Isabelle Morales

Biden Administration Still Wants IRS to Snoop On Your Bank Account

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Posted by Isabelle Morales on Tuesday, November 30th, 2021, 3:50 PM PERMALINK

The Biden administration continues to push for the IRS to be given new powers to automatically snoop and store the bank account information of virtually every American.

Today during a Senate Banking Committee Hearing, Treasury Secretary Janet Yellen reaffirmed her support for the proposed IRS reporting requirement, would give the IRS new power to automatically access bank account, Venmo, PayPal, and CashApp account inflows and outflows for all business and personal accounts. 

This proposal is a clear priority for the Biden administration. Several weeks ago, Natasha Sarin, Deputy Assistant Secretary for Economic Policy at the U.S. Treasury Department, said that the Biden administration and congressional Democrats were still trying to insert IRS bank account snooping into the reconciliation bill.  

During the hearing, Senator Tim Scott (R-S.C.) posed Yellen a question, asking if she still supported this provision: 

“Can you tell the American people today, Secretary Yellen, whether you still support any form of the IRS bank reporting requirements your department proposed earlier this year, which would provide the IRS with currently undisclosed taxpayer information with the purpose of targeting, essentially, every single working American at minimum wage or higher?” 

She replied, confirming that she did, in fact, still support it:  

“I do support it. I think it’s important that the IRS have visibility into opaque income streams and that’s an important way to increase tax compliance.” 

Sen. Tim Scott then asked why the threshold was so low, given the “intended” purpose of this provision is to target millionaire and billionaire tax cheats: 

“If you’re looking to catch tax cheats, why in the world would you start with something as low as $600 and then revamp it to $10,000? Millionaires and billionaires are… certainly not making minimum wage.” 

Strangely, Yellen then explains that the low threshold, $600, is meant to avoid wealthy tax evaders from opening multiple accounts: 

“The low reporting requirement was meant to make evasion more difficult by opening multiple accounts.” 

This seems unlikely, as if someone was trying to shield $1 million from the Dems’ IRS bank account surveillance with a $600 reporting requirement, they’d have to open 1,666 bank accounts. The idea that this low threshold, or anywhere near it, was designed to prevent wealthy tax evaders from creating multiple accounts is not credible.

In reality, Democrats know that the IRS will need tools to use against the middle class in order to raise the amount of money they claim the IRS will raise through increased funding.  

Further, this reporting requirement would be a radical violation of privacy. This policy would give the federal government access to virtually every American’s account inflows and outflows. The proposal is not tailored nor targeted at all towards higher-income taxpayers or more “suspicious” behavior. Steven Rosenthal with the left-leaning Tax Policy Center explained that this reporting regime proposal would "bury the agency in a sea of unproductive information.” In fact, if a family's monthly expenses total just $833 a month, or about $200 a week, their bank information would be reported to the IRS. 

Additionally, the IRS already abuses current reporting laws. The IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating the existing $10,000 currency transaction reporting requirements, according to a 2017 report by the Treasury Inspector General for Tax Administration (TIGTA).   

The report found numerous abuses – IRS agents often failed to properly identify themselves, seized financial assets before ever having talked or consulted with investigated taxpayers, didn’t attempt to verify reasonable explanations investigated taxpayers offered, and did not inform taxpayers of important information nor the purpose of interviews. The outcome of these cases was often determined by how willing a taxpayer was to engage in litigation against the government, rather than how severe the alleged offense was, a clear violation of the Eighth Amendment. To make matters worse, the vast majority of taxpayers targeted were innocent.  

In October, Senator Tim Scott, with Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) and Senate Banking Committee Ranking Member Pat Toomey (R-Penn.), introduced the Prohibiting IRS Financial Surveillance Act,” which would bar the IRS from implementing this reporting regime.

Because Democrats have not given up on imposing this unpopular regime, this legislation is still vital. 

The new IRS reporting regime would violate taxpayer privacy, open taxpayers up to IRS harassment and abuse, and subject low- and middle-income taxpayers to grueling audits.

Photo Credit: "2021 Spring Meetings: Economic Recovery" by World Bank Photo Collection is licensed under CC BY-NC-ND 2.0.

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Norquist Warns Against Democrats’ Socialist Tax-and-Spend Package

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Posted by Isabelle Morales on Tuesday, November 23rd, 2021, 5:20 PM PERMALINK

Americans for Tax Reform President Grover Norquist appeared today on Fox Business Network’s Mornings with Maria to discuss the Democrats' socialist tax-and-spend plan, legislation they’ve named, “Build Back Better.” Norquist warned the bill will lead to higher taxes, reduced American global competitiveness, and tax carveouts for Democrats’ special interests.  

Norquist explained that the bill would give the US the highest top personal income tax rate in the OECD, the 3rd highest capital gains rate in the OECD, and create numerous tax carveouts for left wing special interests: 

“Well, it’s not good news and it could get worse. Remember, the Senate gets to play with this… The ideas that we worried about, like spying on your bank account, didn’t pass the House, but Biden still wants to do it and the Democratic Senators still want to do it. So, keep in mind, the list of horribles from the House: highest personal tax rate in the developed world, capital gains tax going up to 37 percent (the highest since Jimmy Carter), and then a series of targeted tax cuts – subsidies – that are political payoffs. Billions for trial lawyers to sue people… billions to the press… a tax cut for the rich people in blue states [through a SALT expansion].” 

Norquist also noted that the bill’s tax hikes on corporations will be primarily felt by middle-class workers and consumers:  

“One trillion dollars in “business taxes,” or corporate income taxes – that’s just a disguise tax on wages and higher prices. 70 percent of the corporate income tax is paid by workers directly in lower wages. We saw the opposite of that when Trump and the Republicans cut the corporate income tax and wages went up. Raise the corporate income tax, wages go down again. Politicians love the corporate income tax because it’s a way of hiding that they’re taxing the middle class.” 

Norquist also explained that this bill is part of the Biden administration's larger goal to impose a global minimum tax on corporations across the world: 

“The Democrats look at what’s happening to California and New York because people can choose to move to Texas and Tennessee and Florida. They realize that if they have the high taxes they want on Americans they have to protect against companies starting up in other countries, which is what’s going to happen – they’re going to drive investment overseas and they think with this corporate minimum tax that they can reduce that. Do you really believe that China will impose that tax on their businesses? Or Russia? It does give the Russians and the Europeans a veto over our tax cuts.” 

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Dem Bill Spends 23x More on IRS Enforcement than Taxpayer Services

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Posted by Isabelle Morales on Monday, November 22nd, 2021, 9:50 AM PERMALINK

Funding for audits, investigations, and other tax enforcement would be 23 times greater than funding for taxpayer education and assistance under Democrats’ just-passed tax and spend bill.

The bill will fund 1.2 million more annual IRS audits; about half will hit households making less than $75k.

Out of nearly $80 billion in new IRS funding, $44.9 billion, more than half, will go directly towards enforcement. The agency will receive a comparatively meager $1.93 billion in funding for taxpayer services, which include things like pre-filing assistance and education, filing and account services, and taxpayer advocacy services.

Clearly, the goal of this funding is to empower the IRS to audit and harass millions of American families, self-employed people, and small businesses including cash heavy businesses like nail-salons, barbershops, and food trucks. It would add a whopping 87,000 new IRS agents – enough to fill Nationals Park twice. That is a greater quantity of agents than all the personnel on all 11 U.S. aircraft carriers.

Any new IRS funding should be alarming given the IRS has a history of incompetence and corruption. In fact, most recently, the progressive group ProPublica announced it had the tax returns of thousands of taxpayers stretching back 15 years. This sensitive taxpayer data was either obtained through an unauthorized leak by an IRS employee or through a data breach – either way the IRS failed to safeguard taxpayer information.

More IRS Funding Will Lead to More Audits of the Middle Class and Small Businesses

Legions of new IRS agents will be unleashed for invasive and time-consuming audits of middle class Americans and small businesses. The IRS previously announced a goal to increase small business audits by 50%.

As previously reported by CNBC, experts say a fattened-up IRS would go after small businesses that necessarily depend on cash transactions:

Certain small businesses may face an audit under the plan. “I think the industries that should be concerned are those in cash,” said Luis Strohmeier, a Miami-based CFP and partner at Octavia Wealth Advisors.

[He expects the agency to scrutinize cash-only small businesses like restaurants, retail, salons and other service-based companies.]

The wealthy and large corporations already have armies of lawyers and accountants that ensure they legally take advantage of the plethora of credits and deductions offered by the tax code.

Further, the IRS already audits the largest corporations at high rates. It doesn’t matter how much more the agency receives in funding – they will not find violations in the law that do not exist. 

After the agency comes to this obvious conclusion, they will still be pressured to go find the $400 billion this funding is supposed to create. They will go after easier targets to find this money instead: businesses and individuals without legal teams and accountants.   

New IRS enforcement will fall on American families and small businesses, not the “rich.” 

Additional Funding Will Empower the IRS to Harass and Abuse Taxpayers

The IRS has been notorious for using its power to harass and abuse taxpayers.

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.

Additionally, TIGTA has repeatedly documented the IRS violating taxpayer rights. In one 2017 example, the IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating the existing $10,000 currency transaction reporting requirements.  

In these reporting requirement cases, almost none found actual fraud, the IRS seized financial assets before ever having talked or consulted with the investigated taxpayers, the IRS didn’t attempt to verify reasonable explanations investigated taxpayers offered, taxpayers were not informed of important information nor the purpose of the interview, and IRS-CI agents most often didn’t properly identify themselves. These were all offenses considered flat out violations of taxpayer rights afforded in the Internal Revenue Manuals.

Most voters are aware of this abuse, and subsequently believe that the IRS is already too powerful. A June 19 - 22 Fox News National Survey of 1,001 registered voters asked if the IRS has "too much power." 65 percent said yes, 31 percent said no. The same question asked in June 2019 produced a result of 60 percent yes, 34 percent no.

Because of this radical increase in funding coupled with no reforms, the agency will continue with its culture of abuse except now with more resources.

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. In 2019, 1,421 IRS and other Treasury Department employees spent 353,820 hours of taxpayer-funded union time (TFUT), costing $19.77 million in salary and use of government property.
     

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.

 

As Norquist wrote in one op-ed, “The IRS should not be rewarded for failing to reform, failing to obey the law, failing to fire those who break the law, and spending tax dollars to act as the enforcer for a partisan political machine.”

Despite claims that additional IRS funding is needed to solve problems with taxpayer services, like taxpayers being incapable of getting an IRS employee on the phone, of navigating through paperwork, of paying taxes, etc., virtually none of the funding in this plan would go towards these initiatives.

Democrats seek to supersize the IRS for the sole purpose of unleashing the agency on the American people via audits and investigations. Inevitably, low-income Americans, middle-income Americans, and small businesses will be the primary targets.

Photo Credit: Photo from IRS-CI Annual Report 2020

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Dems Include Tax Giveaway for Trial Lawyers in Socialist Spending Bill

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Posted by Isabelle Morales on Monday, November 15th, 2021, 10:50 AM PERMALINK

Democrats have included a tax break for trial lawyers in their multi-trillion-dollar socialist tax and spend bill. As noted by the Wall Street Journal editorial board, this provision would subsidize contingency fee cases and allow trial lawyers to launch frivolous lawsuits and drag out cases against businesses.

Currently, trial lawyers front these costs in return for a share of the client’s settlement or award. If they do not win the case or settle, trial lawyers can already write off the costs they fronted.

The provision included in the Democrats’ reconciliation bill would allow trial attorneys to deduct contingency-fee expenses including costs spent on depositions, discovery, expert testimonies, and more. According to the Joint Committee on Taxation (JCT), this provision would cost $2.5 billion over 10 years.

As noted by the WSJ, this will incentivize trial lawyers to drag out cases and launch frivolous new lawsuits with the confidence that they will receive a tax break:

“By reducing trial lawyers’ legal costs, it would effectively subsidize contingency-fee cases. Lawyers will be more likely to file dubious lawsuits and drag out cases if they can immediately deduct their expenses. This is a direct income transfer to plaintiffs' lawyers, who will turn around and finance Democratic election campaigns. It’s the definition of a corrupt political bargain.”

Nearly 95 percent of lawyers’ political donations go to Democrats. The top trial lawyer lobby, the American Association for Justice, directs over 97 percent of its political contributions to Democrats.  

This is just one of many giveaways Democrats have included in their mammoth multi-trillion tax and spending bill. Democrats have also included provisions for their other favored special interests including big labor, green energy, and the media:

  • The bill includes a massive $12,500 tax credit for electric vehicles. However, the bill dictates that in order to receive $4,500 of the $12,500 electric vehicle credit, an EV must be union-made.   
       
  • The bill also includes an above-the-line deduction for up to $250 in “dues” to a labor organization, including the portion of “dues” directed to political campaign spending. This is a conflict of interest as Big Labor gives most of its political contributions to Democrats and progressive causes.   
       
  • The legislation includes a credit equal to 30 percent of the cost of an electric bicycle. It allows up to $3,000 of the cost of an “e-bike” to be taken into account for the credit, creating a credit of $900 for individuals. E-bikes costing as much as $4,000 would be eligible for the credit. The bill would allow for a married couple earning $150,000 to buy two new electric bikes every year and claim up to $7,200 in e-bike credits.   
       
  • The plan includes multi-billion-dollar grants and credits for the promotion of “environmental justice,” and the "green workforce."   
       
  • The bill even includes a tax giveaway to reporters. The proposal creates a tax credit for up to 1,500 employees per media company – including television and radio broadcasters, news websites and newspaper chains. It gives an employment tax credit of up to $12,500 per person for reporters at “eligible” media companies. In addition to the conflict of interest created by giving reporters a special tax carveout, large media companies will get an enormous tax cut. As reported by the Associated Press: “Gannett, one of the nation’s largest remaining newspaper chains, could gain as much as $127.5 million over five years, according to an analysis by the AP.”

 

Unfortunately, Democrats have used their reconciliation bill as a massive payout to left wing special interests. Lawmakers should reject this bill and all its shameless giveaways.  

Photo Credit: "Legal Gavel & Open Law Book" by Blogtrepreneur is licensed under CC BY 2.0.

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Inflation Hits a 31-Year High as Wages Decrease 

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Posted by Isabelle Morales on Wednesday, November 10th, 2021, 10:05 AM PERMALINK

The consumer price index increased by 6.2 percent on an annualized basis before seasonal adjustment in October, a 31 year high, according to the Bureau of Labor Statistics (BLS). In October alone, inflation increased by 0.9 percent.  

In January 2021, before Joe Biden took over the presidency, annual inflation was at a stable 1.4 percent. Inflation has remained consistently high since Biden took office. While inflation has already hit American families hard, Democrats are pushing policies which would make this problem even worse.  

Since July of this year, the Biden administration has been insisting this problem would go away. Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen described this inflation as "transitory." Evidently, those claims have not held up.

Not only does inflation harm consumers by increasing household costs, but it can also have long lasting economic damage. Inflation erodes purchasing power, especially when wages do not keep up.  

The erosion of purchasing power is especially concerning given that wages are decreasing. Real average hourly earnings for all employees decreased 0.5 percent from September to October, seasonally adjusted. Real average weekly earnings decreased 0.9 percent over the month and hours worked in the average workweek decreased by 0.3 percent. In the past year, since October 2020, real average hourly earnings decreased 1.2 percent, seasonally adjusted. 

People are working less and earning less while inflation surges, meaning that purchasing power is being eroded. 

According to BLS, the cost of many goods and services have increased significantly over the past year:  

  • Gasoline has increased 49.6% in the past 12 months, 6.1% in October alone. 
  • Used cars and trucks have increased 26.4% in the past 12 months. 
  • Meats, poultry, and eggs have increased 11.9% in the past 12 months. 
  • Beef has increased 20.1% in the past 12 months. 
  • Bacon has increased 20.2% in the past 12 months. 
  • Fresh fish and seafood have increased 11.0% in the past 12 months. 
  • Furniture and bedding have increased 12.0% in the past 12 months. 
  • Bread and crackers have increased 7.5% in the past 12 months. 
  • TVs have increased 10.4% in the past 12 months. 

 

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."  

Still, Democrats are moving forward with two multi-trillion-dollar bills, the infrastructure bill and the reconciliation bill. The idea that this level of wasteful spending, packed with handouts to green energy, big labor, and welfare expansion, is appropriate during a time of such high inflation is careless and short-sighted.  

The reconciliation bill also includes massive tax hikes on businesses, like the 15 percent global minimum tax, 15 percent domestic minimum tax, and a new surtax on adjusted gross income (AGI) that will hit pass through businesses. This, similarly, will be passed on to consumers through higher prices. According to a 2020 National Bureau of Economic Research paper, 31 percent of the corporate tax rate is borne by consumers through higher prices of goods and services. By an 81 to 19 margin, voters believe raising taxes on corporations will increase the cost of goods and services, according to a new poll conducted by HarrisX.

The Biden administration and congressional Democrats should focus on growing the economy and helping businesses and working families. Instead, at the expense of Americans’ financial security, they are pushing tax increases and wasteful spending.  

Photo Credit: "Man holding empty wallet. No money" by Jernej Furman is licensed under CC BY 2.0.

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Senator Cruz Introduces Bill to End Taxation of Inflationary Gains

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Posted by Isabelle Morales on Wednesday, November 3rd, 2021, 5:35 PM PERMALINK

Today, Senator Ted Cruz (R-Texas) introduced the Capital Gains Inflation Relief Act, a bill that would index many assets to inflation to protect taxpayers from paying taxes on inflationary gains. Rep. Warren Davidson (R-Ohio) introduced the same bill in the House of Representatives. 

Senate cosponsors of this bill include Sens. Thom Tillis (R-N.C.), Mike Braun (R-Ind.), John Barrasso (R-Wyo.), Pat Toomey (R-Pa.), Jim Inhofe (R-Okla.), and James Lankford (R-Okla.). 

“Senator Cruz should be commended for reintroducing the Capital Gains Inflation Relief Act. Not only does this bill end the unfair practice of taxing inflationary gains, but it will help grow the economy by encouraging saving, investment, and innovation.  It is always a good idea to index capital gains to inflation but because of Joe Biden's inflation, it is more important than ever to do it now,” said Grover Norquist, President of Americans for Tax Reform. 

Senator Cruz's legislation would index to inflation any common stock in a C corporation, digital assets, and any tangible property which is a capital asset or property used in the trade or business.  

This bill is incredibly important, as the taxation of phantom gains has distortionary, perverse effects on investment. For example, it creates a “lock-in” effect, discouraging investors from selling their assets. This prevents investors from productively moving their money to invest in newer, more promising companies. It also discourages investors from investing in companies, particularly long-term investments. Stifled investment has a plethora of negative outcomes: slowed wage growth, new business growth, lower retirement account values, etc. 

Inflation comprises a significant portion of capital gains taxes. In 2019, ATR calculated that inflation would have comprised 70 percent of the tax owed on IBM shares purchased in 1970, 64 percent of the tax owed on Exxon Mobil shares purchased in 2000, and the entire gain of Coca-Cola shares purchased in 1998. 

Senator Cruz’s legislation is especially important now given inflation is running rampant. In September, the consumer price index increased by 5.4 percent on an annualized basis. The cost of gasoline has increased 42.1 percent in the past 12 months, used cars and trucks have increased 24.4 percent, while meats have increase 12.6 percent.

88 percent of voters say they are concerned about increased inflation, according to a recent Harvard CAPS and Harris poll. In fact, inflation is a top concern for voters across the country.  

These trends will also erode the returns investors will get after selling and paying taxes on assets.

Interestingly, even current Senate Minority Leader Chuck Schumer (D-N.Y.) once supported ending inflation tax on capital gains. In a 1992 video then-congressman Chuck Schumer stated: 

“If we really want to increase growth, there are proposals that we can do. I would be for indexing all capital gains and savings and borrowing.” 

Current House Majority Leader Steny Hoyer (D-Md.) also supported indexing capital gains to inflation in 1992. He said:  

“The capital gains provisions in H.R. 4287 benefit small business by indexing newly purchased assets. Income gauged would be much more reliable so that, real not inflationary gains will be taxed, and taxed at the same 28 percent maximum rate on gains.”  

The federal government should not continue their unfair practice of taxing phantom gains. Congress must act in order to protect retirees and investors from the rampant inflation they created. All lawmakers should support Senator Cruz’s Capital Gains Inflation Relief Act, spurring investment, economic growth, and innovation.  

Photo Credit: "Ted Cruz" by Gage Skidmore is licensed under CC BY-SA 2.0.

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Dem Plan Will Impose Highest Income Tax Rate in Developed World

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Posted by Isabelle Morales on Tuesday, November 2nd, 2021, 3:05 PM PERMALINK

President Joe Biden and Congressional Democrats want to impose the highest income tax in the developed world.

Under the Democrat multi-trillion dollar tax and spend bill, the average top income tax rate will reach 57.4 percent, according to an analysis by the Tax Foundation. This would be the highest rate in the Organisation for Economic Co-operation and Development (OECD), where the average top income tax rate on personal income is 42.6 percent.

Taxpayers in eight states and the District of Columbia would face rates exceeding 60 percent, as the Tax Foundation notes. For instance, New York taxpayers would face a 66.2 percent top rate, while California taxpayers would face a 64.7 percent top rate. Even in states with no income tax, like Florida and Texas, taxpayers would still face a top rate of 51.4%.

The Democrats’ reconciliation framework currently includes a “millionaires’ tax,” a surcharge on modified adjusted gross income (MAGI). This is a tax on all the income earned by a taxpayer before it can be reduced by existing deduction and credits. If a taxpayer’s MAGI is above $5 million ($10 million for joint filers), they would face a 5 percent surcharge on the income. If their MAGI is above $12.5 million ($25 million for joint filers), they would face an additional 3 percent charge, facing a total 8 percent surcharge. 

This tax increase will hit small business that are organized as sole proprietorships, LLCs, partnerships and S-corporations. These “pass-through” entities pay taxes through the individual side of the tax code. Of the 26 million businesses in 2014, 95 percent were pass-throughs. Pass-through businesses also account for 55.2 percent, or 65.7 million of all private sector workers. 

A significant portion of business income is paid through the individual side of the tax code. 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." To be clear, this is a tax hike on individuals and businesses. 

Under the same framework, Democrats would also impose the third-highest top marginal capital gains rate in the OECD. This is because the aforementioned 8 percent tax would also apply to capital gains income. This results in a 31.8 percent top marginal capital gains tax rate. Once the average state capital gains rate is included, the U.S. rate rises to 37 percent, the third-highest in the developed world behind Denmark (42 percent) and Chile (40 percent).  

The capital gains tax imposes double taxation on corporate income – first, businesses pay the corporate income tax on their earnings. Second, the investor pays the capital gains tax on dividends received or stocks when they are sold. This double taxation discourages savings, suppresses productivity, and discourages investment. Ultimately, this tax hike will threaten business creation, business expansion, entrepreneurship, and jobs and wages. 

It could also reduce retirement savings, as millions of retirement accounts are linked to the stock market.  

A capital gains tax hike could even reduce federal revenues in the short term. Because the tax only applies when a taxpayer sells the asset, a high capital gains rate discourages individuals from selling in order to delay having to pay the tax. Historically, when the capital gains tax was cut, revenue increased. When the capital gains tax is low, investment increases, stock prices increase, and revenue goes up. The inverse is of course true. 

Democrats are not proposing taxing Americans like Europe but instead are trying to impose tax rates that are more confiscatory than European rates. Lawmakers should reject these tax hikes, as they will ultimately slow growth, shrink wages, reduce Americans’ retirement savings, and depress investment. 

Photo Credit: "Tax Collector / FL DMW" by Rusty Clark is licensed under CC BY 2.0. This image was adapted to be black & white.

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Dems Set to Use Budget Gimmicks to Provide Giveaway for Wealthy Blue State Taxpayers

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Posted by Isabelle Morales on Monday, November 1st, 2021, 1:25 PM PERMALINK

"I think they've raised the bar for cynical budget gimmicks." -- Len Burman of the progressive Tax Policy Center.

In order to pass a tax giveaway for wealthy, blue state Americans, Democrats are set to use budget gimmicks in their tax-and-spend reconciliation bill.  

House Democrats have floated suspending the current $10,000 State and Local Tax (SALT) deduction limit for the next two years (2022 and 2023). The provision is set to expire after 2025, so Democrats want to “pay for” this change by extending the expiration for two more years (2026 and 2027). Because Congressional budget rules estimate the cost of policy changes over a ten-year window, Democrats would create the illusion that this provision is fully paid for.  

This would create the appearance that the bill is less costly, while many Democrats would still seek to extend the suspension in the future. Democrats are using similar methods to hide the cost of the bill when it comes to the length of time or size of the proposed welfare programs.

For example, Democrats are considering extending the fully refundable Child Tax Credit for only one year, offering universal pre-kindergarten for only one to three years, expanding the ACA credit for just one year, and more.  

Democrats from high-tax blue states are desperate to repeal the SALT cap because their constituents balk at the true tax burden from living in these states. In 2017, the Republican Tax Cuts and Jobs Act (TCJA) capped the SALT deduction at $10,000 in order to pay for much needed tax relief for working- and middle-class Americans. This was the right policy because it meant that the federal government was not subsidizing state taxes. Repealing the SALT deduction cap would shield taxpayers from bad state tax policy.

Many Democrats blatantly lie when claiming that the SALT deduction cap harms the middle class. In reality, a majority of Americans do not claim the SALT deduction, or any deduction for that matter. Instead, they claim the standard deduction. In 2018, 133 million American taxpayers (or 87% of filers) claimed the standard deduction. These taxpayers deduct zero state and local taxes. In addition, most middle-income taxpayers in blue state saw a significant tax cut. According to IRS Statistics of Income Data, the average taxpayer in both New York State and New Jersey earning between $50,000 and $200,000 saw a tax cut between 2017 and 2018.   

Many on the left have already acknowledged that the SALT cap does little or nothing to benefit the middle class. For instance:   

  • The New York Times described the SALT deduction as “The Tax Cut for the Rich That Democrats Love.”   
       
  • The Center for American Progress has stated that repeal of the SALT cap “should not be a top priority” as it would “overwhelmingly benefit the wealthy, not the middle class.”   
       
  • Referring to repealing the SALT deduction, Rep. Alexandria Ocasio-Cortez said, "I think it's just a giveaway to the rich... and I think it's a gift to billionaires."   
       
  • Senator Bernie Sanders (I-Vt.) recently criticized efforts to repeal the SALT cap, arguing that it “sends a terrible, terrible message... You can't be on the side of the wealthy and the powerful if you're gonna really fight for working families.”   
       
  • The left-of-center Tax Policy Center found that the top 1 percent of households would receive 56 percent of the benefit of repealing the SALT cap, and the top 5 percent of households would receive over 80 percent of the benefit. The bottom 80 percent of households would receive just 4 percent.   
     
  • Len Burman of the progressive Tax Policy Center said this of the Dems' chicanery: "I think they've raised the bar for cynical budget gimmicks."
       
  • The Brookings Institution explained that almost all (96 percent) of the benefits of SALT cap repeal would go to the top quintile, 57 percent would benefit the top one percent (a cut of $33,100), and 25 percent would benefit the top 0.1 percent (for an average tax cut of nearly $145,000). Whether or not this is a tax cut for the wealthy is not up for debate—the evidence is clear.  

 

Democrats should explain their use of budget gimmicks to hide the true costs of their massive tax and spending bill and why they are prioritizing a costly tax break for wealthy blue state Americans. This tax break is terrible policy that would subsidize high tax states and do little or nothing to benefit the middle class.

Photo Credit: "2020 AFGE Legislative Conference" by AFGE is licensed under CC BY 2.0.

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Poll: Voters Oppose Bank Snooping Plan, Believe it Will Increase Audits on Taxpayers Making Less than $400k

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Posted by Isabelle Morales on Thursday, October 28th, 2021, 11:05 AM PERMALINK

Voters overwhelmingly oppose President Biden’s proposal to have the IRS collect information on the withdrawals and deposits for millions of bank, loan, and investment accounts as well as Venmo, CashApp, and PayPal accounts. According to a new poll by HarrisX, 66 percent of voters oppose this plan, while just 34 percent of voters support it. 71 percent of voters believe it will increase audits on Americans making less than $400,000 per year, compared to just 29 percent who think it will not increase audits.

President Biden’s budget proposed tracking any account exceeding gross inflows and outflows of $600. More recently, Senate Democrats have suggested a threshold of $10,000. A $10,000 threshold is little more than $200 in total inflows or outflows per week or $800 per month, amounts that many Americans could easily hit.

The poll was conducted between October 26 - 27 among 937 registered voters. The sampling margin of error of this poll is plus or minus 3.2 percentage points and results reflect a nationally representative sample of registered voters.

Respondents were asked the following:  

The IRS has proposed requiring the reporting of any bank account, investment account, or PayPal/Venmo account of Americans that have over $10,000 in total withdrawals and deposits over the course of a year. Do you support or oppose this proposal? 

66 percent of respondents said they opposed this proposal, while just 34 percent of respondents indicated their support for the proposal. 

There was strong opposition to this plan amongst key demographics including:

  • 60 percent of male voters
  • 72 percent of female voters
  • 81 percent of Republicans
  • 50 percent of Democrats
  • 70 percent of independents
  • 51 percent of Biden voters
  • 73 percent of suburban voters
  • 79 percent of rural voters

 

Voters also believed that this plan would increase audits on Americans. They were asked the following:

Regardless of whether or not you support the IRS proposal, do you think surveilling bank accounts, investment accounts, or PayPal/Venmo accounts of Americans that have over $10,000 in total transactions would increase audits for Americans making less than $400,000 per year? 

  • Yes, this would increase audits for Americans making less than $400,000 per year 
  • No, this would not increase audits for Americans making less than $400,000 per year 


71 percent of respondents answered, “Yes, this would increase audits for Americans making less than $400,000 per year,” while just 29 percent answered, “No, this would not increase audits for Americans making less than $400,000 per year.” 

By strong majorities, the following demographic groups said this would increase audits on Americans making less than $400,000 a year:  

  • 75 percent of male voters
  • 68 percent of female voters
  • 80 percent of Hispanics
  • 77 percent of Republicans
  • 70 percent of Democrats
  • 65 percent of independents
  • 69 percent of Biden voters
  • 67 percent of suburban voters
  • 78 percent of urban voters
  • 71 percent of rural voters

 

The Joint Committee on Taxation (JCT) estimates that taxpayers in every single income bracket would be impacted by this reporting requirement. This is a radical violation of privacy, will subject virtually every American to IRS abuse, and is not consistent with Democrats’ goals of making the “rich pay their fair share.”  

This would be a radical violation of privacy. This policy would give the federal government access to virtually every American’s account inflows and outflows. The proposal is not tailored nor targeted at all towards higher-income taxpayers or more “suspicious” behavior.  In fact, if a family's monthly expenses total just $833 a month, or about $200 a week, their bank information would be reported to the IRS. 

Additionally, the IRS already abuses current reporting laws. The IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating the existing $10,000 currency transaction reporting requirements, according to a 2017 report by the Treasury Inspector General for Tax Administration (TIGTA).   

Voters are entirely correct about this proposal. The IRS has a long record of targeting and harassing taxpayers and this proposed new financial reporting regime is a violation of privacy, that would provide another avenue for the agency to target taxpayers including low- and middle-income Americans. 

Photo Credit: "Middle-aged woman holding credit card and typing on laptop at home. Arms closeup." by Nenad Stojkovic is licensed under CC BY 2.0.

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Lawmakers Should Support the Prohibiting IRS Financial Surveillance Act

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Posted by Isabelle Morales on Monday, October 25th, 2021, 10:10 AM PERMALINK

Last week, Senator Tim Scott (R-S.C.), with Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) and Senate Banking Committee Ranking Member Pat Toomey (R-Penn.), introduced the Prohibiting IRS Financial Surveillance Act,” which would bar the IRS from implementing Democrats’ proposed reporting regime on the bank, loan, and investment accounts used by virtually every American. There is also a House companion bill introduced by Rep. Drew Ferguson (R-Ga.).  

Democrats’ reporting regime would force financial institutions to collect any personal or business account in which the total withdrawals and deposits exceed at least $10,000 throughout the year. The Joint Committee on Taxation (JCT) estimates that taxpayers in every single income bracket would be impacted by this reporting requirement. This is a radical violation of privacy, will subject virtually every American to IRS abuse, and is not consistent with Democrats’ goals of making the “rich pay their fair share.” 

Sen. Scott’s bill explicitly prohibits the disclosure of any account’s outflows and inflows: 

“The Secretary of the Treasury (including any delegate of the Secretary) may not require any financial institution to report – 

(1) the inflows or outflows of any account maintained by such institution, or  

(2) any balances, transactions, transfers, or similar information with respect to any such account…” 

The proposed reporting regime is a radical violation of privacy. This policy would give the federal government access to virtually every American’s account inflows and outflows. The proposal is not tailored nor targeted at all towards higher-income taxpayers or more “suspicious” behavior. Steven Rosenthal with the left-leaning Tax Policy Center explained that this reporting regime proposal would "bury the agency in a sea of unproductive information.” In fact, if a family's monthly expenses total just $833 a month, or about $200 a week, their bank information would be reported to the IRS.

Additionally, the IRS already abuses current reporting laws. The IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating the existing $10,000 currency transaction reporting requirements, according to a 2017 report by the Treasury Inspector General for Tax Administration (TIGTA).  

The report found numerous abuses – IRS agents often failed to properly identify themselves, seized financial assets before ever having talked or consulted with investigated taxpayers, didn’t attempt to verify reasonable explanations investigated taxpayers offered, and did not inform taxpayers of important information nor the purpose of interviews. The outcome of these cases was often determined by how willing a taxpayer was to engage in litigation against the government, rather than how severe the alleged offense was, a clear violation of the Eighth Amendment. To make matters worse, the vast majority of taxpayers targeted were innocent. 

Finally, one must wonder: “Why would Democrats be pushing for this policy if their stated goal is to make millionaires and billionaires pay their fair share?” Evidently, even Democrats know that the IRS will need tools to use against the middle class in order to raise the amount of money they claim the IRS will raise through increased funding. 

Cosponsors of the "Prohibiting IRS Financial Surveillance Act" include Senators Mitch McConnell (R-Ky.), John Thune (R-S.D.), John Barrasso (R-Wyo.), Joni Ernst (R-Iowa), Roy Blunt (R-Mo.), John Cornyn (R-Texas), Roger Marshall (R-Kan.), Thom Tillis (R-N.C.), Cynthia Lummis (R-Wyo.), Steve Daines (R-Mont.), John Kennedy (R-La.), Jerry Moran (R-Kan.), Kevin Cramer (R-N.D.), Richard Shelby (R-Ala.), Mike Rounds (R-S.D.), Chuck Grassley (R-Iowa), Richard Burr (R-N.C.), Todd Young (R-Ind.), John Hoeven (R-N.D.), Cindy Hyde-Smith (R-Miss.), Roger Wicker (R-Miss.), Marsha Blackburn (R-Tenn.), Jim Risch (R-Idaho), Mike Braun (R-Ind.), Shelley Moore Capito (R-W.Va.), Ben Sasse (R-Neb.), Tom Cotton (R-Ark.), Mitt Romney (R-Utah), James Lankford (R-Okla.), Jim Inhofe (R-Okla.), Dan Sullivan (R-Alaska), Josh Hawley (R-Mo.), Marco Rubio (R-Fla.), Rick Scott (R-Fla.), Ted Cruz (R-Texas), Bill Hagerty (R-Tenn.), Tommy Tuberville (R-Ala.), Lindsey Graham (R-S.C.), Ron Johnson (R-Wis.), Rand Paul (R-Ky.), John Boozman (R-Ark.), Mike Lee (R-Utah), Susan Collins (R-Maine), Deb Fischer (R-Neb.), and Rob Portman (R-Ohio).

The IRS has a long record of targeting and harassing taxpayers. This proposed new financial reporting regime is a violation of privacy, would provide another way for the agency to target taxpayers, and would disproportionately harm low- and middle-income Americans. To protect taxpayers, all lawmakers should support the “Prohibiting IRS Financial Surveillance Act.” 

Photo Credit: "Tim Scott" by Gage Skidmore is licensed under CC BY-SA 2.0.

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