personal choice, and the doctor-patient relationship.  No one’s experience of health insurance has to change unless they want it to.  Do you want to be uninsured?  Fine.  Do you want first-dollar coverage?  That’s ok, too.  Do you (wisely, I think) prefer low premiums and a health savings account?  That works, too.

I call this the “Yes-And Plan.”  The Pain Caucus Republicans who are pushing the Patients’ Choice Act are making the same mistake as the Nixon Republican budget cutter/tax hikers of yore: pain loses at the polls.  Instead, we need to put forward a bold, positive, and forward-thinking “Yes-And” plan in the tradition of Jack Kemp and Ronald Reagan. 

Let’s start with the principles:

  • Nothing—no insurance company, no government bureaucrat, nobody—should be getting between you and the doctor of your choice.
  • Nobody—least of all a government bureaucrat—should be telling you what kind of health care to have, or even to have health insurance at all
  • Tax increases—even those offset by tax cuts—are the other team’s game, not ours
  • Where government programs exist, they should be devolved to the states or to the people

That’s a series of principles any sunny, cheery, optimistic policy warrior should be able to get behind.  So how to implement them?

  1. Create “mega-HSAs” (the credit here belongs to Mike Cannon at Cato, who has converted me to his “large HSA” concept).  To do this, increase the contribution limit to HSAs from $3000 to $10,000 for an individual, and from $5950 to $20,000 for a family.  Anyone—an employer, an individual, etc.—can contribute tax-free to HSAs.  HSAs could be coupled with any type of health insurance plan, or no plan at all (i.e., self-insurance).  HSA dollars could be used to pay for premiums.  Whatever isn’t spent in a given year would continue to grow and build for health care needs in the future.
  2. Create an advanceable and refundable tax credit for the purchase of health insurance premiums.  The limit would be $6000 family, and $3000 single.  This would not replace the employer exclusion for health insurance, or any other current tax break.  Rather, it would simply be a new “yes-and” option alongside these tax systems.
  3. Block grant Medicaid, Medicare, S-CHIP, and Veterans Health to the states the same way the federal government block-granted welfare in the 1990s.  Welfare rolls were cut in half, and these programs could use a little of that “laboratories of democracy” magic.  If this is too big of a lift, just block granting Medicaid and S-CHIP would be fine.  Medicare and Vets can make do with a generous voucher program for recipients to purchase their own care.
  4. Allow younger workers to save their Medicare FICA tax (about 3 percent of all wages and self-employment profits) in a Medicare Savings Account which would be invested much like the federal employee “Thrift Savings Program.”  Upon attaining age 65, these monies would be used to purchase a Medicare annuity for the rest of their lives.
  5. Put a hard cap on what trial lawyers can sue for in medical malpractice cases.  The insurance that doctors and hospitals have to pay is driving up the cost of care.  The trial lawyers are rent-seeking locusts who feed off of the rest of us.  They are a dead-weight cost to health care.  Almost as important, they are a key element of the other team.
  6. Allow everyone—individuals, businesses, etc.—to purchase health insurance across state lines.  Allow any groups to band together across state lines to purchase health insurance.  These inter-state commerce enhancements are critical if we’re to get out from under the Lilliputian benefit mandates that have been imposed at the state level by the disease groups (sidebar—don’t ever give money to any disease group marathon or other fundraiser; you’re simply funding the Left)
  7. Convert the stimulus payments yet to happen into “high risk pool” funding at the state level.  There’s always going to be a hardcore group of chronically-ill people who won’t be able to qualify for care on their own (even under this ultra-reformed system).  They aren’t large—maybe one or two percent of the population at most—but a compassionate society must provide for them.  The big-hearted, optimistic, Reagan/Kemp solution to this is high risk pools.  The states basically set up money that protects the insurance companies against too many losses in such cases.  It’s like reinsurance for the outlier patients.  The alternative is top-down regulatory solutions like “guaranteed issue” (which requires that no one can ever be turned down for coverage, resulting in system-gaming).

 
This “Yes-And” plan is a positive, forward-looking, and optimistic vision of what health care would look like in a better America.  With Republicans out of power, it’s their job to present this vision to the American people, not to engage in almost-as-bad technocratic tinkering. 

Is this plan perfect?  I’m sure it isn’t.  There are lots of people who know more about health care than I do (though I’m no slouch).  But the tone of this is where Congressional Republicans and free market activists need to be going.  Bold colors, not pale pastels, are what is appropriate in this, our time.

Top Comments


Next Up on the Bailout Train:<br> State and Local Government Muni Bonds


Posted by Ryan Ellis on Wednesday, May 27th, 2009, 6:28 PM PERMALINK


There have been no shortage of people with their hands out to the federal government over the past year.  State and local governments are no exception.

Now they're back for more.

The National League of Cities recently asked the Treasury Department for an interest-free loan for $5 billion (try that at your local bank).  What will these big-city mayors do with this cash?  They would like to create a insurance policy for all the debt that cities have been racking up.

Let's put aside for one moment that these cities have consistently failed to reign in costs, which has led to their unfunded liabilities and exorbitant debt levels.  Let's even put aside the chutzpah they have to ask for an interest free loan from taxpayers.  Let's instead focus on the idea of insuring municipal bond debt.

It might surprise these mayors to learn that there is a private sector already out there, ready to back this debt.  Now, they've taken a hit like any other industry in the past year, and are far more inclined to purchase high-quality debt.  But rather than clean up their acts, cities with subprime debt are looking to set up a government-owned competitor to this thriving private-sector market.

The principle is simple--the government should never directly compete with private sector companies.  There is a thriving private sector in municipal bond insurance.  Bailout money shouldn't be used to set up artificial government competition--period.

More from Americans for Tax Reform

Top Comments


How Much Does It Cost Taxpayers<br> To Hire a New Federal Employee?


Posted by Ryan Ellis on Wednesday, May 27th, 2009, 12:03 PM PERMALINK


President Obama's budget calls for hiring "several hundred thousand" federal employees over the next four years to replace retiring Baby Boomer bureaucrats, and to expand the federal workforce.

How much will it cost taxpayers to hire each of these employees over a working career?  The range is between $2.02 million for the cheapest employee (GS-1), and $11.3 million for the most expensive employee (GS-15).  An employee in the middle of the federal pay scale (GS-8) will cost $4.27 million.

Let's assume the middle, GS-8 cost of $4.27 million per employee is the representative one.  If Obama plans to replace or hire 250,000 federal employees, that obligates the taxpayer to the tune of over $1 trillion.  This is during the same forty-year period where taxpayers will be on the hook to pay for the unfunded obligations of Social Security, Medicare, and Medicaid (not to mention the national debt).

Candidates running for President in 2008 called for a slow attrition of the federal workforce that this Baby Boomer retirement presents as an opportunity.  Unfortunately for taxpayers, Obama is squandering this once in a lifetime chance to transform the bloated federal bureaucracy into a lean and accountable civil service.

How does ATR arrive at these conclusions?  Here are our assumptions:

  • The federal GS-schedule is used, which can be found at OPM's website.  The national average is the table consulted
  • The worker is assumed to stay in the same GS-grade for a forty-year career.  This makes the numbers conservative, since workers often move up in GS-grade when promoted.  On the other hand, most federal workers don't work for forty years, so this seemed like a good way to balance the numbers
  • The worker starts at step one of his grade level, and gets a 6 percent raise for the first nine additional years (this is a conservative accounting for the annual GS-scale COLA and the "step-up" workers get their first decade on the job)
  • The worker gets a 3 percent COLA raise in years 11 through 40
  • The worker's step-one salary is plussed-up by 20% to account for fringe benefits like the thrift savings plan match, the federal employee retirement system defined benefit pension, the cost of the federal employee health benefits plan, the government's share of FICA tax, and other non-salary costs of compensation
  • All figures are nominal (inflation is not subtracted out)

PDF Version

More from Americans for Tax Reform

Top Comments


Obama Floats VAT Tax<br> To Pay for Socialized Medicine


Posted by Ryan Ellis on Wednesday, May 27th, 2009, 11:41 AM PERMALINK


•    The Washington Post today reported that Democrats all over Washington and in the Obama White House are clamoring to include a value-added tax (VAT) to pay for a government-controlled national health insurance scheme.  The White House has even brought in Rahm Emanuel’s brother to consult on this.

•    This trial balloon is another attempt by President Obama to renege on his pledge to not raise taxes on any American making less than $250,000 per year—a promise he made repeatedly and forcefully on the campaign trail in 2008, and which he broke 16 days into his Administration

•    A VAT is a version of a national sales tax.  Any person who consumes pays this tax.  The poor and working class (and certainly those making less than $250,000 per year) consume more as a percentage of their income the less they make.  A VAT is among the most regressive tax schemes that can be imposed, and is a direct violation of Obama’s no-tax-hike promise

•    VATs are a gateway drug to more government spending.  When VATs first came on the scene in Western Europe in the 1960s, they were modest taxes averaging around 5 percent in rate.  In the years since, the rates have climbed to an average of 20 percent (with a 15 percent minimum to get into the European Union)

•    There are two reasons for this.  First, politicians are always tempted to hike the rate and exclude preferred items like food, medicine, and housing.  Second, because a VAT is embedded in the price of a good (unlike state sales taxes in the United States), most people are unaware of the tax or how high it is.  Raising the VAT rate becomes a relatively-painless political maneuver, especially if it’s linked to higher welfare spending or VAT base carve-outs

•    This VAT trial balloon betrays the mentality of the Pelosi-Reid-Obama thinking in Washington today.  Raise taxes, and raise federal spending.  Ultimately, they won’t be satisfied until federal taxes and federal spending are permanently at record levels.  A VAT is a good way to pay for bigger government, which is why the Europeans are so enamored with them

PDF version

More from Americans for Tax Reform

Top Comments


Social Security Almost Out of Money,<br> Medicare Already Broke:<br> Will Tax Increases Be Next?


Posted by Ryan Ellis on Tuesday, May 12th, 2009, 4:42 PM PERMALINK


The 2009 Social Security and Medicare Trustees Report was released today, and the message (as usual) is not good.

Here are some quick highlights:

When do these entitlements start paying out more than they bring in?  In the case of Social Security, 2016 (only seven years from now).  In the case of Medicare, we're already there.  Medicare is losing money by the armful.

What happens when the programs start running a deficit?  At that point, general fund taxes will start paying for a bigger and bigger share of the benefits.  On Medicare, it's already there.

How big is Social Security and Medicare?  Social Security is currently 4.4% of GDP, and will hit 6.2% of GDP in 2034.  Medicare is currently 3.2% of GDP and will hit 11.4% in 2083.  By the end of the window, these two programs alone should equal or exceed total federal spending in a typical year today.  That's before counting interest on the national debt, and all of the other functions of government.

How much might taxes go up to "pay for" these programs?  According to the report, the Social Security tax would have to rise from 12.4% today to 14.4% permanently.  The Medicare payroll tax rate would have to rise from 2.9% today to 6.78% permanently.

That would raise the FICA tax rate from 15.3% today to 21.2% going forward.  This rate of tax would be especially harsh on the self-employed, who have to pay both halves of FICA themselves.

What about benefit cuts?  Sure, Congress might cut benefits, but that's a stretch.  Social Security would return to balance with a 16 percent cut in benefits today.  Medicare would be balanced with a whopping 53 percent cut in benefits

Congress might also opt for a lethal combination of tax increases and benefit cuts.  The most likely short-term outcome is to float more debt, but that only postpones the decision on how to finance the shortfall.

So are we stuck?  That's the good news.  The answer is "no."  If Congress allowed younger workers the choice to save their Social Security and Medicare taxes in a personal account they own and control, these programs would be pre-funded (as opposed to the current underfunded "pay as you go" tax and spend mechanism).  The prefunding would be good forever, benefits would almost certainly be higher, and the programs themselves would not be in such dire straights.

Pro-younger worker solutions like pre-funded personal savings accounts are a far better solution (for the workers and the economy) than tax increases, benefit cuts, or more debt.

PDF Version

More from Americans for Tax Reform

Top Comments


Obama Releases Tax Increase Playbook


Posted by Ryan Ellis on Tuesday, May 12th, 2009, 11:49 AM PERMALINK


President Obama yesterday released details of his plan to raise taxes on American families and small businesses.  He has been telegraphing this plan ever since the 2008 Democrat primary.  At each step, American families and small businesses have received a fresh warning.  With the release of the Treasury Department’s document this week, the tax hikes have begun to be fleshed out.

40% of the value of new “tax cuts for families” is actually new spending, not new tax cuts.  A close examination of the Obama tax blueprint shows that of the $736 billion in new “tax cuts” for working families, some $280 billion—or 40% of the value—is in fact welfare spending on non-taxpayers.

In total, the Obama “tax cut” blueprint hikes spending by $410 billion, and falsely labels this new spending as “tax relief.”

Families making less than $250,000 per year will see an income tax hike.  Families with taxable income of $230,000 and individuals with taxable income of $190,000 will see their income tax rate rise.  This flies in the face of Obama campaign promises not to raise taxes on any families making less than $250,000 per year. 

American families will bear the brunt of the Obama tax blueprint’s energy tax hike.  By limiting tax breaks for the production of domestic energy and a raft of other energy tax hikes, the Obama budget blueprint will raise American families’ energy bills by $105 billion over the next decade.  This does not even count the new carbon tax known as “cap and trade,” which is not included in this budget outline.  All told, the Obama energy agenda will raise the average family’s energy bill by thousands per year if fully-implemented.

Small businesses will shed jobs to pay for the higher small business tax rates.  The Obama budget blueprint calls for the top tax rate to climb from 35% to 39.6%, and for the second-highest rate to climb from 33% to 36%.  In addition, restoring the phaseout of itemized deductions and personal exemptions will bring the top rate mathematically closer to 41.6%.  Social Security and Medicare taxes come on top of this.

These tax rate hikes would be devastating for small businesses, which pay taxes on their owners’ tax forms.  $2 out of $3 in small business profits pay taxes at these tax rates.  47 million Americans—one out of three American workers—is employed by these profitable small businesses.  In order to pay the higher taxes in the Obama tax blueprint, workers will be among the first to suffer.

PDF version

More from Americans for Tax Reform

Top Comments


Obama Releases Fraudulent Budget Document with Tax Hikes


Posted by Ryan Ellis on Thursday, May 7th, 2009, 2:07 PM PERMALINK


President Obama today released another piece of his budget, supposedly consisting entirely of "spending cuts"

Unfortunately, he's playing fast and loose with the facts. There are 9 "spending cuts" in his budget which are energy tax increases on American families

  • These tax increases total $26.4 billion over the next decade. These are not spending cuts. These are tax increases. These will increase tax revenues flowing to the government, which will use these higher taxes to make the budget bigger, not smaller. Tax increases are not spending cuts
     
  • Any freshman year poli-sci major knows the difference between a spending cut and a tax hike. We should expect more from a constitutional law professor who also happens to be the President of the United States
     
  • You can read about all of President Obama's energy tax hikes by clicking here. Americans for Tax Reform has released a series of one-pagers detailing all of the tax hikes on American families' energy bills in the Obama budget
     
  • These tax hikes are just the tip of the iceberg. To read more about all the tax hikes in the Obama budget, click here

Top Comments


Pages

hidden