Biden Capital Gains Tax Hike and Corporate Tax Hike Would Leave U.S. Uncompetitive with China
President Biden has proposed doubling the capital gains tax rate and increasing the corporate income tax to 28 percent as part of his $4 trillion spending plan. Both proposals are uncompetitive with China, encouraging companies to move U.S. jobs and capital overseas.
The U.S. currently has a combined capital gains rate of over 29 percent inclusive of the 3.8 percent Obamacare tax and the 5.4 percent state average capital gains rate. Under Biden, this rate would approach 50 percent. This would give the U.S. a capital gains tax that is significantly higher than foreign competitors:
China's Capital Gains Rate: 20%
United States Now: 29.2% (20% + 3.8% Obamacare tax + 5.4% state average)
United States Under Joe Biden: 48.8% (39.6% + 3.8% Obamacare tax + 5.4% state average)
Under Biden’s plan, taxpayers in California will pay a top capital gains tax rate of 56.7 percent (39.6% + 3.8% + 13.3% California state rate = 56.7%). New Yorkers will pay a top capital gains rate of 52.2%, while New Jersey taxpayers will pay a top capital gains tax rate of 54.14%.
Not only will Biden’s capital gains tax hike make us uncompetitive, it will also harm the economy, threaten the life savings of Americans, and could even reduce short term revenues.
Next, President Biden has proposed increasing the corporate income tax rate to 28 percent. Senator Joe Manchin (D-W.Va.) has come out against this rate, saying he would support a 25 percent rate instead. Ultimately, both rates are uncompetitive with China.
The U.S. federal corporate tax rate is 21 percent. However, states also levy their own corporate tax rates, averaging an additional 6 percent. Because this state tax is deductible when paying the federal corporate rate, the combined national and subnational rate averages out to 25.77 percent.
A 28 percent federal rate would therefore result in a combined federal and state rate of 32 percent, higher than Communist China.
China’s rate: 25%
U.S. national + subnational rate IF Democrats raise federal rate to 25 percent: 29.5%
U.S. national + subnational rate IF Democrats raise federal rate to 28 percent: 32%
Voters agree that our corporate income tax rate should be competitive with China, according to polling conducted by HarrisX and commissioned by Americans for Tax Reform. After voters were informed that China has a 25 percent corporate rate, they were asked “At what level should the US set the corporate tax rate?” Among all respondents, the median answer was 21 percent.
Workers, consumers, and shareholders will bear the burden of an increased corporate tax rate. Such a hike will cause businesses to invest less in the United States and more overseas, resulting in fewer job opportunities and lower wages for American workers.
Photo Credit: Prachatai
IRS Customer Service leaves taxpayers “floundering on the rocks of confusion, frustration, and misinformation”
The IRS utterly fails to provide basic service and assistance to taxpayers and is ranked last among federal agencies for providing quality communication, according to National Taxpayer Advocate’s 2018 Annual Report to Congress.
As the NTA report notes, the IRS was ranked last out of 15 federal agencies in its ability to provide quality communication. Taxpayers wishing to communicate with the IRS are unlikely to find real people to talk to and must navigate a confusing automated phone system and interpret agency acronyms and function names:
“The IRS was recently ranked last in quality communication in a survey of 15 federal agencies undertaken by Forrester Research. All too often, taxpayers wishing to obtain information must embark on a voyage that requires them to interpret obscure IRS acronyms and function names, navigate a complex and multifaceted phone tree, and identify unnamed and often-changing responsible IRS officials. This journey is by no means a seamless one, and in many cases, taxpayers are left floundering on the rocks of confusion, frustration, and misinformation.”
As the report explains, this complexity is part of a deliberate effort by the IRS to minimize the number of calls it gets from taxpayers. This includes deliberately designing letters to suppress follow up from taxpayers:
“The IRS does its best to push everyone into a “one size fits all” virtual environment… Further, the IRS has attempted to design letters that artificially suppress the number of follow-up calls, even when the outcome is bad for the IRS and worse for taxpayers.”
As a result, it is exceedingly difficult for taxpayers to reach an IRS employee on the phone. The only way to do so is through the main phone line, which often has long-wait times:
Taxpayers often have difficulty locating IRS personnel who can provide accurate and responsive information regarding their cases. All too often, their only way of speaking with an actual person is by means of the IRS’s main toll-free phone line, which includes difficult-to-interpret options and can lead to extended and potentially expensive hold times.”
If the taxpayer is successful in reaching an appropriate IRS employee, they have difficulty getting their calls returned. In addition, they have little recourse to complain if they receive inaccurate or insufficient information. As the report notes:
“Once taxpayers are successful in having their calls routed to the appropriate place, they all too often experience problems having those calls returned and receiving responsive information. Further, managers of unresponsive employees can sometimes be equally difficult to locate and contact. Currently, there is no universal complaint mechanism within the IRS that allows taxpayers to address these issues and have the results monitored…
As the report points out, the IRS is required to make itself accessible to taxpayers under the IRS Restructuring and Reform Act of 1998. However, reaching IRS personnel is “impossible as a practical manner.” As the report notes:
“In the IRS Restructuring and Reform Act of 1998 (RRA 98), Congress required the IRS to make itself accessible to taxpayers, specifically by placing the addresses and telephone numbers for local offices in local phone directories across the country. Although the IRS technically complies with these requirements, live telephone contact with a local office is impossible as a practical matter. Rather than reaching a person, taxpayers in search of local assistance from a TAC (Taxpayer Assistance Center) receive a recorded message accompanied by a menu that transfers them to the national IRS telephone line where they can speak with telephone assistors.”
While many on the Left argue that the IRS should be given more money and more power, the agency needs reform, not more taxpayer dollars. The IRS completely fails to provide reasonable service and assistance to taxpayers. Their systems are purposely designed to suppress follow up from confused taxpayers and there is little recourse for taxpayers to complain if they receive inaccurate or unhelpful information.
Photo Credit: Wasfi Akab
IRS Employee Shortage is Not Due to Lack of Federal Funding
The IRS has a well-documented workforce shortage. However, this problem is not due to a lack of federal funding but because of the agency’s disorganization, incompetence, and the existence of labor union rules that promote needless bureaucracy.
As noted in the 2020 National Taxpayer Advocates Report to Congress notes, the IRS has failed to hire 5,000 full time employees between 2017 and 2019 which it has been allocated funding for:
“The IRS has been unable to meet its projected hiring each year. Between FYs 2017 and 2019, the IRS failed to hire over 5,000 FTEs for which it had allocated funding.”
One culprit of the hiring problem is the existence of a union contract that requires the IRS to first consider internal applicants before hiring externally. This requirement leads to a “waste of time and resources” and often results in the agency “shuffling existing employees around.” As the report notes:
“In addition to focusing on recruitment efforts, the IRS needs to expand its ability to hire externally. Under the current union contract, the IRS is required to consider internal applicants first for any bargaining unit position vacancy announcement. The result is that the IRS often finds itself simply shuffling existing employees around between positions rather than bringing in new employees. The time spent announcing a position internally first and then having to go through the external process is significant and can be a waste of time and resources.”
The IRS workforce shortage is also due to the inefficient, outdated hiring process run by the IRS Human Capital Office (HCO). As the report notes, this office has not updated its workforce plan in 15 years:
“IRS HCO (Human Capital Office) has known about these human capital challenges for some time, but the IRS had not taken an indepth look at an IRS-wide strategic human capital plan or workforce plan since 2005-2006.”
As a result, the HCO takes an average of 120 days to hire a new employee. This is 50 percent longer than its target goal:
“IRS’s HCO has also adopted this goal of an 80-day hiring cycle time as one of its “Key Performance Measures” for FY 2020.27 This is a reasonable goal, but the IRS continues to fall short. According to information set forth in HCO’s FY 2020 Business Performance Review, its actual hiring cycle time for FY 2020 was approximately 120 days, nearly 50 percent longer than its target goal for the year.”
While many on the Left argue that the IRS is in dire need of more federal funding, the agency is a poorly run and is in desperate need of reform, not more taxpayer dollars.
Photo Credit: Shashi Bellamkonda
White House Admits Biden Plan Will Raise Taxes on Small Businesses
The White House has now admitted that President Biden will raise taxes on small businesses, in violation of his campaign promise: "Taxes on small businesses won't go up."
The Biden tax hikes will hit about two million small businesses.
In a statement to Reuters on Friday, the White House tried to downplay the tax increases by asserting it was just a small percentage of businesses.
As reported by Nandita Bose of Reuters:
Less than 3% of the roughly 30 million small-business owners in the United States could face tax increases under President Joe Biden's jobs and infrastructure plan, according to a new analysis by the White House on Friday.
A White House official told Reuters the Biden hike in the top income tax bracket "would affect less than 3 percent of passthrough business owners."
Three percent of 30 million is 900,000 small businesses.
And the White House failed to mention the one million small businesses organized as C-corporations: the Biden plan calls for a corporate tax rate increase to 28 percent.
So that's about 1.9 million small businesses that will get hit with Biden tax increases.
This does not even include the number of small businesses that would get hit from Biden's elimination of stepped-up basis (see below).
During his campaign, President Joe Biden promised the American people that he would not raise taxes on small businesses. Now safely in office, he is violating that promise. His tax plan imposes direct tax increases on small businesses.
The promise was made on Feb. 20, 2020 before a national audience during a Democratic debate hosted by MSNBC:
MSNBC's Hallie Jackson: "I want to ask you about Latinos owning one out of every four new small businesses in the United States. Many of them have benefited from President Trump's tax cuts, and they may be hesitant about new taxes or regulations. Will taxes on their small businesses go up under your administration?"
Biden: "No. Taxes on small businesses won't go up."
Click here or below to see Biden's broken pledge
But Biden is pushing a series of tax increases that raise small business taxes:
1. Biden's increase in the top marginal income tax rate to 39.6 percent will hit small business sole proprietorships, LLCs, partnerships and S-corporations.
Small businesses organized as pass-through firms don’t pay taxes themselves. Instead, the profits of the business “pass through” to the owners who pay individual taxes on their 1040 form. Biden wants to raise the top marginal income tax rate to 39.6 percent which will hit many small businesses.
From the Tax Policy Center:
"In 2017, individuals reported about $1.03 trillion in net income from all types of pass-throughs accounting for 9.3 percent of total AGI reported on individual income tax returns."
According to the Congressional Research Service, "The majority of both corporations and pass-throughs in 2011 had fewer than five employees (55% of C corporations and 64% of pass-throughs). Nearly 99% of both corporations and pass-throughs had fewer than 500 employees, the most common employment-based threshold used by the Small Business Administration (SBA)."
As noted in a Senate Finance Committee report, "in 2016, only 42 percent of net business income in the United States was earned by corporations, down from 78.3 percent in 1980."
2. Biden’s corporate income tax rate hike from 21 percent to 28 percent targets one million small businesses across the country organized as corporations.
As noted by the Small Business Administration Office of Advocacy, there are 31.7 million small businesses in the U.S. Of those, 25.7 million have no employees, while 6 million have employees. Of these 6 million small employers, 16.8 percent, or 1 million of these businesses are classified as c-corporations. The SBA classifies a small employer as any independent business with fewer than 500 employees.
Biden claims his spending plan makes large corporations pay their “fair share.” However, the plan will raise taxes on many small businesses that are structured as corporations.
3. Biden's elimination of stepped up basis: A second death tax on small business.
Biden is targeting small businesses with a second Death Tax: Biden will eliminate step-up in basis. This is a devastating tax increase on small businesses. In this video, you can see a sample of the many times Biden has threatened to eliminate step-up in basis.
Elimination of stepped up basis would impose an automatic capital gains tax at death -- separate from, and in addition to -- the Death Tax.
In a Forbes piece titled "This Biden Tax Hike Hike Will Hit Mom & Pop Hard" tax lawyer Robert W. Wood writes:
Under current tax law, assets that pass directly to your heirs get a step-up in basis for income tax purposes. It doesn’t matter if you pay estate tax when you die or not. For generations, assets held at death get a stepped-up basis—to market value—when you die. Small businesses count on this.
Wood notes:
Biden's proposal would tax an asset's unrealized appreciation at transfer. You mean Junior gets taxed whether or not he sells the business? Essentially, yes. The idea that you could build up your small business and escape death tax and income tax to pass it to your kids is on the chopping block. Biden would levy a tax on unrealized appreciation of assets passed on at death. By taxing the unrealized gain at death, heirs would get hit at the transfer, regardless of whether they sell the asset.
As reported previously by CNBC:
“When someone dies and the asset transfers to an heir, that transfer itself will be a taxable event, and the estate is required to pay taxes on the gains as if they sold the asset,” said Howard Gleckman, senior fellow in the Urban-Brookings Tax Policy Center.
As reported by Richard Rubin of the Wall Street Journal:
Manufacturers and farmers, who tend to be more asset-rich and cash-poor, are watching closely for those details, concerned they might have to sell illiquid businesses to pay the taxes.
Courtney Silver, president of Ketchie Inc., a family-owned, 25-employee machine shop in Concord, N.C. that started in 1947, said she was concerned about the potential impact.
“I really can’t imagine being hit with that decision of that potential tax implication,” said Ms. Silver, 40 years old, who took over the business when her husband, Bobby Ketchie, died in 2014. “That to me is really hard to wrap my head around.”
It could be challenging for asset owners to figure out their tax basis, which is what they paid for the property and invested in it. That complexity is part of what doomed a similar proposal in the late 1970s, which Congress passed, then delayed, then repealed.
As noted in an Ernst and Young study, if a small business is unable to provide sufficient evidence to prove the cost basis of an asset, then it may set to $0. In other words, tax would be applied to the entire value of taxpayer assets:
“Family-owned businesses may also find it difficult to comply because of problems in determining the decedent’s basis and in valuing the bequeathed assets. It seems likely that these administrative problems could lead to costly disputes between taxpayers and the IRS. Additionally, if sufficient evidence is not available to prove basis, then $0 may be used for tax purposes. This may result in an inappropriately large tax at death.”
To honor his small business tax pledge to the American people, Biden must forego the above tax increases.
Tennessee Governor Bill Lee Enacts Reform Protecting Free Enterprise, Blocking Anti-competitive Regulation
On May 4, during the final week of the 2021 legislative session, Tennessee Governor Bill Lee (R) signed SB 872into law. SB 872 is a smart pro-consumer reform that bars local governments from regulating a host of popular online eCommerce platforms, such as AirBnB, VRBO, Uber, and Lyft. The idea is to stop local governments from putting onerous, unnecessary, and anti-competitive regulations on ridesharing, homesharing, and other ecommerce platforms, thus resulting in higher consumer prices and less selection. Such decisions will remain the purview of the Tennessee General Assembly.
SB 872, sponsored by Sen. John Stevens (R), does more than protect businesses and consumers in the ridesharing and homesharing spaces. SB 872 also prohibits local governments from regulating the operation of an online marketplace facilitator or requiring an online marketplace to provide personally identifiable information of users. This means that counties and municipalities cannot regulate or tax marketplace facilitators such as eBay, Etsy, Instacart and others who facilitate transactions among users. Sen. Stevens said this change will prevent overregulation and will increase clarity by ensuring there is not a patchwork of regulations on online marketplaces across the state.
“Cities in other states have attempted to impose minimum wage laws on ridesharing services at the behest of taxi cartels, place limits on fees charged by delivery services, and meddle in the independent contractor relationship that has significantly benefited self-employed individuals using these platforms to earn a living,” writes Justin Owen president of the Beacon Center, a Nashville-based think tank. “None of these regulatory attempts would be allowed under the new Tennessee law.”
This reform will ensure statewide uniformity of regulation in Tennessee for emerging industries and technologies. Beacon Center’s Owen praises the work done by state lawmakers and the Governor for passing this bill, which he points to as a model that other states will be smart to adopt.
“This is one of the most significant broad-based innovation freedom developments in Tennessee, which becomes one of the first states to pass such a law in the country,” Owen writes of SB 872. “Preempting local governments from imposing a hodgepodge of local regulations on online marketplaces will allow innovation to flourish. It could also make Tennessee a magnet for the next big innovation and all the jobs that could follow.”
Photo Credit: Tim Stewart
More from Americans for Tax Reform
Free Market, Not Mandate, Offers Better Road Forward on EVs for Pennsylvania
At the federal level, Joe Biden has proposed a costly $174 billion plan to expand electric vehicle infrastructure, meanwhile a number of states have used taxpayer dollars to subsidize building out electric vehicle stations.
This top down approach is an expensive one for taxpayers, and unnecessary. In Pennsylvania, some legislators are aiming to have the Public Utilities Commission approve plans from electric utility providers for electric vehicle station expansion, with Senate Bill 435.
The process avoids the major expenses of some other state’s plans, but still takes a top-down approach, mandating a 50% increase in electrification by 2030. It also has just the utilities putting together plans, which the government approves, leaving out other relevant parties.
Why is the government so involved at all? In Kansas, a major utility company built new electric vehicle stations on their own. The state legislature declined to install a fee or tell them how best to build out stations. The results have been many new charging stations, while taxpayers pay no additional cost.
With governments at multiple levels already subsidizing EV’s, plenty of demand exists.
Further, if emissions are the focus, much of the reduction in emissions from vehicles has not occurred because of electric vehicles, but because of improvements in gas-powered vehicles. If Pennsylvania wants lower emissions, mandating electric vehicles isn’t the solution.
This is reminiscent of Pennsylvania’s leading natural gas industry driving down the state’s emissions as much as other northeastern states who took a top-down, cap-and-trade approach by joining the Regional Greenhouse Gas Initiative (RGGI). The state produces 20 percent of the natural gas in the United States, and Pennsylvania’s carbon emissions have gone down by 30 percent as natural gas use has grown in recent years.
Pennsylvania saw massive economic growth from natural gas by letting the market work, and environmental benefits.
Instead of following California’s lead with heavy government involvement to expand electric vehicles, Pennsylvania should let the market work, like Kansas did.
Photo Credit: Pixabay
More from Americans for Tax Reform
Six Reasons to be Alarmed by Biden's Plan to Give the IRS Even More Power
The IRS has a long history of incompetence and corruption. Now President Biden wants to give the IRS an additional $80 billion over the next decade, nearly doubling the size of the agency. This will mean more agents, more audits, and more political targeting.
Here are six reasons taxpayers should be concerned with the Biden plan to double the size of the IRS.
1. More IRS Funding Will Mean Thousands of New IRS Agents
Legions of new IRS agents will be unleashed for invasive and time consuming audits of middle class Americans and small businesses.
Even Obama-era IRS chief John Koskinen – a longtime advocate of increasing the IRS budget – thinks President Joe Biden’s proposal to increase IRS funding by $80 billion is too much.
As reported by the New York Times:
“I’m not sure you’d be able to efficiently use that much money,” Mr. Koskinen said in an interview. “That’s a lot of money.”
Rather than fix the agency's longstanding mismanagement, ineptitude and abuse problems, Biden's approach will make the problem worse.
2. IRS Funding is Yet Another Way to Funnel Taxpayer Money into Democrats’ Campaigns.
New IRS funding will be a boon for the union that represents IRS employees. This union overwhelmingly supports Democrat candidates so new IRS funding will also shovel more money into Democrat campaign coffers:
- The left-wing National Treasury Employees Union represents 150,000 taxpayer-funded federal employees across 31 departments and agencies. The NTEU is famous for aggressive use of lawsuits in order to advance Democrat union priorities.
- NTEU collects dues from roughly 70,000 IRS employees, nearly half of NTEU’s total membership.
- NTEU shovels 97 percent of their money into Democrat campaign coffers. In the 2019-2020 campaign cycle, NTEU’s political action committee raised $838,288. Out of $609,000 in spending on federal candidates, an overwhelming 97.04 percent went to Democrats.
- IRS employees regularly perform Democrat union work on the taxpayer dime. In fiscal year 2013, IRS employees spent over 500,000 hours on union activity, costing taxpayers $23.5 million in salary and benefits. To add insult to injury, the IRS had at least 40 out of 201 workers solely devoted to union activities that made $100,000.
3. Under Biden, the IRS Will Snoop on Your Venmo Account, Bank Accounts, and more.
The Biden administration also wants to sic the IRS on your Venmo account and bank accounts. As part of the proposal, banks and third-party payment providers, like Venmo and CashApp would be required to report ALL account holders’ aggregate account outflows and inflows to the IRS.
President Biden claims that this proposal is designed to “crack down on millionaires and billionaires who cheat on their taxes.” However, it is unclear how monitoring Venmo accounts – many of which are held by younger Americans – contributes to this goal. The average Venmo transfer amount is $60 and is popular among young people, with over 7 million Venmo users belong in the 18-34 age group. For users who have undergone identity verification, the weekly spending limit is $7,000. These trends exist for most third-party payment providers. It is hard to see how millionaires and billionaires are using Venmo or CashApp to launder mass amounts of money.
The IRS will use these powers against Americans of all income levels. Requiring banks and third-party payment providers to report this kind of information is an indefensible invasion of privacy. Giving the IRS access to this private information is a disaster waiting to happen.
4. Biden Would Repeal Step-Up in Basis, Creating a Second Death Tax and Giving the IRS More Opportunities to Harass Family-Owned Businesses.
The IRS has a history of harassing individual taxpayers and family-owned business including threatening to seize property and shut down businesses. Biden is proposing a second Death Tax which will give the IRS a new way to intrude in the lives of family owned businesses.
Repealing step-up in basis will disproportionately fall on family-owned businesses, many of which are asset rich, but cash poor. These businesses are already forced to liquidate structures, equipment, land, and other assets because of the Death Tax. Repealing step-up in basis will compound this problem and force family-owned businesses to sell a significant portion of their business or go into debt to pay their tax liability.
Repealing step-up in basis will also create new complexity for taxpayers. Because of this tax increase, taxpayers would have to determine the cost basis of all assets owned, many of which may have been owned for decades.
This Second Death Tax has already been tried and failed. In 1976 congress eliminated stepped-up basis, but it was so complicated and unworkable that congress voted to restore stepped-up basis.
As noted in a July 3, 1979 New York Times article, it was "impossibly unworkable":
Almost immediately, however, the new law touched off a flood of complaints as unfair and impossibly unworkable. So many, in fact, that last year Congress retroactively delayed the law's effective date until 1980 while it struggled again with the issue.
As noted by the NYT, intense voter blowback ensued due to the "nightmare of paperwork":
Not only were there protests from people who expected the tax to fall on them -- family businesses and farms, in particular -- bankers and estate lawyers also complained that the rule was a nightmare of paperwork.
Given that family-owned businesses already struggle to pay the Death Tax, it’s easy to see how a Second Death Tax could create serious complications.
5. New IRS Funding Would Reward Incompetence and Irresponsibility.
The IRS has proven time and time again it cannot spend responsibly and complete the most basic of tasks. The agency needs reform, not more money and more power.
Several audit reports have demonstrated how the agency’s inability to do its job is due to incompetence, not lack of funding:
- A Treasury Inspector General for Tax Administration (TIGTA) report on the 2021 Filing Season found that almost 40 percent of printers were not working at tax processing centers in Ogden, Utah and Kansas City, Missouri. However, in many cases the only thing wrong with the printers is that no employee had replaced the ink or emptied the waste cartridge container: “IRS employees stated that the only reason they could not use many of these devices is because they are out of ink or because the waste cartridge container is full.”
- This year, despite having funding for new hires, the IRS only achieved 37 percent of their hiring goal. They had trouble onboarding new hires as well, as it was “difficult to find working copiers (as noted previously) to be able to prepare training packages.”
- In 2016, the IRS has lost track of laptops containing sensitive taxpayer data. TIGTA estimates that the IRS had failed to properly document the return of 84.2 percent, or more than 1,000 computers due to be returned by contract employees.
- A TIGTA report in 2017 showed that the IRS rehired more than 200 employees who were previously employed by the agency, but fired for previous conduct or performance issues.
- Each year the IRS hangs up on millions of callers -- a practice they refer to as “Courtesy Disconnects.” Currently, if you call the IRS, you have a 1-in-50 chance of reaching a human being.
- According to the National Taxpayer Advocate’s 2014 Annual Report to Congress the IRS was unable to justify spending decisions. As the report stated: "The IRS lacks a principled basis for making the difficult resource allocation decisions necessitated by today’s tight budget environment.”
- The agency has repeatedly failed to compile legally required tax complexity reports. These reports are supposed to contain the IRS's specific recommendations on how to make the tax code easier to comply with. Since 1998, the IRS has done so just twice – in 2000 and 2002.
- In 2015, the IRS was spending $1,000 an hour hiring a litigation-only white shoe law firm for an investigation, despite having over 40,000 employees dedicated to enforcement efforts.
- In 2015, the agency has been caught red-handed wasting taxpayer dollars on Nerf footballs, the world’s largest crossword puzzle, extravagant $100 dollar lunches, and more.
The last thing the IRS needs is more power and responsibility. In fact, it’s likely that new responsibilities will become overwhelming for the IRS, leading to these new scandals and new cases of taxpayer abuse.
While the IRS continues to blame its poor performance on a lack of taxpayer funding, the real problem is the inability of the agency to competently complete basic tasks and spend taxpayer dollars in a responsible way. Biden’s plan to give the IRS $80 billion would do nothing to fix existing problems and would only exacerbate them.
6. The last time the Democrats were in power, the IRS wrongly used its authority to target and harass taxpayers, especially conservative non-profits.
Most notably, the Obama IRS was caught unfairly denying conservative groups non-profit status ahead of the 2012 election.
Lois Lerner’s political beliefs led to tea party and conservative groups receiving disparate and unfair treatment when applying for non-profit status, according to a detailed report compiled by the Senate Finance Committee.
Because of Lerner’s bias, only ONE conservative organization was granted tax exempt status over a period of more than three years:
“Due to the circuitous process implemented by Lerner, only one conservative political advocacy organization was granted tax-exempt status between February 2009 and May 2012. Lerner’s bias against these applicants unquestionably led to these delays, and is particularly evident when compared to the IRS’s treatment of other applications, discussed immediately below.”
When given more authority and money, the IRS will be given more opportunities to abuse its powers.
Illinois Residents Will Get Stuck with Higher Utility Bills Due to Biden Corporate Tax Rate Hike
If Biden and the Democrats enact a corporate income tax rate increase, they will have to explain why they just increased your utility bills
If President Biden and congressional Democrats hike the corporate income tax rate, Illinois households and businesses will get stuck with higher utility bills. Democrats plan to impose a corporate income tax rate increase to 28%, even higher than communist China's 25%. This does not even include state corporate income taxes, which average 4 - 5% nationwide.
Customers bear the cost of corporate income taxes imposed on utility companies. Corporate income tax cuts drive utility rates down, corporate income tax hikes drive utility rates up.
Electric, gas, and water companies must get their billing rates approved by the respective state utility commissions. When the 2017 Tax Cuts and Jobs Act cut the corporate income tax rate from 35% to 21%, utility companies worked with officials to pass along the tax savings to customers, including at least seven Illinois utilities. The savings take the form of either a rate reduction, or, a reduction to an existing/planned rate increase.
Working with the Illinois Commerce Commission, Ameren Illinois, Commonwealth Edison, Illinois American Water, MidAmerican Energy Company, Nicor Gas, Aqua Illinois, and Peoples Gas passed along tax savings to their customers.
MidAmerican Energy Company: As noted in this April 2, 2018 WVIK Article:
Thanks to tax reform, utility bills will start going down soon. MidAmerican Energy says bills will be lowered for its Illinois customers starting in April, and probably for Iowa customers in May.
Spokeswoman Tina Hoffman says the company's tax rate dropped from 35 to 21 per cent, and as a result Illinois electric and natural gas customers will save about 50 dollars per year. The average Iowa customer would save 30 dollars.
But tax reform will affect more than just MidAmerican's corporate tax rate.
"And what we're proposing to do is create an account that captures these benefits that will help us in the long-term make sure that we reduce the size of even the need for future rate cases. So eventually that keeps rates low for customers well into the future."
Hoffman says the Illinois Commerce Commission has already approved the company's proposal and the savings should show up in residential bills this month. However the Iowa Utilities Board has not yet approved MidAmerican's proposal but she thinks it could lower Iowa bills beginning in May.
Commonwealth Edison: As noted in this April 25, 2018 The Chicago Citizen press release excerpt:
The recent annual formula rate filing also included an advancement of $205 million from anticipated savings in 2019 as a result of the federal tax cut and jobs act.
“In this filing, we have proposed to the ICC that we advance into 2019 with savings that customers would realize through the lower tax rates. The formula ratemaking process allows for such timely distribution of savings. It also would help to extend the stable rate environment that we have had for some time since before the smart grid program came and launched,” said Gomez.
Ameren Illinois: As noted in this Jan. 22 2018, Ameren Illinois press release:
Ameren Illinois electric customers could save an average of $2.50 to $3.00 per month in 2018 and natural gas customers could save an average of $1 per month if the Illinois Commerce Commission (ICC) approves the company's plan to pass savings from the recently approved federal tax cut legislation back to its customers. Customers using both electricity and natural gas could see a combined savings.
In the proposal filed with the ICC today, the company is seeking approval to pass along federal tax savings to electric customers beginning this year. A similar proposal was filed last week on behalf of Ameren Illinois natural gas customers.
"Under the new tax plan, Ameren Illinois’ effective tax rate will decrease by nearly 13%,” said Richard Mark, chairman and president, Ameren Illinois. "The plan we have filed with the ICC gives us the ability to expedite the return of these savings to our customers."
The Energy Infrastructure Modernization Act of 2011 provides a mechanism to return these savings to electric customers, but without filing the petition customers would have to wait until 2020 to receive the benefits. If approved by the ICC, Ameren Illinois customers will begin seeing these savings in March.
Illinois American Water: As noted in this May 7, 2018 Business Wire excerpt:
The Federal Tax Cuts and Jobs Act decreased the corporate tax rate from 35 percent to 21 percent. On April 19, 2018, the Illinois Commerce Commission approved an order for Illinois utilities to pass savings from the national tax reform on to customers.
Illinois American Water is returning about $10.8 million to customers over the next 11 months. Illinois American Water customers will see a credit on their May 2018 bill continuing through March 2019. After this initial 11-month timeframe, the credit amount will be reconciled and adjusted appropriately. The new credit amount will be communicated at that time.
According to Illinois American Water President Bruce Hauk, the credit to bills is a benefit provided through the financial model of a regulated investor-owned utility. He said, “We are pleased to be able to share this savings with our customers. In addition to this savings, our team works hard every day to control operational and maintenance costs so we can invest in our critical infrastructure and minimize impact to customer bills.”
Nicor Gas: As noted in this January 15, 2018 Ford County Record excerpt:
Nicor Gas plans to file testimony with the Illinois Commerce Commission seeking approval to pass along tax-reduction savings to its 2.2 million natural gas customers in Illinois.
If the new program is approved, Nicor Gas will begin providing a credit to lower customers’ bills.
The tax savings are the result of a new federal law, the Tax Cuts and Jobs Act, which was signed into law Dec. 22, 2017, and decreased the corporate tax rate from 35 percent to 21 percent. The tax reduction, coupled with other provisions impacting the way that natural gas utilities calculate their federal income tax liability, is anticipated to produce tangible savings, which will benefit Nicor Gas customers this year.
Aqua Illinois: As noted in this March 10, 2018 The News-Gazette excerpt:
Ervin said the lower rate was made possible by the Tax Cuts and Jobs Acts of 2017, aimed at cutting taxes on individuals and businesses, stimulating the economy and creating jobs. It substantially reduces the corporate tax rate from a maximum of 35 percent to a flat rate of 21 percent, and is estimated to save the water company about $4.5 million.
Peoples Gas: As noted on their homepage:
We are proud to be able to say that our rates have declined during the past 12 years. In 2019, we reduced our rates by passing benefits created by the federal Tax Cuts and Jobs Act to customers. Very few businesses can say that their rates or prices have remained unchanged or even declined over a period of more than a decade. Here's a look at the 2021 rate for RS-2 customers and the cost increases of a variety of common household items since 2009.
Conversely, a vote for a corporate income tax rate hike is a vote for higher utility bills as households try to recover from the pandemic.
Many small businesses operate on tight margins and can't afford higher heating, cooling, gas, and refrigeration costs. President Biden should withdraw his tax increases.
JCT Confirms: Tax Code is Already Steeply Progressive
President Biden and congressional Democrats routinely say that we need massive tax increases so that “the rich pay their fair share.”
But the tax code is already steeply progressive, as shown in a new report from the Joint Committee on Taxation:
Taxpayers making $1 million and up pay an average federal tax rate of 31.5% while the bottom half of income earners ($63,179 or less) pay an average federal tax rate of 6.3%. That’s nearly five times as much in taxes as a percentage of income.
According to JCT:
- Taxpayers with income of $1 million or more pay an average federal tax rate of 31.5% and an average federal income tax rate of 26.3%.
- Taxpayers with income of $50,000 and 75,000 pay an average federal tax rate of 13.6% and an average federal income tax rate of 2.4%.
- Taxpayers with income of $30,000 to $40,000 pay an average federal tax rate of 7.2% and an average federal income tax rate of NEGATIVE 3.3%. In other words, they receive money back from the federal government due to refundable tax credits.
- The bottom half of income earners pay an average rate (of all federal taxes) of 6.3%, while the top 0.01 percent pay 32.9%.
Despite Democrat rhetoric, the U.S. has one of the most progressive tax codes in the developed world. As noted by AEI’s James Pethokoukis, the U.S. tax system is considerably more progressive than most of Europe. This is shown in recent government data which finds that the top one percent of income earners paid 40 percent of all federal income taxes, while the top 10 percent paid 71 percent of federal income taxes.
As the Heritage Foundation shows in the below graphic, the top 1 percent earned 21 percent of all income, but paid 40 percent of all income taxes. Further, the top 10 percent earned 48 percent of all income, but paid 71 percent of all income taxes.
The tax code is already extremely progressive.
Photo Credit: John Morgan
Virginia Taxpayers can count on Youngkin, Sears, and Miyares
Americans for Tax Reform congratulates taxpayer protection pledge signers Glenn Youngkin, Winsome Sears, and Jason Miyares on winning their nominations for executive office in Virginia earlier this week.
Youngkin, Sears, and Miyares secured the Republican nomination for Governor, Lieutenant Governor, and Attorney General, respectively. This is excellent news for taxpayers in the Commonwealth, as all three candidates have made a written commitment to Virginians that, if elected, they will “oppose and veto any and all efforts to increase taxes.”
By making this commitment in writing, voters can make the important distinction between Youngkin, Sears, and Miyares and their radical, tax-hiking opponents like former Gov. Terry McAuliffe.
McAuliffe disingenuously promotes himself as a pro-business Democrat, but he has a history of promoting a radical-liberal, tax-and-spend agenda. During his term between 2014-2018, McAuliffe proposed Virginia’s first ever $100 billion budget. Included in that budget was Medicaid expansion funded by a hospital bed tax hike. Additionally, a month before leaving office, McAuliffe released a proposal for Northern Virginians to pay $65 million in higher taxes on real estate sales, hotel stays, and wholesale gasoline.
More recently, as part of his campaign announcement in December 2020, McAuliffe unveiled a plan for billions in new spending. Unless checked at the ballot box this fall, it is almost certain that his allies in the General Assembly would follow his lead. Thankfully, Virginia taxpayers have allies like Youngkin, Sears, and Miyares have vowed to do the opposite. Grover Norquist, President of Americans for Tax Reform, released the following statement:
“Congratulations to Glenn Youngkin, Winsome Sears, and Jason Miyares for winning their respective Republican nominations for executive office in Virginia. I commend all of them for making it crystal clear to voters that there will be no tax increases under their watch if elected.”
“Richmond leadership, led by Terry McAuliffe, has crippled the Commonwealth with several tax hikes in recent years. Taxpayers deserve an ally in the executive branch, now more than ever, who will not raid their bank accounts. I am confident that Youngkin, Sears, and Miyares will focus on making government more efficient, so Virginia becomes a more attractive place to live, invest, and do business.”
With Youngkin, Sears, and Miyares committing themselves to oppose and veto any and all tax increases, Virginia has the unique opportunity to elect a Governor, Lieutenant Governor, and Attorney General who will retire the Commonwealth’s tax-and-spend agenda.
Photo Credit: Glenn Youngkin
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