Ryan Ellis

Mr. Freeze? Hardly.<br> The Fake Spending "Restraint" of Obama

Posted by Ryan Ellis on Tuesday, January 26th, 2010, 2:40 PM PERMALINK

The political media is awash in news that President Obama will propose a freeze in non-defense, non-security discretionary spending over the next three years.  This will reduce the spending baseline by $250 billion over the next decade. 

A few thoughts:

  1. Welcome to the fiscal responsibility party, Mr. President.  After a year of trillion-dollar bailouts, trillion-dollar stimulus bills, and trillion-dollar healthcare plans, it's nice to see at least a rhetorical nod toward sanity coming out of the White House.
  2. One little problem: CBO was actually projecting a decline in non-defense discretionary spending over the next few years (from $682 billion in FY 2010 gradually down to $640 billion in 2014).  It's right there in Table 3-1 of the CBO report.  The reason is all the "temporary" spending programs that were enacted the first year of the Obama Administration.  This is like the weatherman taking credit for a sunny day--it was happening anyway.  In fact, freezing this spending is actually a hike in projected spending over the next several years.
  3. The spending "restraint" is a drop in the bucket.  Let's take the White House claim on its face--that this measure will reduce total spending over the next decade by $250 billion.  CBO says that under current services, the federal government will be spending $42.9 trillion.  So even if this "freeze" is followed through on by the Congressional appropriators, the Obama-Pelosi-Reid regime will still be spending 99.42% as much as they were planning to, anyway.  Big deal.  It's like if you were planning on spending $100 on groceries this week, and instead spent only $99.42.
  4. It's awfully heroic to say that you're not going to increase spending after it just went up by 17.4 percent.  That's right: non-defense discretionary spending grew by 17.4 percent in Obama's first year.  Even if it stays at that level for the next three years, that would still be an average annual increase of 5.5 percent.  That's faster than the economy is expected to grow, and faster than wages are expected to grow.

So what's a better idea?

The freeze is not a bad concept: it just comes a year too late.  It's as if someone stumbled out of an all-you-can-eat buffet in a food coma and vowed to eat no more than that every day for the next three years.

What we need to do is back out that huge spending of 2009.  Going into 2009, non-defense discretionary spending was $581 billion.  The 2010 level (approved last year) of $681 billion should be pared back to this still-massive 2009 level.  That would require finding $101 billion in cuts in FY 2010 spending bills (something Dr. Coburn should be able to do easily), and then keeping domestic spending at $581 billion.  Oh, and it should be that way for the entire budget window.

By having a "real freeze" of $581 billion, federal spending will be almost $1 trillion less than CBO projects, which is still 97.7 percent of the spending which was going to happen anyway.  Nonetheless, this would be a real step toward progress.

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Who's Going to Pay the Bank Tax?<br> You Are.

Posted by Ryan Ellis on Monday, January 25th, 2010, 2:20 PM PERMALINK

I've written before about the new "bank tax" President Obama is so fond of these days (and even did a bit on Fox News Channel to discuss more).

One natural question is, "who will pay the bank tax?"  It's true that it's assessed on the 50 biggest banks, but surely that will be passed along to all of us.  The "bank tax" is actually one of the most regressive taxes likely to be proposed by the Obama regime.

How will we pay the bank tax?

  • Imagine opening up your bank statement every month and seeing a $1 "bank tax" surcharge in there.  Assuming about 100 million active bank accounts in America and $12 in annual fees, that alone would be enough to pay about 10 percent of the tax every year
  • Another mechanism might be to increase fees to manage 401(k) and IRA accounts.  This could take the form of fees assessed to your employer (which you never see), or 12b-1 fees on your mutual funds (which you didn't even know existed before I typed that)
  • Befuddled by all the fees and costs on your house's HUD-1 closing form?  Here's another one that might be in there.  Check for it just above "county recorder fee" and just below "water reclamation fee"

The list could go on, but I take it you see my point.  You can't force the banks to reduce their profits in order to pay this new tax.  Ultimately, the only way any business has to pay any tax is by increasing prices for what they sell.  That's exactly what's going to happen here.  It's not the banks' fault--it's the Obama Administration's fault for hiking taxes on a crippled industry in the middle of a deep recession.

Don't believe me?  Maybe you'll believe Suze Orman.

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Broken Promises: Obama's First-Year Tax Hikes On Families Making Less Than $250,000

Posted by Ryan Ellis on Wednesday, January 20th, 2010, 8:00 AM PERMALINK

Sept. 12, 2008: Candidate Obama said the following:
“I can make a firm pledge.  Under my plan, no family making less than $250,000 a year will see any form of tax increase.  Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” (Dover, NH) [Transcript] [Video clip]
Feb. 4, 2009:  Speaking before a joint session of Congress, Obama said:
“If your family earns less than $250,000 a year, you will not see your taxes increased a single dime.  I repeat: not one single dime.” [Transcript]
April 15, 2009: When asked if Obama’s tax pledge applies “to the health care bill”, White House spokesman Robert Gibbs replied:
“The statement didn’t come with caveats.”  (White House Briefing) [Transcript]
August 3, 2009: Gibbs reiterates Obama’s tax pledge:
“I am reiterating the President's clear commitment in the clearest terms possible, that he's not raising taxes on those who make less than $250,000 a year.”[ Transcript]
This promise has been broken again and again. 
Tobacco Tax Hike (Signed into law by President Obama on Feb. 4, 2009)
  • Small cigar tax hike ($0.65 billion)
  • Large cigar tax hike ($4 billion)
  • Cigarette tax hike ($57.3 billion)
  • Other tobacco products ($2.7 billion)
TOTAL <$250,000 TOBACCO TAXES: $64.7 billion/10 years   

Obama Budget Submission (Feb. 26, 2009)
  • Tax “carried interest” capital gains at ordinary income tax rates ($23.5 billion)
  • Codify “economic substance doctrine” ($4.7 billion)
  • Repeal LIFO accounting for inventories ($61.1 billion)
  • Eliminate advanced EITC (Only outlay effects)
  • “Cap and trade” energy tax ($624 billion)
TOTAL <$250,000 TAX HIKES IN OBAMA BUDGET:    $713.3 billion/10 years

Senate Healthcare Bill (Supported by President Obama)
  • Individual mandate tax ($15 billion)
  • Employer mandate tax ($28 billion)
  • Medicine cabinet tax ($5 billion)
  • HSA early withdrawal tax hike ($1.3 billion)
  • Special needs kids tax ($13.3 billion)
  • Raise “haircut” for medical itemized deduction to 10% AGI ($15.2 billion)
  • STRICKEN Botax--REPLACED Tanning salon tax ($2.7 billion)
TOTAL <$250,000 TAX HIKES IN HEALTH BILL:        $80.5 billion/10 years

TOTAL <$250,000 TAX HIKES IN OBAMA’S FIRST YEAR        $858.5 billion/10 years

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Obama's First Year:<br> $2 Trillion in New, Proposed Taxes

Posted by Ryan Ellis on Tuesday, January 19th, 2010, 11:51 AM PERMALINK

We often get the question at ATR, "how much has Obama supported in new taxes?"  This new study seeks to answer that question.

For the first time ever, the tax increases signed into law, as well as proposals for tax hikes made by or supported by President Obama have been pieced together.  It combines three elements:

  • The tobacco tax hike he signed into law in February 2009
  • His budget proposal, also from February of 2009, and
  • The latest version of healthcare reform, which he has endorsed

The results are shocking.  All told, these tax hikes total $2 trillion over the next decade.  This does not even count his 2010 trial balloons, such as a value-added tax (VAT) or a new bank tax.

This is more in taxes than was ever supported by any past President since World War II, even after indexing for inflation. 

Click here to read the full report.

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"Bank Tax": Another Bad Idea<br> From Administration of Bad Ideas

Posted by Ryan Ellis on Thursday, January 14th, 2010, 4:43 PM PERMALINK

By now, you've probably heard that one of the trial balloons being floated by the Obama Administration in anticipation of the State of the Union speech is a new "bank tax."

Details are still coming in, but it would apparently apply to the top 50 banks in America, and would raise $117 billion over a decade.  It would be a tax of $1.5 million for every $1 billion in certain bank reserves.

Supposedly, this is to recoup TARP funds.  Except, of course, that the tax applies to banks that never accepted TARP.  Also, the tax does not apply to some firms that received TARP (like Government Motors, AIG, etc.)  So the TARP connection is flimsy.

In addition, firms have begun paying back TARP in droves (in most cases, with healthy interest).  The Administration has at times told firms not to pay yet, which also calls into question the credibility of this being a measure to get TARP payments back.

It's also been speculated that this would be paired with a one or two-year extension of the "Bush tax cuts."  So, we're supposed to agree to new savings-killing tax hikes just to keep the current tax rules we have in place? 

All in all, it looks like another desperation power grab by an administration which has been characterized by desperation power grabs.  At some point, they're either going to have to rein in the socialist agenda, or they will find themselves in quagmires like healthcare for the next 3 to 7 years.

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Why Does Coakley Want to Raise Taxes<br> On Families with Special-Needs Kids?

Posted by Ryan Ellis on Thursday, January 14th, 2010, 1:58 PM PERMALINK

Americans for Tax Reform today challenged Massachusetts Senate candidate Martha Coakley to defend her support for a tax increase on families with special-needs children.  Coakley has endorsed the Senate healthcare bill, which contains a new cap on flexible spending accounts (FSAs)--disproportionately raising taxes on these families.

Under current law, there is no legal cap on FSA contributions.  Most people defer $10 or $20 per paycheck to pay for eyeglasses, co-payments, and non-prescription medication.  Many families, however, defer thousands of dollars per year into FSAs to pay for special needs education on a pre-tax basis.  The Senate healthcare bill’s $2500 FSA cap won’t affect typical families, but it will especially impact families with special-needs children.

“Martha Coakley supports this tax increase on special-needs kids because she only cares about, in her words, ‘getting taxes up,’ said ATR President Grover Norquist.  “Maybe she should put her loyalty to Washington bureaucrats aside for the moment and stop to consider the pain she is causing for families with special-needs children.”

If a median-income family in Massachusetts has a special needs child whose tuition is $10,000 per year, the tax benefit from deferring this money with an FSA is $3560.  Under the Coakley FSA cap, this tax benefit would decline to $890—a tax increase of thousands of dollars on a working family with high medical bills.

“In what universe does Martha Coakley live where she thinks that raising taxes on these families is a good idea?”
continued Norquist.  “Only someone who is completely detached from the everyday lives of average Bay Staters could possibly support this boneheaded tax hike.”

The provision can be found on page 1999, section 9005 of the bill.

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Coakley Support for Senate Health Bill<br> Risks 22,000 High-Paying Mass. Jobs

Posted by Ryan Ellis on Tuesday, January 12th, 2010, 4:33 PM PERMALINK

Americans for Tax Reform today released an analysis showing the impact on Massachusetts of Martha Coakley’s support for the Senate healthcare bill.  Coakley is on record supporting the Senate government healthcare bill, which contains eighteen separate tax increases.  One of these is a new $2 billion per year (rising to $3 billion in 2017) tax on medical device manufacturers. 

Massachusetts can expect their share of this tax to be $760 million annually (rising to $1.14 billion in 2017).

According to a 2007 study by Advamed, a medical device manufacturing trade association, Massachusetts counts on medical device manufacturers for nearly 22,000 jobs.  This ranks the Bay State as second in the country behind California, or fourth in the country as a percent of all state jobs.  One in every 150 Massachusetts workers is employed in the medical device manufacturing industry.  The average medical manufacturing employee earns about $51,000 annually (higher than the Massachusetts average of about $42,000).  The state medical device manufacturing industry generated $8.2 billion in sales and paid $1.47 billion in wages

Each medical manufacturing job generates an additional 3.83 jobs in Massachusetts.  Each $1.00 earned by employees of a medical device manufacturer generates $2.48 of wages elsewhere in Massachusetts.  Each $1.00 of sales in medical device technology generates $2.06 in additional sales in Massachusetts.

A few examples of communities that will be affected by this new tax supported by Coakley are in the PDF.

“Martha Coakley has already been quoted as saying that taxes need to go up,”
said ATR President Grover Norquist.  “Raising taxes is not free—it will cost jobs.  People need to ask Martha Coakley why she wants to be the deciding vote on a government healthcare and taxes bill which will endanger 22,000 high-paying jobs in Massachusetts.”

The provision can be found on page 2020, section 9009 of the bill.

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Tax Return Preparer Regulation:<br> A Solution in Search of a Problem<br> In Search of Tax Revenue

Posted by Ryan Ellis on Wednesday, January 6th, 2010, 4:47 PM PERMALINK

Everybody knows by now that the IRS will be issuing regulations seeking to regulate unenrolled paid tax preparers.

Full disclosure: I am an Enrolled Agent, which makes me an IRS-regulated tax expert.  I have maintained my own tax preparation firm since 2004.  I was (briefly) an employee of H&R Block.

In fact, that's the first point to mention in all this: to read media accounts, one would think that preparer regulation doesn't exist now.  It does exist now, in spades, for a majority of tax returns.

Let's take a look at some numbers.  The IRS reported that in 2009, 132 million tax returns were filed.  Of these, 90 million were e-filed.  Almost by definition, the paper-filed returns were not done by preparers, who all use software.  Paper-filed returns are nearly-exclusively the domain of the computer-illiterate taxpayer at his kitchen table with a pencil and a desk calculator.

Of the 90 million electronic returns, 30 million were done using tax software at home.  These are dominated by a few big players, and work to make sure their software is strictly-compliant with current tax law.  So, no problems there.

That leaves 60 million returns done by a human being who prepares the return.  Most of these are done by paid preparers.  So the IRS is regulating the preparers of these 60 million returns, right?  Wrong.  Many--if not a majority--of these preparers are already regulated.  Some (like me) are Enrolled Agents, directly-regulated by the IRS.  Some are CPAs, who are regulated by the states.  Yet others are tax attorneys, who are regulated by state bar associations.

Furthermore, these 60 million returns were unchanged from 2008.  They've plateaued.  All of the growth in e-filing in 2009 was a result of increases in home tax preparation software.  As computer ownership and competency continues to deepen, and as these home tax software programs continue to improve, one can expect them to actually start eating into the human-to-human tax preparation business. 

What about poor neighborhoods that bad-actor preparers prey upon?  The IRS, faith-based, and community-activist groups have for years ramped up free returns in churches, schools, and community centers in these neighborhoods.  The IRS has a "Free File" program in partnership with home tax software preparers which can give a free or nearly-free return to tens of millions of Americans.

In short, IRS regulation of "unenrolled preparers" is a solution in search of a (probably declining and certainly over-blown) problem.  So what's going on here?

Money.  The long-term plan the IRS has is to insource all tax preparation to themselves.  In some countries, the tax office fills out your return for you, sends it to you, and makes you take them on if you disagree.  This is the opposite of how it works in this country, where the assertion of tax liability is made by the taxpayer, and the burden of proof is on the IRS if more is wanted.  If you don't believe that IRS preparation of tax returns will result in higher tax revenue, why does everyone who proposes it tout higher revenue collection as a benefit?  The fact is, people won't challenge the IRS over a spare $100 here or $300 there because they feel like they can't fight city hall.  Think about when you get your property tax assessment, and you get the idea.

Speaking as someone who gets the Enrolled Agent trade association publications, it's clear that the enrolled preparers view their relationship to the IRS in the same way a booster club might view their relationship to a college football team, or a third order might view their relationship to a religious community.  To them, the IRS is not the "benign adversary" they spar with in their client's corner.  Rather, they are the willing facilitator, always coming down on the IRS interpretation of tax law when encountering a gray area.  The IRS is licking their chops at getting all return preparers to think this way.  From there, it's a small step to insourcing preparation of the returns, either explicitly or in substance.  When that happens, taxpayers will find themselves without an advocate, forced to go it alone against an unrelenting bureaucracy with infinite resources to litigate.

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Backlash Against Senator Ben Nelson:<br> Don't Forget About Taxpayers

Posted by Ryan Ellis on Tuesday, January 5th, 2010, 4:27 PM PERMALINK

With all the talk about "backlash" against Senator Ben Nelson (D-Neb.), there's one group that's been left out.  This group is taxpayers. 

Nelson signed the Taxpayer Protection Pledge (sponsored by Americans for Tax Reform) in order to get elected to the Senate.  This Pledge binds him for his Senate career to oppose net income tax increases.  According to both the Congressional Budget Office and the Joint Committee on Taxation, there are billions of dollars in net income tax hikes in the Reid-Obama health bill, which Nelson now supports. 

Put simply, he broke his promise to the taxpayers of Nebraska and the rest of the country.  This bill raises income taxes on working families making less than $250,000 per year, the uninsured, small employers, health savings account and flex spending account owners, special-needs children, near-retirees, and a myriad of others. 

The full list of tax increases and what they will cost taxpayers can be found here for all to see. Nelson can no longer be considered a "moderate" Democrat or a "fiscal conservative."  He's joined up with the Chicago-style tax hike crowd in Washington, and it will cost taxpayers dearly.

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Happy New Year!<br>73 New Tax Hikes Take Effect

Posted by Ryan Ellis on Monday, January 4th, 2010, 4:32 PM PERMALINK

It might surprise many people to learn that not one, not two, but seventy-three new tax increases went into effect on January 1, 2010.  This was the result of Congress letting temporary tax relief expire.  They still have time to put the tax relief back in place before the end of the year, but they are gone for now.  A complete list of them is maintained by the Joint Tax Committee.  Here are some of the more recognizable tax relief which expired:

  • The first-time homebuyer credit ($10.8 billion)
  • The research and experimentation tax credit ($6.97 billion)
  • The AMT “patch” to prevent more families from paying the AMT ($63 billion)
  • The additional standard deduction for state and local real estate taxes ($1.46 billion)
  • The itemized deduction for state and local general sales taxes ($1.85 billion)
  • 15-year depreciable life for leasehold improvements and restaurants ($5.4 billion)
  • 50 percent partial expensing for business asset purchases ($5.074 billion)
  • Increase in small business expensing to $250,000 ($41 million)
  • Above-the-line deduction for college tuition and fees ($1.53 billion)
  • Above-the-line deduction for teacher classroom expenses ($228 million)
  • Tax-free distributions from IRAs to make charitable contributions ($591 million)
  • DC first-time homebuyers credit ($17 million)

All told, these expiring tax provisions total between $100-$150 billion of new tax hikes.

Estimated revenue effects of the individual provisions come from recent legislative scores by the Joint Tax Committee.

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