Tax Reform Brings out the Good and Bad in Key States

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Posted by Americans for Tax Reform on Thursday, June 22nd, 2017, 10:47 AM PERMALINK

With 50 laboratories of democracy in the U.S., some state legislatures provide examples of smart pro-growth policies that other states would be wise to emulate, while others serve as bad examples by enacting policies that other states should avoid.

Taxachusetts Lawmakers Help The Commonwealth Earns Its Nickname

The past week has underscored this dynamic, in particular when it comes to income tax reform. In Massachusetts, state lawmakers referred a measure to the 2018 ballot that, if enacted, would move the state from having a flat income tax, to a progressive structure with income over $1,000,000 subject to a 4% surtax on top of the commonwealth’s existing 5.10% flat income tax rate. Meanwhile, in North Carolina, Republicans who run the state senate and assembly announced a budget deal that will reduce personal and corporate income tax rates.

Maryland, which enacted a similar millionaires’ tax when Gov. Martin O’Malley was governor, provides a cautionary tale highlighting why Massachusetts voters should reject the surtax that will appear on their 2018 statewide ballot. A year after Maryland’s millionaire’s tax took effect, one-third of the state’s millionaires fled the state. A 2011 study, of migration patterns across the 50 states concluded that millionaires tend to leave states with high income tax rates for states with relatively lower income taxes. Enactment of a millionaires’ tax would be bad news for Massachusetts, but great news for neighboring New Hampshire, one the nine states that does not levy and income tax*.

19,600 Massachusetts tax filers would be affected by the tax increase, 900 of whom are projected to make $10 million annually and would contribute 53 percent of the revenues from the new tax. If just one-third of these 900 tax-filers left, the tax revenue lost would be about $750 million. It is not just the wealthy who would be hit by this tax hike. According to IRS data, over 10,000 Massachusetts small businesses would also be hit by this tax hike, since the majority of small businesses file under the individual income tax system.

The Beacon Hill Institute found that the surtax could cost the state more than 9,000 private sector jobs and $405 million in disposable income. While income tax hikes on the wealthy are often popular with voters, the fact is that the millionaires’ tax will hit small businesses with a 78% income tax rate hike, greatly reducing their job-creating capacity.  

In addition to making the Bay State less attractive to investment and job creators, Increased reliance on upper-income households will make Massachusetts’ revenues less stable, and budgeting more difficult. This is because increasing the progressivity of the tax code leads to greater volatility in revenue collections. One of the worst parts of this proposal is that, if it’s enacted by voters in 2018, there will be no way to amend it until the year 2023. So, if the tax ends up damaging the economy and chasing individuals, families, and employers out of state, like such tax hikes have in other states, lawmakers and voters will have to wait half a decade before they are able to rectify the problem.  

Tax Reform Train Rolls on in the Tar Heel State

Days after Massachusetts lawmakers voted to advance a massive income tax hike, North Carolina legislators announced a budget agreement that will take the Tar Heel State in the other direction by enacting another round of cuts to the personal and corporate income tax rates. Though the house and the senate rolled out similar plans with a $22.9 billion budget, there are some key differences between the proposals and how the budget is spent.

The budget deal announced by legislative leaders makes the following tax changes, which would take effect January 1, 2019:

  • Cuts the state’s flat personal income tax rate from 5.499% to 5.35%
  • Reduces the corporate tax rate from 3% to 2.5%
  • Increased the standard deduction for married couples filing jointly from $17,500 to $20,000

The budget with these reforms will pass both chambers of the legislature this week. Though the budget includes many of Gov. Roy Cooper’s (D) priorities, it is unlikely he will sign this budget into law. Fortunately for North Carolina taxpayers, Republicans hold veto-proof majorities in both chambers of the legislature, and can enact this budget over Gov. Cooper’s objection.

In a year where 31 states are facing revenue shortfalls, North Carolina has a half a billion dollar surplus. In fact, this marks the third straight year that the state has realized a budget surplus.

These surpluses have occurred at the same time North Carolina lawmakers have approved multiple rounds of personal and corporate income tax rate cuts. In addition to the pro-growth tax changes enacted, the key to North Carolina’s fiscal and economic success has been spending restraint. Every year since Republicans took control of the state legislature, spending growth has been held before the rate of population growth and inflation. When it comes to models for pro-growth tax reform and spending restraint, other states and federal officials should look to the Tar Heel State for inspiration, and Massachusetts as an example of what not to do.    

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Norquist: Georgia Victory Shows that Voters Support Tax Reform


Posted by Elizabeth McKee on Wednesday, June 21st, 2017, 4:00 PM PERMALINK

Americans for Tax Reform president Grover Norquist appeared on Fox Business Network’s Mornings with Maria to discuss Speaker Ryan’s speech at the National Association of Manufacturers. Norquist affirmed that Republican electoral victories in Georgia and South Carolina will help Congress to pass tax reform by the end of the year:
 
Ryan’s talk yesterday was extremely important, but with the victories in the Georgia special election and the South Carolina special election, there was a huge exclamation mark on that speech because Ryan said, ‘here’s what we’re going to do,’ and then right behind him was the political strength to help make that easier to do.
 
According to Norquist, the House, Senate, and White House are largely unified on the key pillars of tax reform - including cutting the corporate rate. “They’re meeting regularly,” he reported. “They’re going to come up with a unified plan.”
 
“Every Republican is largely for every one of the tax cuts that’s being discussed,” said Norquist. “The only question is how many can fit in the box.”
 
Norquist noted that passing tax reform will help Republicans maintain their political momentum and continue to win elections in 2018. “Get this done and make it dramatically pro-growth. That’s the most important thing you can do if you want to get yourself re-elected.”
 
Victorious Republican Karen Handel signed the Taxpayer Protection Pledge, a written commitment to the taxpayers of Georgia to oppose tax increases. Democrat Jon Ossoff refused to sign the Pledge, leaving the door open to a tax hike if he had won. But he did not win at all.
 
Watch the full video here.

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Obamacare’s Health Insurance Tax Should Be Repealed Effective Immediately

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Posted by Alexander Hendrie on Wednesday, June 21st, 2017, 2:00 PM PERMALINK

The U.S. Senate is moving forward with repeal of Obamacare, including the nearly 20 new or higher taxes that the law imposed.

These taxes directly hit middle class families and small businesses, raise the cost of healthcare, and reduce access to care. Repealing these taxes is a huge win for taxpayers across the country. 

It is expected that the Senate will phase in the repeal of these taxes over multiple years. Most Obamacare taxes are currently in effect, and relief should be offered as quickly as possible.  

Immediate repeal of the Obamacare health insurance tax is crucial because it is set to go into effect in 2018. Letting this tax go into effect next year and then repealing it at a later date will cause the cost of insurance to climb. Moreover, it will result in unnecessary complexity for middle class families and small businesses.

This tax is levied on insurance premiums, so its costs are inevitably passed to middle class families and small businesses that provide healthcare to their employees. In addition, the tax impacts the care received by seniors through Medicare advantage coverage and low-income Americans who rely on Medicaid managed care.

As a result, allowing the health insurance tax to go into effect will have significant economic consequences. Next year alone, the tax will total $12.3 billion. Over the next decade, the health insurance tax totals $145 billion.

Immediate repeal means strong tax relief for middle and low-income families. According to the American Action Forum, the tax increases premiums by as much as $5,000 over a decade. In total, the tax hits 11 million households that purchase through the individual insurance market, and 23 million households covered through their jobs. Roughly half of the tax is paid by those earning less than $50,000 a year.

In addition, the tax is devastating to small businesses. It is estimated to directly impact as many as 1.7 million small businesses. The National Federation of Independent Business estimates the tax could cost up to 286,000 in new jobs and cost small businesses $33 billion in lost sales by 2023.

Small businesses account for half of all jobs in the US and two-thirds of new jobs in recent decades, so this tax will mean businesses across the country can spend less on investing in new equipment, hiring new workers, or providing higher wages.

American families have already been hit hard by Obamacare’s tax increases. The law imposed multiple taxes that have increased the cost of care for families and reduced choice, including taxes on Health Savings Accounts and Flexible Spending Accounts.

The last thing taxpayers need is for the health insurance tax to go into effect, even for one year. Conversely, permanent and immediate repeal of the health insurance tax is a huge win for Americans and will help decrease the cost of care for millions across the country. 

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Louisville-Owned Broadband Network: A Bad Deal for Taxpayers

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Posted by Margaret Mire on Tuesday, June 20th, 2017, 2:34 PM PERMALINK

The Louisville Metro Council is mulling the idea of a government-owned broadband network (GON). This would be an inappropriate and irresponsible use of hard-earned taxpayer dollars.

The roughly $5.4 million GON plan before the Council would span 90 miles in Jefferson County, with the majority of its footprint overbuilding KentuckyWired – a more than $330 million statewide GON currently being constructed.

While proponents of government Internet have painted a very rosy picture of the Louisville GON plan, residents of the city should not take the bait. Dozens of examples nationwide have proven GONs are a terrible deal for taxpayers. GONs in Bristol, Virginia; Memphis, Tennessee; Marietta, Georgia and many other cities failed, and then were all sold for pennies on the dollar, leaving taxpayers on the hook for millions.

Why did all of these undertakings end in similar tragedy?

Government entities are not capable of building out and maintaining broadband networks, as they lack the expertise and resources necessary to remain up-to-date in such a rapidly changing industry. This truth is already being echoed in Louisville, as the plan pending before the Metro Council notes that half of total project dollars will be spent in the last 6.6 miles alone, a claim that private industry experts cannot piece together.

These experts have thoroughly reviewed this small stretch of land, and concluded that at least three quarters of construction in the area would be above ground. To put this point in context, the experts explained that even if the 6.6 miles required the extreme of digging up the streets, laying the fiber, and then rebuilding the streets – a method that would only be required to run fiber to the home, which is not nearly as far as the Louisville plan is intended to go – private providers estimate it should still cost about $1 million less than the city’s projected expense.

The Louisville Council, like many others that have attempted to play in the broadband industry, is way out of its element.

In addition to the Louisville GON plan being a very risky way to spend taxpayer dollars, it is also wildly inappropriate. Currently, more than 35 providers offer service in Louisville. And thanks to their commitment and investments to the area over the years, 99.9 percent of Jefferson County’s population has access to speeds of 50 Mbps. While some purport adding a GON to the mix would simply result in more competition and choices for consumers, that is a very shallow perspective.

GONs unfairly compete with private providers because government entities can subsidize costs with tax dollars, and thus charge consumers below the cost of service. Private sector providers, on the other hand, cannot do this because it would drive them out of business. As such, private providers are discouraged from expanding, investing, and remaining in areas where GONs are present, as their odds of success are hindered by unfair competition from an entity that doesn’t need to turn a profit.

Since it is vigorous competition between providers that spurs innovation, improves quality of service and drives prices down, GONs leave consumers at risk for fewer choices, outmoded technology and deteriorating service.

There is no justification for pouring millions of hard-earned taxpayer dollars into “competition” with the private sector. Doing so would inflict a great deal of harm on taxpayers and consumers in Louisville, and chill innovation.

If the Metro Council truly wants to improve broadband service in Louisville, they should put the GON plan to halt, get out of the way, and allow the private sector to thrive.

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EPA Admin Scott Pruitt Targets Clean Power Plan for Rollback

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Posted by Adam Johnson on Tuesday, June 20th, 2017, 10:09 AM PERMALINK

Unveiled under former President Obama and billed as one of the Obama EPA’s signature achievements, the Clean Power Plan (CPP) is a regulatory behemoth that threatens not just affordable energy in the U.S. but state sovereignty and economic growth. Yet current EPA Administrator Scott Pruitt and President Trump are fighting to neutralize the threat of this top-down, one size fits all regulatory regime and are working to remove the rule before any widespread harm is realized.

On February 9, 2016 the U.S. Supreme Court issued a stay of the rule, as many businesses and state officials challenging the rule alleged the CPP was ambiguous and overly broad. Therefore, until all of the legal challenges have been played out, the CPP cannot be enacted.

Just over a year later, President Trump signed an executive order directing EPA Administrator Pruitt to look at the rule and examine how it can be changed or repealed. Both Administrator Pruitt and President Trump have now put forth a new rulemaking to rescind the rule and have sent it to the Office of Management and Budget (OMB) for review. Following OMB review, the new rulemaking will be published for public comment.

If the CPP were to be enacted, it would cause numerous negative economic impacts that will affect not just states, but also businesses and consumers alike. It has been projected that the CPP would cause a 12 to 17 percent increase in prices of electricity. In this estimate, every single state within the continental United States would see an increase in rates and 44 of them would see double digit increases.

Along with the increase in rates, the CPP would decrease household spending power by $64-79 billion and the annual compliance costs would be upwards of $73 billion. With these costs, the CPP is regressive in that it disproportionally hurts low-to-middle income Americans by reducing household incomes, forcing them out of jobs, and hiking the cost of energy.  

Thankfully President Trump and Administrator Pruitt have taken up the fight against this unnecessary federal overreach by the EPA. As Administrator Pruitt has stated regarding the plans to repeal the CPP, “The days of coercive federalism are over.”

 

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Trump EPA Ends Taxpayer-Funded Gym Memberships

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Posted by Elizabeth McKee on Monday, June 19th, 2017, 5:20 PM PERMALINK

The Trump EPA under Scott Pruitt is ending taxpayer-funded gym memberships for agency employees. The move will save taxpayers $900,000 each year.

Documents brought to light earlier this year showed that the Obama-era EPA improperly purchased luxury gym memberships for agency employees. Americans for Tax Reform reported the EPA’s Las Vegas office used taxpayer funds to purchase $15,000 worth of gym memberships at 24 Hour Fitness for government employees.

Memberships included access to the gym’s “thousands of square feet of spectacular workout space, complete with premium gym equipment, unmatched amenities and some of the best studio classes around.”

As residents of Clark County, Las Vegas EPA employees already had – and still have -- access to UNLV’s state-of-the-art fitness center, which lifestyle magazine Vegas Seven named the “Best Fitness Center” in the city.

“We have ended taxpayer-funded fitness centers at EPA; a program that was costing American taxpayers $900,000 per year,” said Jahan Wilcox, EPA spokesperson. “Disinvestment in using federal funds for EPA fitness centers will allow the agency to invest this money in core activities to protect the environment.”

The announcement underscores the Trump administration’s pledge to cut government waste and provide tax relief to millions of American families and businesses. Trump’s EPA budget proposal is $5.7 billion, a 31% budget reduction from the previous administration. In total, the Trump budget will reduce spending by $3.6 trillion over the next decade.

As noted by Pruitt on Fox and Friends, “It was the previous administration that granted those memberships.” Pruitt stated, “The key, with respect to how we restructure, is recognizing that Washington has become way too big.”

As reported today by E&E News, the EPA union bosses received a notice last week:

On Thursday, EPA union leaders received an email from an agency labor attorney saying the agency planned to stop funding for fitness subsidies and fitness centers by the end of next month.

"This serves as official notice that the agency will discontinue fitness subsidies and fitness center funding agency-wide, which will result in a savings of nearly $ 900K per year for the agency. Discontinuation of this funding is targeted for July 31, 2017," said the attorney in the email, which was obtained by E&E News.

Union officials expressed anger at the EPA notice.

ATR president Grover Norquist praised the move. “Scott Pruitt, the new head of the EPA has just saved American taxpayers $1 million each and every year. Kudos to him. Shame on the EPA bureaucrats who wasted taxpayer dollars. We need more leaders like Pruitt and fewer government employees who keep sticking their hands in the pocket of working Americans.”

 

 

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Podcast with IWF on Vaping and the Rugulatory Assault its Consumers Face

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Posted by Paul Blair on Monday, June 19th, 2017, 1:28 PM PERMALINK

In a recent podcast with Julie Gunlock of the Independent Women's Forum, Americans for Tax Reform's Paul Blair discussed the politics and policies surrounding the government's regulatory war against vapor products. What exactly is an electronic cigarette and what is vaping? Topics covered include a conversation about tobacco harm reduction and the role that innovation is playing in the tobacco product space that may help smokers transition to less harmful alternatives. 

Learn more about ATR's work in vapor issues at www.stopvapetaxes.org and feel free to sign up for Paul's monthly newsletter Vapor News and Views

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Lawmakers Call for Preserving Carried Interest Capital Gains in Tax Reform


Posted by Alexander Hendrie on Friday, June 16th, 2017, 8:00 AM PERMALINK

Tax reform should ensure that carried interest remains treated as a capital gain, 22 Members of Congress led by Congressman Richard Hudson (R-N.C.) wrote in a letter released earlier this week.

As the lawmakers note, carried interest meets all the criteria of a capital gain. It is not a loophole as some suggest and there is little justification for taxing carried interest capital gains as ordinary income.

Those who derive income from carried interest capital gains don’t have some special deal – they pay the same capital gains rates as everyone else. Carried interest is simply the share of an investment partnership allocated to the investor. These partnerships occur when individuals with capital and individuals with expertise pool their resources together. All income from this partnership is derived from a long-term investment in a business or real estate and so all income is treated as a capital gain.

While some have called for increasing taxes on carried interest by increasing the rate from 23.8 percent to 43.4 percent, this would be a mistake. Increasing taxes on carried interest raises little revenue and hurts the economy. Pro-growth reform should instead look to reduce taxes on capital.

As noted by the Joint Committee on Taxation, taxing carried interest as ordinary income would raise just $19.6 billion over the next decade, a drop in the bucket compared to the projected $41.7 trillion that the Congressional Budget Office estimates will be raised over that time frame.

However, after accounting for effects on the economy, the Tax Foundation estimates revenue from taxing carried interest as ordinary income would fall to just $13 billion due to negative macroeconomic effects.

This negative impact would be felt by pension funds, charities, and colleges that depend on investment partnerships as part of their savings goals. In addition, small businesses would find themselves increasingly shut out from investment money available to them from these partnerships.

Ideally, none of the income derived from a capital gain should be taxed as it is one of several layers of taxation in the existing tax code. This tax is levied on income that has already been taxed at the individual level and is then reinvested into the economy. This extra layer of taxation creates a bias against savings and suppresses productivity and new investment. In turn, this hinders the creation of new jobs, higher wages, and increased economic growth.

In fact, capital gains taxes are already high. Over the past eight years, the top rate increased from 15 percent to 23.8 percent. A study by Ernst and Young placed the top U.S. integrated rate at 56.3 percent after accounting for the corporate tax, federal and state capital gains taxes, and the Obamacare net investment income tax. In contrast, the average integrated rate amongst nations in the Organisation for Economic Co-operation and Development and the five member BRICS countries sits at just 40.3 percent.

Rather than push for a tax increase on capital gains, lawmakers should look to reduce the tax to promote economic growth and end the distortions in the tax code.

 

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West Virginia Lawmakers Urged to Pass Balanced Budget Without Tax Hikes in Special Session

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Posted by Paul Blair on Friday, June 16th, 2017, 6:35 AM PERMALINK

As a budget shutdown looms in West Virginia, lawmakers in the House and Senate have now both passed balanced budgets that reject the tax hikes called for by Democrat Governor Jim Justice. After vetoing a balanced budget earlier this year, lawmakers were called back into Special Session and asked to raise taxes yet again by a Governor who ran for office - this time with a revitalized call for a transportation bonding, gas tax, and DMV/car tax scheme. 

Both chambers of the legislature, which is under control by Republicans, have passed balanced budgets, however. In response to ongoing budget discussions and the debate over tax reform, ATR President Grover Norquist sent a letter to lawmakers this morning. 

The full letter from Grover can be read here

Dear Members of the West Virginia Legislature,

I write today in support of a FY 2018 budget that relies on spending restraint instead of tax increases to fund the government beginning on July 1.

Despite running for office promising not to raise taxes, Gov. Jim Justice kicked off the 2017 legislative session calling for the largest tax hike in West Virginia history. He has vetoed a balanced budget and called for even more reckless spending while doubling down on his push for tax hikes. We have urged lawmakers to stand strong against Gov. Jim Justice’s call for job-killing tax increases from day one and as a government shutdown looms, we urge lawmakers to remain opposed to out-of-control government growth, spending, and net tax hikes.

For months, the House, Senate, and Governor have debated two distinctly separate issues: how to solve an overspending problem and the identity of West Virginia’s future tax code, an important element of making the Mountain State a more appealing place to raise a family and start a business. After the most recent votes in the House and Senate, both chambers have now passed balanced budgets that reject tax hikes.

The second question before the House and Senate is on the topic of tax reform. Tax reform must not be a Trojan horse for tax increases, as the governor has insisted. But tax reform is a multi-year process. Tax cuts can absolutely be phased in to make the full impact of a tax reform plan revenue neutral for taxpayers at worst. This can be achieved through reasonably conservative revenue triggers or through mandatory reductions over several years. Reducing the impact of the personal income tax should remain a top priority for lawmakers. Taxing earnings discourages savings and reduces a state’s competitiveness.

ATR also urges lawmakers to reject gas tax increases that are not paired with offsetting tax reductions elsewhere. If transportation is truly a legislative priority, it should be funded first with currently collected revenue, not last with bonds, fees, and higher gas taxes on families and commuters. Raising taxes is what lawmakers do instead of reforming government to make it cost less.

Any net tax increase will be scored as a violation of the Taxpayer Protection Pledge, the written commitment many lawmakers have made to West Virginia voters. We will continue to monitor these issues and will be educating taxpayers on the outcome of the budget and tax reform.

For a list of signers of the Taxpayer Protection Pledge in West Virginia, click here

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Grover Norquist and David McIntosh: Use a 25-Year Budget Window to Achieve Permanent Tax Reform

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Posted by Elizabeth McKee on Thursday, June 15th, 2017, 4:20 PM PERMALINK

How can taxpayers get permanent tax reform? ATR president Grover Norquist and Club for Growth president David McIntosh say Congress should use a 25-year budget window, an idea being championed in the Senate by Pat Toomey (R-Pa.). In a Wall Street Journal op-ed this week, Norquist and McIntosh write:

We say extend the budget window to 25 years. Why? Because the people creating jobs and investing in new products think long-term. Depreciation schedules for new plant and equipment often run to 25 years or more.

Lawmakers simply should write this year's budget to say that all tax cuts can last 25 years, which would allow rate reductions to go into effect now and be offset later with revenue from higher growth or spending restraint.

According to Norquist and McIntosh, there is no good reason why budget windows conventionally last 5, 7, or 10 years. They write:

The idea of modifying the time frame isn't new, and it certainly isn't radical. The budget window was expanded in fiscal year 1995 from five years to seven. Congress used the 10-year window for the first time in 2000, but then went back to five years again as recently as 2007.  

Together, Norquist and McIntosh have arrived at a proposal that may slice through the many obstacles to tax reform, unraveling a quagmire they liken to the legendary Gordian knot. “Extending the budget window to 25 years,” they write, “would cut the Gordian knot, unravel the Byrd rule, and allow serious tax reform to create millions of jobs in the years to come.”

Read the full op-ed here

 

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