Laurel Duggan

How Law Enforcement Can Steal Your Stuff

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Posted by Laurel Duggan on Friday, August 14th, 2020, 2:47 PM PERMALINK

Civil asset forfeiture was originally designed to limit the resources available to large-scale criminal enterprises. It morphed into a way for police to confiscate and then keep or sell an individual's property if it is allegedly involved in a crime; the owner does not even need to be arrested or convicted of said crime when police seize cash, cars or real estate. 

Through civil asset forfeiture, police are able to seize an individual’s private property with no warrant and without ever pressing charges. This is predicated on the legal fiction that an object can be guilty of a crime, making the property owner’s innocence irrelevant. A mere accusation that a piece of property was involved in illegal activity is sufficient for property to be confiscated by law enforcement. 

This poses an obvious risk to property owners, who can have their possessions (cash, cars, houses, and more) stolen by the government without being so much as accused of a crime. It also poses a threat to the integrity of our justice system. When police departments rely heavily on forfeitures for revenue, they will inevitably focus their resources on crimes that are profitable for police, rather than crimes that pose the most serious public harm. 

Some states have laws restricting the ability of government officials to seize private property without a conviction. In many cases, state and local laws do not allow seizures which would be permissible by federal officers. Fifteen states require a criminal conviction for most property forfeitures in civil courts, and civil asset forfeiture is banned outright in three states.

The equitable sharing program provides a loophole for law enforcement to collect revenue through forfeitures where local and state laws prohibit the practice. Through equitable sharing, states and localities can forfeit seized properties to federal authorities, who may then “share” as much as 80% of those proceeds with said state and local agencies. From 2000 to 2013, equitable sharing programs raked in $4.7 billion for state and local agencies; it is no wonder that law enforcement fights so hard to keep the practice alive.  

The financial needs of law enforcement obviously do not justify the equitable sharing program. Funding for government operations backed by taxpayers should be transparent.

Under federal law, property owners are required to prove that they did not know about or consent to an illegal use of their property in order to defend against asset forfeiture. Proving a negative is a difficult thing to do, and equitable sharing means that this standard can be applied even in areas where forfeiture reform has taken place. 

In addition to creating perverse incentives for law enforcement, equitable sharing undermines federalism. When Tony Jalali allowed two medical marijuana dispensaries to rent his retail property in full compliance with California law, he should have been protected by state laws banning forfeiture of property worth over $40,000 without a criminal conviction. But through equitable sharing, the federal government was able to seize his property. He was able to win back his property after a year of litigation and with help from the Institute for Justice, but otherwise the local government could have taken 80% of his residential property value; the federal government would have kept the rest. 

What is more troubling is the fact that Jalali could have had his property taken from him even if he had had no knowledge of the activities of his tenant. For example, the landlord of an apartment in which a tenant produced or sold drugs, or the owner of a car in which a friend drove erratically, could have the apartment or car confiscated by the government. Because of equitable sharing, states are by and large powerless to prevent these seizures.  

Americans shouldn’t need the full force of a major public interest law firm just to hold on to their own property. The equitable sharing program needs to be reexamined in order to bolster the independence of state and local governments. Moreover, civil asset forfeiture needs to be reformed at the state, local, and federal levels.  

Photo Credit: Michael Robert

Circus at the Antitrust Hearing

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Posted by Katie McAuliffe, Laurel Duggan on Thursday, July 30th, 2020, 3:03 PM PERMALINK

Congressional hearings of tech CEOs Sundar Pichai (Google), Jeff Bezos (Amazon), Mark Zuckerberg (Facebook), and Tim Cook (Apple) devolved into an hours-long circus as Democrats used the opportunity to create reelection campaign fodder.

The purpose of this hearing was to investigate alleged anticompetitive behaviors of dominant tech companies. About 25% of the questioning was somewhat related to antitrust policy—and this is a generous estimate. The remainder of questions revolved around partisan talking points like online hate speech, YouTube radicalization, and conservative censorship.

Antitrust law under the consumer welfare standard is designed to protect consumers from harm by monopolistic companies, not to protect companies from each other. None of the companies called before the Antitrust Subcommittee can be considered monopolies. Each one of them competes with other companies, tech or otherwise, both small and large, for revenue. And they are not using their strong positions in the market to harm consumers. Rather, they have each been using their resources to provide better products and slash prices.

Representative Armstrong (R-N.D.) wisely noted the harms of sweeping expanses of government power targeting certain companies, rather than going through the Federal Trade Commission’s already existent enforcement authority under the consumer welfare standard that operates on a case by case basis:

“When we try to hurt large companies, we entrench large actors and lock out new, smaller competitors."

On the rare occasion that Democrats’ questions were related to antitrust, the line of questioning belied the entire premise of the hearing: that concentration in tech is harming consumers. Time and time again, members of Congress asserted that Amazon and Facebook’s competitive strategies were harming their competitors by driving down prices. But the purpose of antitrust is to protect consumers, not competitors.

The mere fact that Apple was called to testify tells us that the hearing is not about antitrust; the hearing is about anger. Anger at tech for a number of reasons, but mostly because they are big.

Apple is in no way a violator of competition policy. Their primary business is hardware and software, not advertising, not data. They only hold 20% of the smartphone market13% of the personal computer market, and 28% of the tablet market. Tablets are the only personal device market in which Apple is dominant, and their share of that market is shrinking. As for operating systems, Android has more than double the market share as compared to Apple.  

“Apple does not have a dominant market share in any market where we do business. That is not just true for iPhone; it is true for any product category." ~Tim Cook

Apple created the entire App environment. Rather than keeping it as a closed system, they allowed individuals to create Apps which, once in line with certain conditions that provide security and support, can be downloaded by anyone on the App store. Some have complained that Apple’s App store discriminates against Apps that are not its own, but that opinion can’t be held for very long after looking into Apple’s policies, which they are very transparent about.

If Apple is a gatekeeper, what we have done is open the gate wider. We want to get every app we can on the Store, not keep them off.” ~Tim Cook 

In a particularly misguided line of questioning, Rep. Cicilline (D-R.I.) harangued Jeff Bezos for Amazon’s treatment of third-party sellers. “You say Amazon is only focused on what’s best for the customer. How is that possible when you undercut your prices and compete directly with third-party sellers?” Rep. Cicilline sees a conflict of interest between hosting outside retailers and offering low prices to consumers. He somehow fails to see that the diversity of retailers on Amazon drives down their prices, making products cheaper for consumers. 

Rep Cicilline went on to accuse Amazon of a litany of abusive business practices against retailers on its own site. He, along with several other members of Congress, claimed that Amazon exploited the small businesses it hosts through predatory pricing, and claimed that these businesses had no option other than Amazon.

There are 1.7M small & medium-sized businesses selling in Amazon’s stores. 200,000+ entrepreneurs surpassed $100,000 in sales in our stores in 2019. We estimate that third-party businesses selling in Amazon’s stores have created over 2.2M new jobs. ~Jeff Bezos 

In reality, Amazon has to compete with all retail, including Target, Costco, Kroger and Walmart, in addition to numerous online platforms that host third-party retailers, including Etsy, Facebook Market, EBay and Google Shopping. Even if this wasn’t the case, Amazon would have no obligation to host retailers on its privately-owned platform, and retailers have no obligation to use their services.

Like any retailer, Amazon could have chosen to keep their stores a closed system, selling only their own products. Instead, they opened the platform to hundreds of thousands of third-party retailers, many of whom are small businesses.

20 years ago, we welcomed 3rd-party sellers into our stores & enabling them to offer their products alongside our own. We didn’t have to invite third-party sellers into the store. We could have kept this valuable real estate for ourselves.” ~Jeff Bezos

Rep. Raskin (D-Md.) complained that Amazon’s Alexa was a monopoly, since it holds a 60% share of the smart speaker market. But if you define any market this narrowly, you’ll find monopolies everywhere you look. If you define your neighborhood as a market, your local gas station is a monopoly. Of course, Alexa devices compete in a much broader market than that; the device competes with smartphones, tablets, and personal computers, all of which conduct most or all of the same functions.

Rep Jayapal (D-Wash.) and Rep. Neguse (D-Colo.) both incorrectly called Facebook a monopoly. Not only is Facebook not a monopoly, they are not even the dominant firm in their market—the largest social media platform is YouTube. Additionally, Facebook’s primary revenue source is advertising. They aren’t dominant in that market either; Google beats them out by a wide margin.

In many areas, we are behind our competitors. The fastest growing app is #TikTok, and the largest messaging app is iMessage.” ~ Mark Zuckerberg

To provide one example, the cost of online advertising has plummeted 40% in the last decade. If Google has monopolistic power in the advertising realm, why aren’t they raising prices? The obvious answer is that there is robust competition in online advertising. Google competes with Facebook, Twitter, Pinterest, Comcast, and countless others for ad revenue. 

“Competition in ads — from Twitter, Instagram, Pinterest, Comcast & others — has helped lower online advertising costs by 40% over the last 10 years, with these savings passed down to consumers through lower prices.” ~ Sundar Pichai 

Democrats were also hostile to acquisitions and mergers, which they claimed were harmful to both consumers and competitors somehow. Rep. Neguse questioned Zuckerberg about acquisitions, condemning how successfully Facebook had acquired and improved various products and services. Never mind that these acquisitions improved the apps’ privacy and security features while making more apps free to the public. If the success of American businesses makes Democrats uncomfortable, then by all means we should let them weaponize antitrust law to beat private businesses into submission.

Those who want to expand government power favor a narrow definition of tech markets because they have no real evidence in terms of demonstrable consumer harm or rising prices. It allows them to build an antitrust case out of bitterness, and little else.

The presence of four companies—all of which compete with each other—should be sufficient evidence that there is no risk of monopolization. Competition in tech—from hardware to software to advertising—is robust. 

Photo Credit: POMED

The 4th Amendment is a Right - No Need to EARN IT

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Posted by Katie McAuliffe, Laurel Duggan on Monday, July 27th, 2020, 2:44 PM PERMALINK

It is easy for those in power and the broader public to see new technologies—the telephone, email, cloud storage, or end-to-end encryption—as somehow exempt from the privacy laws which govern other communications. But as technologies become more widely used for business and personal communication, we all come to understand the need to protect our interactions from surveillance.

Encryption is not a force for evil. It is used by businesses across the country to prevent online attacks and theft. It is common practice for hackers to target retailers in the U.S. to steal customer data and access their bank accounts, but attacks like these are largely impeded by encryption. When hackers stole the banking information of millions of customers in Target’s infamous data breech, the victims’ bank accounts were protected because their PINs were encrypted.

Encryption also promotes innovation. Businesses and individuals have little incentive to create and discover if their intellectual property will simply be stolen by criminals or foreign actors.  Innovation requires protection of proprietary data.

Building in a systemic weakness, while it may make law enforcement’s job easier, does not make anyone safer. Creating backdoors for law enforcement to get around encryption would weaken the technology as a whole; backdoors can be exploited by criminals to access users’ personal data.

The tension between the Fourth Amendment and Law Enforcement goals is not new and is important to preserve. Officials claim that encrypted data is “warrant-proof,” but this misrepresents the purpose of a warrant. Search warrants allow law enforcement to search for evidence, but do not guarantee that they will find evidence supporting or leading to any conclusions.

Encryption doesn’t just protect us from criminals; it protects us from the prying eyes of the government. The FBI has waged a years-long battle against encryption, which it views as an impediment to investigations. The federal government has been intercepting electronic communications for as long as it has been possible; federal agents began wiretapping phone calls in the 1920s. It tends to take the government years to adjust to changes in communications technology; it took decades for the Supreme Court to place limits on warrantless electronic surveillance.

Following years of unsuccessfully pressuring tech companies to give the government a backdoor to encrypted data, Congress and the Department of Justice changed their strategy. A high profile letter sent by U.S. intelligence agencies and numerous international allies linked end-to-end encryption with child sexual exploitation, claiming that Facebook would be harming children by offering encryption on its messaging services.

Reframing the encryption debate around the most heinous crimes imaginable is dishonest; it posits that, because criminals use their privacy to exploit the most vulnerable people in society, no one has a right to privacy. This line of thinking also presupposes that Big Brother is unfailingly benevolent; the FBI will have a backdoor to all online communications, but not to worry: they will only spy on you if you deserve it.

In a misguided attempt to address the very real problem of online child exploitation, Senators Lindsey Graham (R-S.C.) and Richard Blumenthal (D-Conn) introduced the EARN It Act. The legislation has honorable goals, but in practice would limit the ability of tech firms to offer encryption to users. This would restrict the ability of all Americans—including survivors of abuse—to protect their privacy and personal safety while online.

After a firestorm of criticism from across the political spectrum, the Senate Judiciary Committee approved a manager’s amendment to the EARN It Act. The amendment resolves the aspects of the original bill that would have threatened encryption most seriously: businesses cannot be held liable simply for failing to take actions that would undermine encryption services, and offering encryption will not be automatic grounds for liability for child sexual abuse material (CSAM). Critics point out that the amendment provides only a defense against liability, not immunity; the threat of litigation will still be sufficient to discourage tech companies from providing secure end-to-end encryption.

The amendment removes the legal authority initially granted to the commission created in the bill; the commission’s standards will be recommendations, not legal requirements. It also extends the amount of time that providers can preserve the contents of a report, which will help with the development of algorithms made to detect CSAM. 

However, the manager’s amendment brings a new set of problems to the table. It allows states to penalize companies with both civil and criminal liability. In addition to balkanizing the legal landscape for a business model that naturally crosses state lines, this would leave American tech businesses vulnerable to a firehose of destructive lawsuits. Endless litigation would likely lead to the end of America’s global leadership in tech. 

The amendment also revokes tech companies’ liability protection based on “actual knowledge” of the existence of CSAM. This is a step up from the “recklessness” standard in the earlier version of the bill, but it still creates perverse incentives that discourage tech companies from investigating CSAM. When knowledge triggers liability, companies will avoid learning about potential CSAM cases. This will lead to less, not more, action by tech companies to stop the spread of CSAM.

The ability to use privacy services provided by a private business is part of what makes our country great and distinguishes us from authoritarian countries like China, where the government is entitled to the private data of citizens. Efforts by the government to weaken encryption should raise red flags and inspire a continued effort to protect encryption.

Photo Credit: Jonathan McIntosh

ATR Urges Inclusion of Helping Gig Economy Workers Act

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Posted by Laurel Duggan on Friday, July 24th, 2020, 4:11 PM PERMALINK

Leave gig workers alone.

In the next coronavirus relief package, ATR urges the inclusion of the ​Helping Gig Economy Workers Act​, sponsored by Sens. Mike Braun (R-Ind.), Bill Cassidy (R-La.), Tim Scott (R-S.C.), and Kelly Loeffler (R-Ga.) The measure would allow companies to provide financial assistance and protective equipment to contractors for the duration of the public health emergency without taking on legal liability.

Platform companies have given free food deliveries and rides to first responders. They provided flexible work opportunities to the many Americans who became unemployed or furloughed during the pandemic. They have also taken measures to protect and support the gig workers who use their platforms through financial assistance and PPE. Yet by providing these benefits, platform companies are risking the forced reclassification of their contractors as employees, a change which would destroy their businesses. 

As noted by Sen. Braun: “Bottom line: this commonsense bill will provide a safe harbor for businesses who want to help the temporary and service workers helping us during COVID-19.”

By failing to create a legal safe harbor for digital platform companies, we will enable the buildout of a backdoor to a nationwide version of AB5, the disastrous bill which destroyed the livelihood of Californians working as freelancers and independent contractors. AB5 forced platform companies to reclassify gig workers as employees, which comes with considerable costs for employers and restrictions for workers. If enacted nationwide, such legislation would destroy the gig economy as we know it, along with the opportunity for millions of Americans to earn money on their own terms. 

Fortunately, officials are adamant about including liability protections with the next coronavirus package. Senate Majority Leader Mitch McConnell has now drawn a “red line” over liability protections and will insist that the provision is included in future relief packages. National Economic Council Director Larry Kudlow has said that businesses should not have to deal with any “trial lawyers putting on false lawsuits.”

“Every American should be free to work as an independent contractor. It is not just rideshare drivers but millions of Americans who work for themselves and choose that freedom and opportunity. Some politicians want everyone to have a boss, work 40 hours a week in the office and be easy to tax and unionize. Some Americans choose to be their own boss and work for themselves as independent contractors. They should have that right without asking anyone for permission,” said Grover Norquist, president of Americans for Tax Reform.  

Central to the gig economy is the freedom and independence of workers; independent contractors choose their own schedules, and can work as much or as little as they choose. The movement against platform companies fundamentally misunderstands the gig economy; it is not about corporate greed; it’s about worker freedom.

Photo Credit: Stock Catalog

More from Americans for Tax Reform

States Are, In Fact, Pursuing Police Reform

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Posted by Laurel Duggan on Thursday, July 9th, 2020, 2:23 PM PERMALINK

The killing of George Floyd has sparked a national conversation on police reform.

In Congress, Democrats have cynically blocked Sen. Tim Scott’s reform bill. But this issue is largely a state matter. The federal government can use aid to incentivize and punish certain choices, but ultimately, power resides locally. 

Despite some misperceptions, states and cities are busy proposing and enacting various reforms – for better and worse. Since late May, 169 police reform bills have been introduced in 23 states and the District of Columbia. With half the states acting, and most of the other half out of session by June, it’s disingenuous for anyone to say states are not taking action.   

Colorado passed legislation which requires body camera use by all officers, bans chokeholds and carotid holds, penalizes police officers who fail to intervene when another officer uses excessive force, and ends qualified immunity at the state level, among several other police reform measures. 

Police body cameras have been central to state level reform efforts. Bills have been introduced in New York, New Jersey, New Mexico, Georgia, and Tennessee which would expand the use of police body cameras and require preservation of filmed evidence. Some states, including New Mexico and New York, will impose penalties on police officers who fail to record public interactions. Massachusetts introduced a bill asserting the right of individuals to film police interactions with the public. 

There is considerable interest in banning no-knock warrants in light of Breonna Taylor’s death, although no legislation is currently underway at the state level. The city of Louisville, Kentucky, where Ms. Taylor was killed, has since banned no-knock warrants. The Kentucky legislature is not currently in session, but there may be efforts there and in other states to end the practice in coming months. No-knock warrants are legal in every state except Florida and Oregon. 

Other legislation is focused on police conduct. Georgia, Minnesota, New Jersey, New York, and Utah are considering bills which would ban or restrict the use of chokeholds. Iowa has already passed a bill banning the practice. Georgia, New York, and Minnesota are considering banning law enforcement from purchasing surplus military equipment from the Department of Defense. Additionally, bills introduced in Minnesota would impose liability on police officers for failing to intervene and report when another officer uses excessive force. 

Of course, we cannot forget that right before unrest burst out across the country, Arizona Democrats failed to support civil asset forfeiture reform, choosing instead to allow the continued seizure of innocent parties’ property by police. Asset forfeiture disproportionately impacts low-income individuals and poses an obvious conflict of interest which inhibits the equal distribution of justice. The fight for forfeiture reform must continue in states across the country. 

Cities like New York, Minneapolis, and Los Angeles have taken up “defund the police” efforts, dangerous gambits as these cities face an alarming rise in violent crime. 

 It is critical to remember there is more to the criminal justice system than the police. Overcriminalization causes unnecessary interaction between citizens and the authorities, and creates confusion as people cannot be expected to know what all the laws are. Additionally, policies like civil asset forfeiture and revenue-grabbing fines and fees turn police officers into tax collectors.  

There are many more areas in need of reform; policing isn’t to blame for every problem currently being debated.

Photo Credit: Adrian Owen

Frivolous Arrests Undermine COVID Prison Policy

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Posted by Laurel Duggan on Thursday, June 18th, 2020, 2:53 PM PERMALINK

American jails and prisons have become coronavirus hotbeds. In response to this crisis, states and localities are releasing prisoners to reduce overcrowding. Their efforts are being undermined by the continued arrest of low-level offenders.

The five largest known clusters of coronavirus in the U.S. are in correctional institutions. At Marion Correctional Institution in Ohio, more than 80% of the population is infected. Five staff members and eighty-four prisoners have died.

This poses an obvious risk to incarcerated populations, as jails and prisons are ill-equipped to deal with such a widespread outbreak. But the problem goes far beyond prison walls. Guards and other staff at correctional institutions risk contracting coronavirus and spreading the illness to their families and communities.

In light of this crisis, prisons and jails across the country are cutting populations through early release. Prison populations nationwide have fallen 20% in recent months, with Oregon cutting its prison population by nearly 50%.

For elderly and immunocompromised individuals, incarceration at Marion or a comparable institution comes dangerously close to a death sentence. Yet the health of the incarcerated must be balanced with public safety concerns; eligibility for early release must take into account the severity of the crime and the risk an offender poses to the public.

As law enforcement decides which individuals are eligible for early release, their efforts are negated by the arrest of low-level offenders who do not pose a serious risk to public safety. 

Shelley Luther, the Texas salon owner who was famously arrested for keeping her business open in violation of stay-at-home orders, spent two days in jail. Trivial arrests of this nature contribute to overcrowding and increase the risk of major outbreaks in jails. They also pose an unnecessary risk to the police officers carrying out arrests during a pandemic.

The same is true for arrests related to technical violations. Parolees who are unable to pay fines and fees—particularly during a nationwide economic shutdown which has left millions unemployed—should not be sent back to jail.

The limited resources of law enforcement must be reserved for those who pose a legitimate risk to public safety.

Photo Credit: Nenad Stojkovic

Illinois Lawmakers Hit Taxpayers Hard with Tax Hikes this Summer

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Posted by Laurel Duggan on Wednesday, August 7th, 2019, 3:13 PM PERMALINK

Families road tripping through the Midwest this summer are hitting an unpleasant surprise once they cross Prairie State lines— a whopping 38 cents-per-gallon gas tax.  

Illinois lawmakers kicked off summer break by doubling the state gas tax from 19 to 38 cents-a-gallon under Senate Bill 1939. To make matters worse, this dramatic tax hike went into effect on July 1st just as drivers sat in record-breaking holiday traffic.

The gas tax revenue will be used to pay for a massive infrastructure project—one that could arguably be funded without a significant tax increase. But raising taxes is what lawmakers do, rather than reforming government. Illinois is now home to the second highest state and local gas tax burden in the country, as noted by Illinois Policy.

Fortunately for those who have flexibility in their travel plans/routes, the state’s border with Indiana is lined with gas stations. Many Illinoisans already travel to Northwest Indiana on regular basis to fill up their gas tank due to the lower tax rates. This trend is likely to grow in popularity—resulting in revenue loss for the state and Illinois businesses who rely heavily on convenience store sales.

William Fleischli, Vice President of the Illinois Petroleum Marketers Association/ Illinois Association of Convenience Stores, expects that the state’s motor fuel volume sales will go down by 2-3% and convenience store sales by 10-12% due to the gas tax increase.

"Borders will become wider and our customers will cross them to buy motor fuel, cigarettes, and other ancillary items, costing the state tax dollars and companies profits," said Fleischli.

While families traversing across the Midwest may only fuel their car once or twice in the state, many Illinoisans don’t have that luxury. And unfortunately for Prairie State residents, Illinois lawmakers have no intention of letting up in their effort to raise taxes.  

Just last month, lawmakers raised the cigarette tax from $1.98 to $2.98-per-pack under Senate Bill 690. Illinois already had the thirteenth highest cigarette tax in the country before this tax went into effect—making it a popular destination for smugglers to import cigarettes across state lines. Now that Illinois dons the ninth highest cigarette tax in the nation, illicit cigarette activity is likely to get much worse.

Further, lawmakers are laying the groundwork for a progressive income tax code in the state. The Illinois House recently amended the state constitution’s longstanding ban on graduated income tax rates. From here, the issue will be placed on the ballot in 2020, where voters will decide whether or not they want to replace the flat 4.95% income tax rate with a bracketed income tax code.

If enacted, the tax code would provide a modest 0.2% tax cut for those earning less than $10,000 annually while nearly doubling the tax burden of those earning over $250,000 annually (from 4.95% to 7.75-7.95%). This massive tax hike, on top of the cigarette and gas tax hikes, would further drive businesses and job opportunities out of the state; the meager tax breaks for the poor will not make up for the loss of jobs the tax hikes would likely cause.

Illinois is moving in the wrong direction and it’s clear that many voters want out, as residents are leaving in droves. Yet lawmakers continue to paper over the state’s $14 billion deficit with tax hikes while failing to address the root causes of debt. Rather than driving families and businesses out of the state via high taxes, lawmakers should address the bad policies fueling the deficit: government spending. Until then, lawmakers can expect more Illinois residents to leave.

Photo Credit: J. Crocker

Local Income Taxes Pile on Top of State & Federal Burdens

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Posted by Laurel Duggan on Tuesday, August 6th, 2019, 5:27 PM PERMALINK

Federal taxes are bad enough, but when states taxes are added, the pain gets worse. Then for some unlucky Americans, their local governments add income taxes on top of it all, creating the most brutal high-tax environments in the nation – the New York’s and San Francisco’s of the world.

Income taxes are now imposed at the local level in jurisdictions within 17 states, making up over 10% of tax revenue in six of those states, according to a study conducted by the Tax Foundation on local income taxes.

Income taxes took hold at the federal level in 1913 and expanded to the states in the following decades. Income taxes were part of the early progressive movement. They became considerably more common during the Great Depression, when traditional revenue sources were no longer sufficient for providing tax revenue. The income tax was gradually adopted by cities and counties in the mid-century and was eventually imposed on 4,964 taxing jurisdictions.

Local income tax rates are typically 1 to 3 percent, and exist in various forms including wage taxes, payroll taxes, local service taxes, and occupational privilege taxes. Maryland leads in local income taxes, which claim 2.28% of adjusted gross income on average in the state, accounting for one third of local tax collections.

The local income tax can be levied against all income, earned income, or interest and dividend income. The tax is levied by counties, municipalities, school districts, and special districts. The complexity of these tax systems can create a significant compliance cost for local businesses. Some cities charge businesses a weekly flat rate per employee. Sometimes commuters are charged local income taxes for their work district, and other times they are exempted because they do not receive the full benefit of the local tax. Yonkers, New York has a confounding policy in which residents pay 16.75% of their state tax as a “piggy-back” local tax.

The majority of local income taxes are imposed on cities and towns in the Rust Belt and the Northeast. Unsurprisingly, local taxes have been imposed in notoriously high-tax states like New Jersey, New York, and California.

Those paying high local income taxes were impacted by the implementation of the limit on State and Local Tax Deductions (SALT) in 2018.  The $10,000 cap meant residents of high tax states would not be able to pass on the burdens imposed by their local and state governments. It is impossible to ignore the cost of income tax stacked atop sales tax stacked atop property tax (and so forth).

Instead of complaining at the federal government, these taxpayers should focus on the state and county legislatures, and city councils who have created the tax burdens they are no longer getting a discount on. 

Local income taxes could be used to replace other local taxes, like property taxes, but instead more often get piled on top of already lengthy tax bills to make life a living tax hell for families and businesses.

Photo Credit: Marco Verch

Taxpayer Misery: NY Desperate to Trap Fleeing Tax Dollars

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Posted by Laurel Duggan on Monday, July 29th, 2019, 9:25 AM PERMALINK

When New Yorkers flee the state to avoid high taxes, they are voting with their feet. The state is not handling the rejection well, desperately grabbing for these taxpayers’ wallets through aggressive residency audits.

When New York’s Department of Taxation suspects that a person is falsely claiming to live in another state to dodge taxes, they are able to audit a person’s residency through shockingly invasive searches of an individual’s personal information and property.

Auditors have been known to enter homes, search refrigerators, comb through phone records, social media feeds, and even dental and veterinary records to find any shred of evidence that a person spends more time than they claim in New York. Those who lose their audits are forced to pay the state’s punishing income tax.

With the average audit raking in $144,270, auditors have every incentive to continue harassing former New Yorkers.

There is a tremendous imbalance of power between tax emigrants and state auditors. Domicile status is subjective, so it does not take much to “prove” that a person is still a New York resident; the state wins more than half of the audits it takes on. John Gaied experienced this firsthand.

A New Jersey resident with a business in New York, Gaied became the target of a domicile audit which eventually made it to the New York Court of Appeals. He owned an investment property in New York, which he let his elderly parents live in. Auditors searched their home and found that Gaied did not have his own bed or any other personal belongings in the home.

Nonetheless, the Administrative Law Judge ignored the exculpatory evidence and determined that Gaied was a New York resident, demanding $253,062 in state income taxes. This bad decision was only overturned after Gaied leapt through countless legal hoops. Most people are not this fortunate. In the face of life-disrupting audits—which can last up to five years and may be repeated on an annual basis—it’s easier to just give up the case.

New York has some of the highest tax rates in the country. The SALT cap, enacted in 2018, placed a $10,000 limit on a tax deduction popular among high-income earners in high-tax states, making toxic tax climates like the Empire State more visible than ever.

New York recently lead the country in population loss, losing 48,000 residents between 2017 and 2018. Meanwhile, Texas and Florida—neither of which have an individual state income tax—lead in population gains. More New Yorkers move to Florida than to any other state. Florida even beat out neighboring states like New Jersey, Connecticut, and Pennsylvania, the historical havens for New York commuters seeking a lower cost of living (Census 2017). Even New York Gov. Andrew Cuomo admits that taxes are driving people out of the state.

According to Barry Horowitz, a partner at the WithumSmith+Brown accounting firm, high earners moving from New York to Florida have a 100% chance of being audited. This is unsurprising. New York’s wealthiest 1% pay nearly half of the state’s income taxes; as the wealthy flee an increasingly hostile tax system, authorities will do everything they can to maintain control over their money.

But New York cannot trap disgruntled taxpayers in the state forever. Residency audits are only a band-aid solution. The state is over $40 billion in debt, with state authorities incurring around $150 billion in debt, and faces $70 billion in unfunded liabilities (mostly in pensions and state employee health benefits). The only real long-term solution for New York is to curb excess spending and build a tax climate that welcomes businesses and residents.

Photo Credit: Matt Wade

Clean Slate Will Change Lives & Improve Pennsylvania Criminal Justice System

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Posted by Laurel Duggan on Monday, July 15th, 2019, 3:31 PM PERMALINK

Pennsylvania has begun automatically sealing the criminal records of individuals who were either never convicted, or have served time for lower-level misdemeanors and kept a good record. This Clean Slate legislation will be life-changing for those who struggle to find jobs and housing because of old criminal records.

House Bill 1419 calls for the state to automatically seal criminal records for cases in which a person was sentenced to less than one year, once they have gone ten years without any new convictions punishable by more than one year in prison. Those sentenced to less than two years for second- or third-degree misdemeanors may apply for record-sealing after the same ten-year interim.

Important exceptions apply to violent crimes including murder, child endangerment, kidnapping, and sexual offenses. Note that the average offender in Pennsylvania serves 3.8 years; this bill will only apply to the lowest-level offenders in the system.

The bill also ends the system in which individuals carry criminal records for life for crimes that they were never convicted of.

When a person is charged with a crime but not convicted, the accusation and its stigma can follow a person around for life. Khalia Robinson experienced this firsthand.

While six months pregnant, Ms. Robinson visited a crowded Chinese restaurant, where she accidentally knocked over a pile of CDs with her large stomach. Before she could finish picking them back up, she was arrested and charged with selling bootleg CDs. She was never convicted, but the charges remained on her record and haunted her for years.

“When you pull up my FBI record, it looks like I have a rap sheet as long as a thief,” she said.

Sealing criminal records for charges that never resulted in convictions is a commonsense measure to protect due process will prevent people from being discriminated against for crimes they did not commit.

For those who did commit crimes, these reforms are just as important.

A person who commits a low-level crime, serves their sentence, and goes ten years without any serious new convictions has clearly demonstrated that they are not a danger to society and are very unlikely to recidivate. However, such individuals can struggle to find jobs due to their criminal records. Job applicants with criminal histories receive sixty percent fewer callbacks from employers than their peers.

Jobs bring about stability and security; they allow individuals to provide for their families and weave themselves into their communities. These are keys to incentivizing long-term good behavior, and they are some of the most important elements of a satisfying life.

The same is true for housing. Eighty percent of landlords conduct background checks, so criminal records can hurt a person’s chances of finding a place to live even when charges are decades old.

Without a job or a place to live, people with criminal records are likely to fall into government dependency, homelessness, or criminal activity.

Rep. Sheryl Delozier (R-88th District) and Rep. Jordan Harris (D-186th District) deserve recognition for their work on this legislation. An estimated one million people will have their records sealed now that the bill has gone into effect.  

Photo Credit: Harvey Barrison