Isabelle Morales

Report: Reduced Interest Deduction Will Harm Economy, Leave America Uncompetitive

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Posted by Isabelle Morales on Tuesday, June 22nd, 2021, 2:00 PM PERMALINK

If lawmakers fail to act before the end of the year, American businesses, particularly manufacturers, across the country will face a significant tax increase. This impending tax hike will diminish the ability of businesses to deduct net interest expenses, which will harm the economy and American competitiveness, as noted in a recent report from PricewaterhouseCoopers (PwC).

Currently, businesses can deduct net interest expenses (i.e. debt) up to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA) under IRC section 163(j). However, effective 2022, this deduction is narrowed to 30 percent of earnings before interest and tax (EBIT). 

Removing depreciation and amortization from the calculation of the deduction will reduce the value of the tax deduction, resulting in a tax hike for many capital-intensive taxpayers including manufacturing businesses. Allowing the EBIT standard to go into effect could also result in a tax increase of $140 billion on American businesses over the next decade, according to a Joint Committee on Taxation report analyzing the Tax Cuts and Jobs Act.   

PwC’s report concluded that this tax hike would result in reduced investment, reduced economic growth, lower average labor productivity and ultimately lower wages, with manufacturing and information industries bearing over half of the overall tax increase. It also found that the tax hike will leave American businesses less competitive because other countries that have earnings-based limitations use the EBITDA standard, not the EBIT standard.

First, the report analyzes what would have happened in 2019 if the EBIT-based limitation had been in effect. It finds that American businesses would have seen increased costs of borrowing and increased taxes:

  • “US public companies would have had an estimated $29.9 billion of additional excess interest expense, with companies in manufacturing, information, and mining seeing the largest increases in excess interest expense.  
  • US public companies would have paid an estimated $4.7 billion of additional incremental tax, an increase of 275.5 percent relative to the tax increase under an EBITDA-based limitation. Companies seeing the largest increases in tax relative to an EBITDA-based limitation are in information, manufacturing, and transportation and warehousing.  
  • Companies affected by the limitation would have had excess interest expense on average equal to 47.3 percent of their total interest expense. The mining sector would lose almost three-quarters of its interest deductions while the educational services and administrative and support and waste management and remediation services sectors would lose about two-thirds. Worse, low profitability companies would account for more than 60 percent of additional excess interest expense.
  • On average, taxpayers affected by the change would see close to a three-fold increase in their incremental tax liability. However, the change is much higher in some industries. For example, the average accommodations and food services industry taxpayer will see a 35x increase in their incremental tax liability.” 

 

Second, by increasing the cost of capital, this tax hike will hinder economic growth, harm American workers, and restrict business flexibility and cash flow. As the report explains:  

“The increase in the after-tax cost of capital as a result of the limitation on the deductibility of interest is likely to reduce investment. Lower capital investment reduces economic growth and average labor productivity. Lower labor productivity results in lower wages.” 

Third, the report notes that this tax increase would disproportionately hit less profitable companies. These effects are magnified during an economic downturn, as the report explains:

"Companies in cyclical industries with income subject to greater fluctuations may find the limitation restricts interest deductibility during periods of weak economic performance while during periods of normal profitability the companies can fully deduct their interest expense... The limitation increases the cost of capital, making it more expensive to undertake investment during recession times as well. An EBIT-based limitation may be susceptible to larger percentage fluctuations when revenue declines than an EBITDA-based limitation due to depreciation, depletion, and amortization deductions on current and prior year investments."

Lastly, the tax increase would make American businesses less competitive with foreign businesses. In fact, the existing EBITDA standard used in the tax code is the universal standard for earnings-based interest limitations. Of the 35 countries that have  the same interest limitation rule as the United States, all of them employ an EBITDA standard.

Narrowing the deduction by adopting the lesser EBIT standard would leave American businesses uncompetitive with countries like the United Kingdom, Germany, Japan, and France. Further, the 30 percent businesses can deduct of earnings is also the international norm and is used by 27 of the 35 countries mentioned.

Lawmakers should act to make the existing EBITDA standard permanent. Senator Roy Blunt (R-Mo.) has introduced a bill to do this, which should be supported by all members of Congress.

Allowing the tax hike on interest deductions to go into effect at the end of the year will harm the economy, make America uncompetitive, and reduce business flexibility.

Photo Credit: Tim Engle


Dem Inequality Committee Is Nothing But a Platform for the Progressive Tax Hike Wishlist

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Posted by Isabelle Morales on Monday, June 21st, 2021, 3:30 PM PERMALINK

Last week, House Speaker Nancy Pelosi (D-Calif.) unveiled the Democrat lawmakers that will serve on the new “Select Committee on Economic Disparity and Fairness in Growth.” The committee will be led by Rep. Jim Himes (D-Conn.) and will feature progressives like Reps. Alexandria Ocasio-Cortez (D-NY) and Pramila Jayapal (D-Wash.). 

This Committee is nothing but a progressive vanity project designed to cheerlead for far-left policies like tax hikes and wasteful spending. It is a waste of time and taxpayer dollars and will have no legislative authority.

Contrary to progressive claims, the tax code is already steeply progressive, rich people pay a significantly higher share of total tax revenue, and the policies progressives consider “giveaways” to the rich, and therefore would like to eliminate, have actually resulted in faster wage growth for low-income Americans than any other group.  

Progressives falsely claim that “the rich” pay less than low- and middle-income families. In reality, the tax code is already steeply progressive, as shown in a recent 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%.  


The rich also pay both a higher share of federal income taxes and a higher share of taxes as a percentage of their income. The top 1 percent earned 21 percent of all income, but paid 40 percent of all income taxes, as noted by research from the Heritage Foundation. Further, the top 10 percent earned 48 percent of all income, but paid 71 percent of all income taxes.

Progressives wrongly claim that the 2017 GOP tax cuts was a “giveaway to the rich.” However, this is not borne out in the data as middle-income Americans saw significant gains following passage of this law. For instance:

  • Following the passage of tax cuts, the bottom 25 percent of wage earners experienced wage growth faster than the top 25 percent of wage earners, according to the Atlanta Fed. Black and Hispanic Americans saw their median income hit record levels, while the poverty rate declined to 10.5 percent, the lowest rate in decades.  
  • Key demographics experienced the growth, including Black Americans, Hispanic Americans, and women, with each group seeing their unemployment rates drop to all-time lows and wage growth increasing by record levels. 
  • The unemployment rate dropped to 3.5 percent in 2019, a 50-year low. In the same year, median household income increased by $4,440 or 6.8 percent, the largest one-year wage growth in history. This wage growth dwarfed the wage growth experienced under the entire eight years of Barack Obama's presidency, which was just 5 percent. 
  • Under this economy, there were more job openings than job seekers for 24 consecutive months. In March 2018, the ratio of unemployed persons to job openings dropped to 0.9. It remained at this low level until the pandemic hit America. 

 

The new “inequality” committee is nothing but an excuse for Democrats to push for higher taxes, more spending, and more burdensome regulations. Instead of highlighting policies that have resulted in significant gains for low- and middle-income Americans, this new committee is just a vanity project for the radical left.

Photo Credit: NRK Beta


Lawmakers Should Support the Estate Tax Rate Reduction Act

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Posted by Isabelle Morales on Monday, June 21st, 2021, 11:00 AM PERMALINK

The Death Tax is fundamentally unfair, hurts job creation and economic growth, and is devastating to family owned businesses and farms across the country. This tax should be repealed.

But failing that, the tax should be incrementally reduced toward the goal of repeal. Lawmakers in the House and Senate have introduced S. 1627/H.R. 3178, legislation that would do just that. This bipartisan proposal, the “Estate Tax Rate Reduction Act,” reduces the Death Tax rate from 40 percent to 20 percent. It has been introduced in the House by Representatives Jodey Arrington (R-Texas) and Henry Cuellar (D-Texas) and by Senators Tom Cotton (R-Ark.), John Boozman (R-Ark.), and Joni Ernst (R-Iowa) in the Senate.

 ATR urges lawmakers to support and co-sponsor these bills.  

The Death Tax is fundamentally unfair and its bad tax policy. It is levied on assets that have been taxed previously through income taxes, capital gains taxes, and the corporate income tax.  

It disproportionately impacts family-owned businesses like farmers and ranchers especially that tend to be asset rich but cash poor. On the other hand, the wealthy often evade the tax. While the mega-wealthy and family farms technically face the same death tax, small business owners cannot afford to hire a small army of lawyers and accountants to exempt large portions of their estates from the tax. As always, complex laws are rife with loopholes that the rich can exploit at the expense of the less fortunate. 

Many countries recognize that a high Death Tax is bad tax policy. Currently, the United States has the 4th highest estate and inheritance tax among developed countries, just behind France. 

Reducing the Death Tax would stimulate job creation and grow the economy. Numerous studies have analyzed the impact of repealing the Death Tax. While this bill wouldn’t repeal the tax, these studies inevitably provide insight regarding what would happen if we moved toward a full repeal.  

For instance, a 2017 study by the Tax Foundation found that the US could create over 150,000 jobs by rolling back the estate tax. 

Similarly, a 2012 study by the Joint Economic Committee found that the death tax has destroyed over $1.1 trillion of capital in the US economy, which results in fewer jobs and lower wages. Much of this economic damage hits small businesses, which are the core of America’s economy and have been disproportionately harmed by the Coronavirus pandemic. The economic growth created by repealing the Death Tax would produce $221 billion in federal revenue because of increased wages and more jobs. 

Family-owned businesses across the country employ 59 percent of the workforce. Family-owned businesses also generate 54 percent of the U.S. GDP. This legislation would allow these businesses to employ even more workers and continue to be significant contributors to America’s economic growth. 

The Death Tax is extremely unpopular. Numerous studies have found that majority of Americans oppose the Death Tax and support its repeal. For instance, a report by NPR found that 76 percent of Americans support full, permanent repeal of the Death Tax.   

Cutting the Death Tax in half would spur economic growth, create jobs, and increase wages. It would mitigate the negative impacts of the tax’s double taxation and help family-owned businesses across the country. 

If lawmakers are serious about spurring job and economic growth and protecting family-owned businesses, they should support S. 1627 and H.R. 3178, the Estate Tax Reduction Act.

To see ATR's letter in favor of this legislation, click here. 

Photo Credit: Tara Siuk


Report: IRS Fails to Screen Contractors for Tax Delinquency

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Posted by Isabelle Morales on Monday, June 14th, 2021, 3:05 PM PERMALINK

The IRS failed to screen two-thirds of agency contractors for tax delinquencies and other errors, according to a new TIGTA report. This serves as yet another example of the IRS’s inability to complete basic tasks, even when it is required of them. 

This report comes at a time when the Biden administration has proposed $80 billion in more funding for the agency, along with new powers and responsibilities. This report is just another example of the agency’s incompetency and demonstrates that the IRS needs reform, not more power and responsibility. 

TIGTA reviewed 71 randomly selected new awards and found that 66 percent had one or more deficiencies related to the contractor tax check process. Based on sample results, TIGTA estimated that 2,435 of the 3,679 new award contracts granted between October 1, 2018, and March 30, 2020, have one or more of these errors identified. 

In the Consolidated and Further Continuing Appropriations Act of 2015, Congress specified that the Government “will not enter into a contract with any corporation that has any unpaid Federal tax liability that has been assessed, unless an agency has considered suspension or debarment of the corporation and made a determination that suspension or debarment is not necessary to protect the interests of the Government.” 

In TIGTA’s words: 

“… not completing tax checks within the required time frame increases the risk that an offeror’s recently incurred tax liability will not be identified during the tax check process… untimely or incomplete notification to the Treasury Suspension and Debarment official increases the chances that contractors with a tax deficiency will obtain a contract award with another Federal agency.” 

This tax check is a multi-step process that the IRS simply did not complete for multiple contractors. In the sample TIGTA used, the IRS failed to complete checks on 25 percent of the contract awards selected. Further, 29 percent of contracts did not have a signed Tax Check Notice and Consent provision, and 37 percent did not have a Tax Check Notice and Consent provision attached to the contract.  

While TIGTA did independently verify that the 71 contractors did not have any delinquent Federal taxes at the time the contracts were awarded, the IRS would still be required to assess these delinquencies and make determinations based on them. To be clear, this was just a review of 71 of the 3,679 new award contracts; it is untold how many contractors had delinquent federal taxes out of the 2,435 contracts TIGTA estimates had errors. Moreover, given that TIGTA was able to screen all these candidates, presumably, it should not be difficult for the IRS to do the same. 

This is one of several audit reports that demonstrates the incompetence of the IRS: 

  • 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.    

 

  • A 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.   

 

 

  • The IRS has repeatedly failed to include required information on notices they send to taxpayers, thus eroding taxpayers’ ability to understand said notices, figure out the right office/number to correspond with, file appeals, etc. 

 

  • The IRS is required by law to assign a single employee to each taxpayer’s case for mutually generated correspondence, and, in more cases than not, fails to do so.

 

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.  

Photo Credit: Jason Dirks


ATR Opposes Efforts to Undermine the Contact Lens Rule

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Posted by Isabelle Morales on Monday, June 14th, 2021, 2:00 PM PERMALINK

In a letter to members of Congress, Americans for Tax Reform detailed its opposition to S.1784H.R. 3353, the “Contact Lens Prescription Verification Modernization Act” and all other efforts to undermine the Contact Lens Rule.  

This bill would eliminate automated phone prescription verification, which guarantees that bad actors cannot refuse to verify prescriptions, thus preventing their patients from buying lenses from other retailers. 

This kind of verification is one of the most effective ways to preserve competition. Reeling back this protection would hurt a market that has become more accessible, convenient, and affordable due to steps taken to ensure consumer freedom.  

Click here or see below to view the letter. 

June 14th, 2021 

Dear Members of Congress: 

I write in opposition to S.1784H.R. 3353, the “Contact Lens Prescription Verification Modernization Act” and all other efforts to undermine the Contact Lens Rule. If implemented, this legislation would undermine the Federal Trade Commission (FTC) Contact Lens Rule that ensures 45 million contact lens users have the choice and freedom to shop where they choose. 

This legislation would make it more difficult and more costly for Americans to fill their prescriptions, creating unnecessary financial and healthcare burdens on the American people. All members of Congress should reject this legislation. 

In 2003, President George W. Bush signed the Fairness to Contact Lens Consumers Act (FCLCA) into law. The legislation required that optometrists provide patients with a copy of their prescription. 

The FTC’s Contact Lens Rule built on the FCLCA, ensuring that consumers have the freedom to purchase contact lenses from wherever they want, whether that is from their optometrists or from a third party. Specifically, the rule required optometrists to obtain signed acknowledgement from patients that they have received a copy of their prescription. It also continued to allow automated phone prescription verification, a feature of the FCLCA, which is one of the most effective ways to preserve competition and consumer freedom. 

Rather than forcing a third-party retailer to wait indefinitely for a prescriber to verify the prescription, this requires the retailer to wait a full business day (eight hours) before fulfilling a consumer’s order. 

S.1784/ H.R. 3353 seek to end this effective, efficient prescription verification option. This will open the door to bad actors who, before the FCLCA, would refuse to verify prescriptions in the hopes of preventing their patients from buying lenses from other retailers. 

Contact lenses have become more accessible, convenient, and affordable because of these steps taken to ensure consumers have a multitude of choices. To reel back the protections which transformed the contact lens marketplace for the better would be a mistake. 

While lawmakers should support proposals that lower the regulatory burden and reduce red tape, there should not be concerns that the FTC rule adds to an optometrist’s regulatory burden. The requirements set forth by the rule are modest and easy to comply with. Optometrists are already required to maintain detailed patient records so this new verification should require little if any increase in resources in order to comply with. 

The Contact Lens Prescription Verification Act, and other efforts to undermine the Contact Lens Rule should be rejected. The legislation would undermine patient freedom by chipping away at their right to purchase contact lenses from optometrists or a third party. Passing this legislation now, while the economy is still recovering, would increase costs and reduce healthcare choice and access for Americans across the country. 
 

Onward, 

Grover G. Norquist President, Americans for Tax Reform 

 

Photo Credit: Marco Verch Professional Photographer


Americans Oppose Taxing Unrealized Gains by an Overwhelming 3-to-1 Margin

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Posted by Isabelle Morales on Friday, June 11th, 2021, 2:35 PM PERMALINK

ProPublica hardest hit

Across all demographic groups, Americans strongly oppose taxing unrealized gains, according to a survey experiment with 5,000 respondents published in May 2021.

The paperThe Psychology of Taxing Capital Income: Evidence from a Survey Experiment on the Realization Rule, is authored by Professor Zachary D. Liscow of Yale University Law School and Edward G. Fox of the University of Michigan Law School. 

The researchers found:

"Respondents strongly prefer to wait to tax gains on publicly-traded stocks until sale versus taxing unsold gains each year: 75% to 25%. Though this opposition is strongest among those who are wealthier or own stocks, all demographic groups oppose taxing unsold gains by large marginsThis opposition persists and is often strengthened when looking across a variety of other assets and policy framings."

The realization rule requires that property must be sold before gains are taxed. By a margin of 75 to 25, people preferred this rule.  

The study also noted popular revolts against the property tax as evidence of the aversion to taxing unsold gains.

They asked participants about how a property tax should handle appreciated assets, noting that:

“In this context, respondents are again hesitant to fully tax gains on assets that have not been sold.”   

Survey-takers’ massive rejection of abandoning the realization rule held up even after they heard arguments in favor of this kind of taxation, when they themselves don’t own stock, and even if they’re Democrats.

A primary reason for this is because people use “mental accounting” heuristics, under which they react differently to unsold gains than other ways of getting richer, like wages:

"... These behaviors are often thought to result from people using heuristics that put stocks in different “mental accounts” than money in the bank or wages. Using these heuristics, most people treat stock investments as an “open” mental account until sale and do not fully internalize paper gains or losses."

After all, taxes paid on these assets would have to come from other sources of income, not the asset itself. 

The study explains this sentiment further:

"There is significant concern that unsold gains are not yet real in a sense. As shown in Table 4, the word most distinctively associated with opponents is “actual”—as in, taxpayers have not “actually” received income “yet.” Likewise, they note that the stock has not yet yielded “cash,” or anything in the taxpayer’s “hand.”"

Abandoning the realization rule is so unpopular that, even when told that this hypothetical tax would only impact those with over $10 million in wealth, the preference for taxing unsold stock gains only moderately increased by 9 percentage points to 34 percent.  

Many on the left including the progressive group ProPublica are suggesting that unrealized gains should be taxed annually.

Senate Finance Committee Chair Ron Wyden (D-Ore.) plans to introduce a bill to tax unsold gains on assets for the rich, in an initiative he calls, “Treat Wealth like Wages.” Another example of this would be the wealth tax, a proposal several Democrats, like Senator Elizabeth Warren (D-Mass.), have proposed.  

But as shown by the study, taxing unrealized gains cuts deeply against Americans’ sense of fairness and common sense.

Photo Credit: Stock Catalog


Biden’s Trillions in New Spending will Exacerbate Runaway Inflation

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Posted by Isabelle Morales on Thursday, June 10th, 2021, 5:50 PM PERMALINK

Inflation is running rampant in Joe Biden’s America. The Bureau of Labor Statistics found that in May, consumer prices increased by 5 percent on an annualized basis, the fastest increase since 2008. While this inflation has already hit American families hard, President Biden is pushing policies which would this problem even worse.  

According to BLS, the cost of many goods and services have increased significantly over the past year. For instance, lumber costs have increased 375 percent, car rentals have increased 110 percent, gasoline has increased 56 percent, airfares have increased 24 percent, and major appliances have increased by 12.3 percent. Furniture has increased 9 percent, whole milk has increased 7.2 percent, bacon has increased by 13 percent, and clothes have increased 6 percent.

Not only does inflation harm consumers by increasing household costs, but it can also have long lasting economic damage. As detailed in the New York Times:  

“Inflation can erode purchasing power if wages do not keep up. A short-lived burst would be unlikely to cause lasting damage, but an entrenched one could force the Fed to cut its support for the economy, potentially tanking stocks and risking a fresh recession.” 

With these trends in mind, it is especially concerning that President Joe Biden is pushing a multi-trillion budget, taking the U.S. to its highest sustained levels of federal spending since World War II, which is considered one of the most financially desperate times in American history. The budget calls for $6 trillion in spending for Fiscal Year 2022, spent on "infrastructure" and "human infrastructure." In reality, these plans are packed with wasteful spending. Flooding the U.S. economy with this kind of spending is bound to exacerbate inflation.  

Former US Treasury Secretary Larry Summers, a Democrat, has warned that Biden’s heaving spending could lead to stagflation. Janet Yellen, the Biden administration's Treasury Secretary, suggested that if inflation "becomes an issue", the Federal Reserve may have to raise interest rates, which could severely impede the recovery. In fact, all these factors could throw us into a deeper recession than before.  

Biden's policies have already resulted in a sluggish recovery. For example, job growth has been incredibly disappointing due to the administration's federal unemployment insurance benefits. The simple threat of Biden's tax hikes has resulted in some companies implementing a hiring freeze and/or putting off other investments and company plans. 

Despite the Biden administration’s assurances that inflation should not be a concern, voters are still deeply concerned about it. 

88 percent of voters say they are concerned about increased inflation, according to a recent Harvard CAPS and Harris poll. When asked what causes inflation, the top three answers were "Massive government spending," "Significant amounts of money being injected in the economy by the Federal Reserve," and "Uncontrollable government deficits."  

The Biden administration should focus on growing the economy and helping businesses and working families. Instead, they are pushing massive new spending projects to finance a liberal wish-list.  With inflation concerns growing, this is a particularly bad time to be trillions in new spending.

Photo Credit: The White House


Federal Unemployment Benefits Continue to Hinder Job Growth

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Posted by Isabelle Morales on Monday, June 7th, 2021, 4:15 PM PERMALINK

While a positive monthly jobs report is always a positive, there is no question that job gains in April and May have been below expectations. This clearly demonstrates the failure of the federal government providing Americans an incentive not to work through federal unemployment insurance (UI) benefits.

The federal government currently supplies an unemployment supplement, providing $300 a week to unemployed workers in addition to state unemployment benefits. Under this supplement level, over one-third of the workforce, or 37 percent of workers make more on unemployment than at work. This benefit will last through September 6th, 2021.

Because of this program, countless businesses are unable to find workers to hire. In March 2021, the National Federation of Independent Business (NFIB) reported a record-high share of 42 percent of small businesses couldn’t fill a job opening.  

Since then, job gains have been disappointing. In April, the U.S. economy added just 266,000 jobs and the unemployment rate rose to 6.1 percent, a far cry from Dow Jones estimates which predicted 1 million new jobs and an unemployment rate of 5.8 percent. In May, the numbers improved but were still below estimates. Employers added 559,000 jobs and the unemployment rate fell by 0.3 percentage points to 5.8 percent. This fell short of the 650,000 additional jobs analysts had predicted.  

At present, the U.S. economy still needs an additional 7.6 million filled jobs to reach its February 2020 pre-pandemic level. With a vast majority of states and localities open, we should be seeing more growth.  

In response to these concerns about labor shortages, President Biden and other Democrats have suggested that people aren’t disincentivized to work because of the UI benefits. Rather, workers are just too scared to go back to work because of the virus and/or they cannot find care for their children. In the same vein, the administration suggests, to avoid shortages, that employers just provide “fair wages” to workers. This suggestion, in and of itself, is an admission that UI benefits are disincentivizing work.  

Not only is this suggestion an admission of guilt, but it’s also a poor argument. First, politicians seem to forget that they shut down and limited the capacity of American businesses for months on end. Many are still trying to recover from the losses they suffered. The idea that employers could, en masse, provide high wages to compete with the federal government’s unfettered flow of cash is radically out-of-touch and a bit cruel.  

There is also no guarantee that providing marginally higher wages than what UI benefits offer would get people back to work. After all, most workers’ preference is not to work. If workers can be financially stable while not working, this could meet a higher utility level for them when compared to getting a bit more money but having to work.  

Ultimately, wages are not “fair” if they’re a result of a government-created distortion in the labor market. These problems will not see a solution until UI benefits are phased out.  

Thankfully, several states have begun the process of ending federal unemployment benefits early. At least 25 states, all led by Republican governors, have already begun this process, with some benefits ending as early as June 12. This will be a necessary step in ensuring the U.S. economy can go back to normal.

Federal unemployment insurance benefits have a clear depressing effect on job creation and growth. With these benefits, policymakers are making it increasingly difficult for businesses to operate and thrive. This complete lack of consideration for the economy in the long-term could cause serious damage in years to come. 

Photo Credit: Becky McCray


ATR Leads Coalition Opposing Raising Taxes on Energy and Eliminating the Deduction for IDCs

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Posted by Isabelle Morales on Monday, June 7th, 2021, 4:00 PM PERMALINK

ATR today released a coalition letter signed by 19 organizations and activists in opposition to a proposal by President Biden and Congressional Democrats to raise taxes on American energy producers through eliminating the deduction for intangible drilling costs (IDCs). 

IDCs allows independent energy producers to immediately deduct business expenses related to drilling such as labor, site preparation, repairs, and survey work. 

This provision in not a subsidy, loophole, or giveaway. Instead, it is an important tax provision that promotes investment, job creation, and growth.  

The deduction for IDCs is consistent with immediate expensing offered to all business investments, a policy change instituted in the Tax Cuts and Jobs Act of 2017. Currently, taxpayers can immediately deduct the cost of most assets in the year they are purchased. In this way, eliminating the deduction of IDCs would be highly discriminatory.  

Repealing this provision and raising taxes on oil and gas taxpayers is a reckless policy proposal that will threaten manufacturing jobs across the country, threaten American energy independence, and raise the cost of energy for American families. 

Click here to view the letter or read below. 

Dear Majority Leader Schumer, Republican Leader McConnell, Speaker Pelosi, Republican Leader McCarthy: 

 The undersigned organizations, representing millions of taxpayers, strongly oppose efforts to raise taxes on American energy. Specifically, we are opposed to discriminatory tax increases that would repeal legitimate cost recovery mechanisms like the ability to immediately expense intangible drilling costs (IDCs). This tax hike would eliminate jobs, raise the cost of energy for American families and businesses, and increase global reliance on hostile nations like Iran and Russia for energy. 

For decades, far-left Democrats and activist groups have undertaken a coordinated attack on reliable sources of energy produced in the United States, including oil and natural gas, through schemes like cap-and-trade, bans on hydraulic fracturing, and tax hikes all aimed at “keeping it in the ground.” Most recently, President Biden proposed numerous tax hikes on energy including a tax increase on IDCs in his fiscal year 2022 budget proposal. Senator Bernie Sanders and Representative Ilhan Omar recently introduced legislation that also includes this energy tax hike. 

The current tax treatment of IDCs allows American oil and gas companies to immediately expense the intangible expenses associated with drilling a well, like labor. Immediate expensing is not a “subsidy” nor a “loophole.” It is a legitimate cost recovery mechanism that should be made permanent throughout the tax code to encourage investment and job creation across the economy.  

The negative consequences of a discriminatory tax increase on IDCs would be felt throughout the economy. One study from 2013 found that President Obama’s attempt to raise taxes on IDCs would have eliminated over 230,000 jobs, reduced oil output by 3.8 million barrels/day, and cut U.S. capital investment by over $400 billion. These impacts would be felt across the country, but especially in states like Colorado, New Mexico, Pennsylvania, Texas, and West Virginia. 

 Thankfully, for these reasons, efforts to raise taxes on IDCs have been rejected by members of both parties for years.  

The American shale industry significantly contributed to our country’s ability to emerge from the last economic recession of the early Obama years – we should not impose discriminatory taxes on this industry now, as it is needed to help us recover from the current economic downturn.  

As Congressman Jodey Arrington recently noted in a letter signed by 55 members of Congress, “Using an ‘infrastructure’ package to weaken our energy infrastructure is a grave mistake that will hurt families, farmers, and small businesses still recovering from the pandemic.”  

We agree, and we strongly urge Congress to oppose energy tax increases, especially the discriminatory efforts to repeal the legitimate treatment of intangible drilling costs (IDCs) that support good-paying American jobs across the country.  

 

Sincerely, 

 

Grover Norquist 

President, Americans for Tax Reform 

 

David Williams 

President, Taxpayers Protection Alliance 

 

Garrett Bess 

Vice President, Heritage Action for America 

 

Ryan Ellis 

President, Center for a Free Economy 

 

James L. Martin
Founder/Chairman, 60 Plus Association 

 

Saulius “Saul” Anuzis
President, 60 Plus Association 

 

Carrie Lukas 

President, Independent Women's Forum 

 

Andrew F. Quinlan 

President, Center for Freedom and Prosperity 

 

Heather R. Higgins 

CEO, Independent Women's Voice 

 

Adam Brandon 

President, FreedomWorks 

 

Paul Gessing 

President, Rio Grande Foundation 

 

Daniel Turner 

Executive Director, Power the Future 

 

Brandon Arnold 

Executive Vice President, National Taxpayers Union 

 

Myron Ebell 

Director, Center for Energy and Environment, Competitive Enterprise Institute 

 

Jeff Mazzella 

President, Center for Individual Freedom 

 

Tom Schatz
President, Council for Citizens Against Government Waste 

 

James Taylor 

President, The Heartland Institute 

 

Jon Caldara 

President, Independence Institute 

 

Mario H. Lopez 

President, Hispanic Leadership Fund 

 

Photo Credit: Government of Alberta, Keystone XL Workers


New Poll Finds Voters Concerned About Unemployment Benefits, Inflation, Tax Increases, and Excessive Spending

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Posted by Isabelle Morales on Thursday, June 3rd, 2021, 4:20 PM PERMALINK

Voters are concerned about unemployment benefits, inflation, the impact of tax increases, and excessive spending, according to a recent Harvard CAPS and Harris poll.

Despite President Biden repeatedly claiming that his policies have overwhelming public support, this is yet another poll that questions this narrative.  

82 percent of voters say that there are a lot of unfilled jobs, with 76 percent of voters saying that a lot of people are staying on unemployment in order to make more money. 

This sentiment is correct. At the current federal unemployment supplement level of $300, 37 percent of workers make more on unemployment than at work. In this way, the federal government is offering over one-third of the workforce an incentive not to work. 

88 percent of voters say they are concerned about increased inflation. When asked what causes inflation, the top three answers were "Massive government spending," "Significant amounts of money being injected in the economy by the Federal Reserve," and "Uncontrollable government deficits." 

 Despite the Biden administration’s assurances that inflation should not be a concern, voters are still deeply concerned about it. After all, inflation is spiking. In April, consumer prices increased 4.2 percent overall. Used car and truck prices rose by about 21 percent, with a whopping 10 percent increase in April alone. Further, lumber prices have increased by 124 percent in 2021.    

With so many voters attributing inflation to increased spending, it’s likely that concerns about Biden’s $6 trillion budget proposal will grow.  

Most voters are concerned about the negative effects of raising taxes, with 64 percent saying an increase in the corporate income tax would increase consumer costs and 69 percent saying that raising taxes could cost the economy jobs and growth. 

Again, voters are correct. Biden’s tax hikes would eliminate one million jobs in the first two years and would eliminate 600,000 jobs per year over the first decade, according to a study by economists John W. Diamond and George R. Zodrow. As noted by Stephen Entin of the Tax Foundation, workers bear nearly 70 percent of the cost of a corporate tax through lower wages and fewer jobs.   

Further, according to a recent National Bureau of Economic Research paper, 31 percent of the corporate tax rate is borne by consumers through higher prices of goods and services. 

An overwhelming majority of voters are worried about how Biden's $5 trillion infrastructure and families plan will impact them: 

  • 82 percent of voters are concerned that it will lead to higher taxes down the line.
  • 79 percent are concerned that the plan will lead to economic uncertainty. 
  • 80 percent of voters are concerned it will lead to runaway inflation. 
  • 77 percent are concerned it will lead to lower economic growth.
  • 76 percent of voters are concerned that it will negatively impact their family finances.

 

Photo Credit: U.S. Embassy Jerusalem


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