President Donald Trump's 2018 budget blueprint is out, and it wisely cuts IRS funding by $239 million.

The blueprint states:

“Diverting resources from antiquated operations that are still reliant on paper-based review in the era of electronic tax filing would achieve significant savings, a funding reduction of $239 million from the 2017 annualized level.”

Americans for Tax Reform president Grover Norquist praised the cut: "President’s Trump’s first budget outline makes it clear. He is governing as Reagan did. Tax cuts. De-Regulation. Spending restraint and reduction. And this time he has a Reagan Republican House and Senate at his side—not Tip O’Neil and Howard Baker tossing marbles at his feet."

The IRS has failed to spend taxpayer resources wisely. IRS boss John Koskinen and other IRS officials have claimed the agency is underfunded. One even claimed that the agency was “struggling to keep the lights on.” But the facts say otherwise – the IRS has proven time and time again that it cannot be trusted to wisely spend taxpayer dollars.

In fact, the IRS is unable to justify its spending decisions, according to a report by the independent National Taxpayer Advocate:

“the IRS has come under scrutiny by external oversight organizations who have questioned the IRS’s rationale for its budget decisions. They have not been satisfied with the IRS’s response to their inquiries.”

This has not stopped agency officials from complaining, or from making further poor spending decisions. The IRS has also been caught wasting over 500,000 hours, or $23.5 million a year on union activities, and gave 57 contracts worth a total of $18.8 million to corporations that had federal tax debt or a felony conviction.

The IRS also made the costly (and perhaps illegal) decision to hire a litigation-only white shoe law firm for over $1,000 an hour over an audit of Microsoft. As noted by Congressional investigators, the agency has 40,000 employees dedicated to enforcement efforts and access to the IRS office of Chief Counsel or a Department of Justice attorney for audits. Instead the agency chose to hire an expensive law firm for at least $2.2 million.

Photo Credit: Gage Skidmore 

AHCA will repeal Obamacare’s tax hikes on tens of millions of middle income families

The American Health Care Act will repeal Obamacare's tax hikes on tens of millions of middle income families. The repeal bill's net tax cut: $883 billion over the next ten years, according to Congressional Budget Office numbers released today.

The repeal bill will abolish Obamacare’s individual and employer mandate tax, abolish numerous taxes on Health Savings Accounts and Flexible Spending Accounts, eliminate the chronic care income tax hike, the health insurance tax, the medical device tax, the tax on prescription medicines, and a raft of other new or higher Obamacare taxes.

“Repealing Obamacare’s taxes will provide much needed relief to the paychecks of families across the country,” said Grover Norquist, president of Americans for Tax Reform. “Repealing Obamacare will also undo Barack Obama’s broken promise not to sign ‘any form of tax increase’ on any American making less than $250,000. Obamacare, from the start, was a trillion-dollar collection of tax hikes with a stethoscope stapled to the top. The CBO, which understated Obamacare's costs and exaggerated its ‘benefits’ now with hindsight can tell us the actual size and scope of the taxes we will now repeal with passage of the AHCA,” said Norquist.

The repeal bill abolishes Obamacare's tax increases:

Individual Mandate Non-Compliance Tax: Under Obamacare, anyone not buying “qualifying” health insurance – as defined by the Obama-era Department of Health and Human Services -- must pay an income surtax to the IRS. In 2015, eight million households paid this tax. Most make less than $250,000. The Obama administration uses the Orwellian phrase “shared responsibility payment” to describe this tax.   

For tax year 2016, the tax is a minimum of $695 for individuals, while families of four have to pay a minimum of $2,085.

A recent analysis by the Congressional Budget Office (CBO) found that repealing this tax would decrease spending by $311 billion over ten years.

Medicine Cabinet Tax on HSAs and FSAs: Under Obamacare, the 20.2 million Americans with a Health Savings Account and the 30 - 35 million covered by a Flexible Spending Account are no longer able to purchase over-the-counter medicines using these pre-tax account funds. Examples include cold, cough, and flu medicine, menstrual cramp relief medication, allergy medicines, and dozens of other common medicine cabinet health items. This tax costs FSA and HSA users $6.7 billion over ten years.

Flexible Spending Account Tax: Under Obamacare, the 30 - 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face an Obamacare-imposed cap of $2,500. This tax will hit Americans $32 billion over the next ten years.

Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap. Now, parents looking to sock away extra money to pay for braces find themselves quickly hitting this new cap, meaning they have to pony up some or all of the cost with after-tax dollars. Needless to say, this tax especially impacts middle class families.

There is one group of FSA owners for whom this new cap is particularly cruel and onerous: parents of special needs children.  Families with special needs children often use FSAs to pay for special needs education. Tuition rates at special needs schools can run thousands of dollars per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax increase limits the options available to these families.

Chronic Care Tax: Under Obamacare, this income tax increase directly targets middle class Americans with high medical bills. The tax hits 10 million households every year. Before Obamacare, Americans facing high medical expenses were allowed an income tax deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. This income tax increase will cost Americans $40 billion over the next ten years.

According to the IRS, approximately 10 million families took advantage of this tax deduction each year before Obamacare. Almost all were middle class: The average taxpayer claiming this deduction earned just over $53,000 annually in 2010. ATR estimates that the average income tax increase for the average family claiming this tax benefit is about $200 - $400 per year.

HSA Withdrawal Tax Hike: Under Obamacare, this provision increases the tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Ten Percent Excise Tax on Indoor Tanning: The Obamacare 10 percent tanning tax has wiped out an estimated 10,000 tanning salons, many owned by women. This $800 million Obamacare tax increase was the first to go into effect (July 2010). This petty, burdensome, nanny-state tax affects both the business owner and the end user. Industry estimates show that 30 million Americans visit an indoor tanning facility in a given year, and over 50 percent of salon owners are women. There is no exception granted for those making less than $250,000 meaning it is yet another tax that violates Obama’s “firm pledge” not to raise “any form” of tax on Americans making less than this amount.

Health Insurance Tax: In addition to mandating the purchase of health insurance through the individual mandate tax, Obamacare directly increases the cost of insurance through the health insurance tax. The tax is projected to cost taxpayers – including those in the middle class – $130 billion over the next decade. 

The total revenue this tax collects is set annually by Treasury and is then divided amongst insurers relative to the premiums they collect each year. While it is directly levied on the industry, the costs of the health insurance tax are inevitably passed on to small businesses that provide healthcare to their employees, middle class families through higher premiums, seniors who purchase Medicare advantage coverage, and the poor who rely on Medicaid managed care.

According to the American Action Forum, the Obamacare health insurance tax will increase premiums by up to $5,000 over a decade and will directly impact 1.7 million small businesses, 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs. The tax is also economically destructive – the National Federation for Independent Businesses estimates the tax could cost up to 286,000 in new jobs and cost small businesses $33 billion in lost sales by 2023.

Employer Mandate Tax: Under Obamacare, this provision forces employers to pay a $2,000 tax per full time employee if they do not offer “qualifying” – as defined by the government -- health coverage, and at least one employee qualifies for a health tax credit. According to the Congressional Budget Office, the Employer Mandate Tax raises taxes on businesses by $166.9 billion over the ten years.

Surtax on Investment Income: Obamacare created a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 for singles). This created a new top capital gains tax rate of 23.8% and increased taxes by $222.8 billion over ten years.

The capital gains tax hits income that has already been subjected to individual income taxes and is then reinvested in assets that spur new jobs, higher wages, and increased economic growth. Much of the “gains” associated with the capital gains tax is due to inflation and studies have shown that even supposedly modest increases in the capital gains tax have strong negative economic effects.

Payroll Tax Hike: Obamacare imposes an additional 0.9 percent payroll tax on individuals making $200,000 or couples making more than $250,000. This tax increase costs Americans $123 billion over ten years.

Tax on Medical Device Manufacturers: Under Obamacare, this law imposes a new 2.3% excise tax on all sales of medical devices. The tax applies even if the company has no profits in a given year. The tax was paused for tax years 2016 and 2017. Under Obamacare it was scheduled to cost Americans $20 billion by 2025.

Tax on Prescription Medicine: Obamacare imposed a tax on the producers of prescription medicine based on relative share of sales. This is a $29.6 billion tax hike over the next ten years.

Elimination of Deduction for Retiree Prescription Drug Coverage: The elimination of this deduction is a $1.8 billion tax hike over ten years.

$500,000 Annual Executive Compensation Limit for Health Insurance Executives: This deduction limitation is a $600 million tax hike over ten years.

Goodbye Obamacare tax hikes. You will not be missed.

Colorado House Speaker Crisanta Duran (D) and Senate President Kevin Grantham (R) recently unveiled House Bill 1242, their proposal to put a sale tax increase on the November ballot in order to generate $3.5 billion for transportation. The proposal has been met with swift opposition by Republican legislators in both chambers of the state legislature, as well as conservative and free market organizations like the Independence Institute, a free market think tank based in Denver, and Americans for Prosperity.

Reporters and HB 1242 proponents describe the proposed sale tax hike as “less than a penny,” which is a great way to mislead folks into thinking this proposal entails a small tax hike. Point of fact, HB 1242, if approved, would advance a sales tax hike that represents a more than 21% increase from the current rate. Anyone who describes this as “less than a penny” is trying to distract from what would be a massive rate hike.

Grover Norquist, president of Americans for Tax Reform, sent a letter to Colorado legislators today, urging them to oppose HB 1242. In the letter, Norquist explains how those who claim a tax hike is needed for transportation are actually admitting transportation is their lowest priority:

“Some lawmakers contend this regressive tax hike is needed because transportation is a priority,” said Grover Norquist, president of Americans for Tax Reform. “Yet lawmakers calling for a tax hike to fund transportation are actually admitting that transportation is their lowest priority. Were that not the case, they would not have funded everything else in the budget first.”

The Independence Institute has filed what would be a competing measure on the November ballot.  Titled “Fix Our Damn Roads,” that measure, which will require requisite citizen signatures to make it to the ballot, would ask voters to approve a $2.5 billion transportation bond, to be paid for with existing revenues and not tax hikes.

“Let’s be clear, this is not a tax increase or a budget cut, it’s a re-allocation of existing state spending to roads,” said Jon Caldara, Independence Institute president. “If lawmakers aren’t willing to do their jobs, then we’ll ask the voters to do it for them.”

Colorado has divided state government, with Democrats holding the state house and governor’s mansion, while Republicans control the state senate. Expect this to be one of the most contentious tax battles of 2017. A copy of the letter that ATR sent to Colorado lawmakers is as follows: 

March 13, 2017

To: Members of the Colorado House of Representatives

From: Americans for Tax Reform

Re: House Bill 1242/Proposed Sales Tax Hike

Dear Members of the Colorado House,

On behalf of Americans for Tax Reform (ATR) and our supporters across Colorado, I urge you to reject House Bill 1242, the recently unveiled proposal to refer a sales tax increase the ballot. Your constituents have been hit with 20 Obamacare tax increases and an onslaught of onerous federal regulations over the last eight years. The last thing individuals, families, and employers across Colorado need is to have lawmakers in Denver pile on with further tax hikes at the state level, but that is the goal of HB 1242.

The sales tax increase that HB 1242 seeks to advance has been described as “less than a penny on the dollar,” yet such description is intended to mislead. In fact, the sales tax hike entailed in HB 1242 represents a whopping 21% hike in the current rate. Some lawmakers contend this regressive tax hike is needed because transportation is a priority. Yet lawmakers calling for a tax hike to fund transportation are actually admitting that transportation is their lowest priority. Were that not the case, they would not have funded everything else in the budget first. 

There is ample evidence that higher taxes make states less competitive, and harm economic growth. John Hood, chairman of the John Locke Foundation, a non-partisan think tank, analyzed 681 peer-reviewed academic journal articles dating back to 1990. Most of the studies found that lower levels of taxation and spending correlate with stronger economic performance. When Tax Foundation chief economist William McBride reviewed academic literature going back three decades, he found “the results consistently point to significant negative effects of taxes on economic growth, even after controlling for various other factors such as government spending, business cycle conditions and monetary policy.”

As such, I urge you to reject efforts to raise the sales tax, which would disproportionately harm low and middle-income Colorado households. ATR will be educating your constituents and all Colorado taxpayers as to how lawmakers in Denver vote on HB 1242, and other important fiscal and economic matters throughout the legislative session. Please look to ATR to as a resource on tax, budget, and other policy matters pending before you. If you have any questions, please contact Patrick Gleason, ATR’s director of state affairs, at (202) 785-0266 or pgleason@atr.org.

Sincerely,

Grover G. Norquist

President

Americans for Tax Reform