As we near the end the 2021 legislative session in Arizona, major conservative priority legislation remains on the table: one proposal to significantly reduce Arizona’s tax burden, and the other would incentivize low-level criminal offenders to address addiction issues and gain job skills.   

Senate Bill 1064, sponsored by Sen. J.D. Mesnard, would expand earned release credits in the state,

Earned release credits allow someone to complete programming that teaches them job skills, addresses addiction, or mental health issues, and more. The goal is to address problems that are more likely to drive someone to re-offend, reducing crime and improving safety. The alternative has been doing next to nothing with offenders who are going to get out of prison one day no matter what.

These are commonsense, conservative policies that work to keep people out of trouble, reducing recidivism rates. This ultimately improves public safety and reduces costs to taxpayers at the same time. Just look at the results other states have had.

South Carolina expanded their earned release credits, along with other changes, seeing declines in reoffending (-5.6%), and prison population (-14.5%), from 2010-2017.

Kentucky saw its recidivism rate fall (-5.3%), and its prison population fall (-23%) since 2011 reforms.

In 2008 and 2013, Mississippi significantly curtailed truth-in-sentencing requirements that effectively limited the ability of offenders to earn credits off their sentence. The results have been falling rates of violent crime, a decrease in property crime, to go along with a smaller prison population.

In addition to these great examples of successful red state reforms, the federal government is still in the process of implementing the First STEP Act – earned release credit legislation passed under President Trump.  

These reforms are improvements to the criminal justice system that put public safety first. Credits incentivize people, largely non-violent drug offenders, to do the work necessary to get ready for their imminent release from prison so they can contribute to society.

It’s no surprise that this is a drastic improvement over the status quo. Since the vast majority of people in prison are going to get out one day, it is no-brainer level stuff to address the problems that can drive them to re-offend. Mainly these are addiction problems, and not having a decent job.

In the end, this also boosts public safety as millions of taxpayer dollars are saved which can then be reinvested in the system, with a focus on policies and programming that improve public safety. Arizona Senate Bill 1064 could save more than $600 million that would otherwise be spent in ways that do not optimally protect the public.

Legislators in the House and Senate have already done great work passing civil asset forfeiture reform, and ending driver’s license suspension for owed court debt. These are key improvements to Arizona’s criminal justice system. But there is still a major priority remaining, SB 1064, and legislators and Governor Ducey should support and approve the bill this session.

Today, Americans for Tax Reform President Grover Norquist appeared on Maria Bartiromo’s Mornings with Maria on Fox Business.  

Norquist discussed the consequences to Biden's proposed $80 billion expansion of the IRS and intrusive reporting requirements. 

On Biden’s plan to give the IRS access to all taxpayers’ bank accounts and third-party payment provider accounts like Venmo and CashApp:  

“This includes PayPal. This is not people with millions of dollars in Swiss bank accounts. This is your checkbook… This is all of the ways you buy something with your iPhone. This is an old trick. They’ve been doing it for 40 years, but this is on steroids… This is the end of privacy. This is an agency that has been caught handing out, for political purposes, people’s personal donations so they could be attacked. This abuse is going to get much worse.” 

On Biden’s plan to hire 87,000 new IRS employees and increase funding by nearly $80 billion:  

“Biden’s IRS commissioner said that there’s no way to spend this money intelligently. We’re talking about 87,000 people they’re going to hire. They haven’t even been able to hire the people they’ve tried to in the last several years…”  

On how Biden’s plan would cause the same corruption in the IRS as was seen during the Obama administration: 

“This happened under Obama when they targeted the tea party and didn’t let them incorporate—didn’t give them 501(C)(3) status… or 501(C)(4) status, and therefore they couldn’t get a bank account or raise money. That’s why the tea party was destroyed by the IRS… There was one conservative group in three years that was allowed to [incorporate]. The Clinton people did this as well.” 

Click here to watch the full interview.  

There are over one million small businesses organized as C-corporations and they will be directly hit by President Biden's corporate tax rate increase. These employers are vital members of the Main Street business community in cities and towns across America.

With Biden's threat to raise the corporate tax rate from 21 percent up to 28 percent, some small businesses are instituting hiring freezes.

As reported by Reuters, Michael Canty of Ohio-based Alloy Precision Technologies is very concerned about the Biden tax increases:

His manufacturing company employs roughly 85 people and is formed as a C-corp under the federal tax code and subject to the corporate tax rate.

He said the proposal amounts to a 33 percent increase is his company's taxes and warned that it will make companies like his less competitive in the global marketplace.

"We have already started a hiring freeze. Between the tax increase and what we see as a tough regulatory environment, we have to prepare," Canty said.

Biden doesn't want the public to know that his tax increases will wallop small businesses hard.

During his campaign, President Joe Biden promised the American people that he would not raise taxes on small businesses. Now safely in office, he is violating that promise. His tax plan imposes direct tax increases on small businesses.

The promise was made on Feb. 20, 2020 before a national audience during a Democratic debate hosted by MSNBC:

MSNBC's Hallie Jackson: "I want to ask you about Latinos owning one out of every four new small businesses in the United States. Many of them have benefited from President Trump's tax cuts, and they may be hesitant about new taxes or regulations. Will taxes on their small businesses go up under your administration?"

Biden: "No. Taxes on small businesses won't go up."

Click here or below to see Biden's broken pledge

But Biden is pushing a series of tax increases that raise small business taxes:

1. Biden's increase in the top marginal income tax rate to 39.6 percent will hit small business sole proprietorships, LLCs, partnerships and S-corporations.

Small businesses organized as pass-through firms don’t pay taxes themselves. Instead, the profits of the business “pass through” to the owners who pay individual taxes on their 1040 form. Biden wants to raise the top marginal income tax rate to 39.6 percent which will hit many small businesses.

From the Tax Policy Center:

"In 2017, individuals reported about $1.03 trillion in net income from all types of pass-throughs accounting for 9.3 percent of total AGI reported on individual income tax returns."

According to the Congressional Research Service, "The majority of both corporations and pass-throughs in 2011 had fewer than five employees (55% of C corporations and 64% of pass-throughs). Nearly 99% of both corporations and pass-throughs had fewer than 500 employees, the most common employment-based threshold used by the Small Business Administration (SBA)."

As noted in a Senate Finance Committee report, "in 2016, only 42 percent of net business income in the United States was earned by corporations, down from 78.3 percent in 1980."

2. Biden’s corporate income tax rate hike from 21 percent to 28 percent targets one million small businesses across the country organized as corporations.

As noted by the Small Business Administration Office of Advocacy, there are 31.7 million small businesses in the U.S. Of those, 25.7 million have no employees, while 6 million have employees. Of these 6 million small employers, 16.8 percent, or 1 million of these businesses are classified as c-corporations. The SBA classifies a small employer as any independent business with fewer than 500 employees.

Biden claims his spending plan makes large corporations pay their “fair share.” However, the plan will raise taxes on many small businesses that are structured as corporations.

3. Biden's elimination of stepped up basis: A second death tax on small business.

Biden is targeting small businesses with a second Death Tax: Biden will eliminate step-up in basis. This is a devastating tax increase on small businesses. In this video, you can see a sample of the many times Biden has threatened to eliminate step-up in basis.

Elimination of stepped up basis would impose an automatic capital gains tax at death -- separate from, and in addition to -- the Death Tax.

In a Forbes piece titled "This Biden Tax Hike Hike Will Hit Mom & Pop Hard" tax lawyer Robert W. Wood writes:

Under current tax law, assets that pass directly to your heirs get a step-up in basis for income tax purposes. It doesn’t matter if you pay estate tax when you die or not. For generations, assets held at death get a stepped-up basis—to market value—when you die. Small businesses count on this.

Wood notes:

Biden's proposal would tax an asset's unrealized appreciation at transfer. You mean Junior gets taxed whether or not he sells the business? Essentially, yes. The idea that you could build up your small business and escape death tax and income tax to pass it to your kids is on the chopping block. Biden would levy a tax on unrealized appreciation of assets passed on at death. By taxing the unrealized gain at death, heirs would get hit at the transfer, regardless of whether they sell the asset.

As reported previously by CNBC:

“When someone dies and the asset transfers to an heir, that transfer itself will be a taxable event, and the estate is required to pay taxes on the gains as if they sold the asset,” said Howard Gleckman, senior fellow in the Urban-Brookings Tax Policy Center. 

As reported by Richard Rubin of the Wall Street Journal:

Manufacturers and farmers, who tend to be more asset-rich and cash-poor, are watching closely for those details, concerned they might have to sell illiquid businesses to pay the taxes.

Courtney Silver, president of Ketchie Inc., a family-owned, 25-employee machine shop in Concord, N.C. that started in 1947, said she was concerned about the potential impact.

“I really can’t imagine being hit with that decision of that potential tax implication,” said Ms. Silver, 40 years old, who took over the business when her husband, Bobby Ketchie, died in 2014. “That to me is really hard to wrap my head around.”

It could be challenging for asset owners to figure out their tax basis, which is what they paid for the property and invested in it. That complexity is part of what doomed a similar proposal in the late 1970s, which Congress passed, then delayed, then repealed.

As noted in an Ernst and Young study, if a small business is unable to provide sufficient evidence to prove the cost basis of an asset, then it may set to $0. In other words, tax would be applied to the entire value of taxpayer assets:

“Family-owned businesses may also find it difficult to comply because of problems in determining the decedent’s basis and in valuing the bequeathed assets. It seems likely that these administrative problems could lead to costly disputes between taxpayers and the IRS. Additionally, if sufficient evidence is not available to prove basis, then $0 may be used for tax purposes. This may result in an inappropriately large tax at death.”

To honor his small business tax pledge to the American people, Biden must forego the above tax increases.

Yesterday, the House Ways and Means Committee held a hearing exploring Biden's plan to raise taxes by $3.5 trillion for new "infrastructure" spending. During this hearing, entitled “Leveraging the Tax Code for Infrastructure Investment," House Republicans pointed out the main ways Biden's tax increases would harm working families and small businesses.

While Democrats touted their support for lavish green energy tax credits and attempted to convince the American people that their tax hikes would only be felt by the “ultra-rich,” Republican members shed light on the reality of the plan: it will hurt job growth, small businesses, working families, and hardly contains real infrastructure spending.  

Biden's tax hikes would harm workers as the economy recovers from the pandemic.  

Ranking Member Kevin Brady (R-Texas) explained how Biden’s infrastructure plan is comprised, not only of wasteful spending, but of crippling tax hikes:  

“As bad as the wasteful spending is, worse-yet, [the infrastructure plan] is poisoned with crippling tax increases that sabotage America’s job recovery, hurts working families and main street businesses, and drives U.S. jobs overseas. We cannot fund infrastructure on the backs of American workers… Coming out of a pandemic, that is the last thing we need right now. No president has ever raised taxes on businesses to recover from an economic crisis.” 

American workers bear a significant portion of the cost of higher corporate taxes. Numerous studies have found that between 50 percent and 70 percent of the corporate tax is borne workers, with the remaining being borne by consumers through higher prices and shareholders. In this way, Rep. Brady is correct in saying that these tax increases would sabotage job recovery and send jobs overseas. 

Further, American voters share Rep. Brady’s sentiment: coming out of a pandemic, tax hikes are the last thing this nation needs. According to a poll conducted by HarrisX and commissioned by Americans for Tax Reform, 80 percent of voters say that now is not the right time to raise taxes because many businesses and individuals have not yet recovered. Only 20 percent of voters say now is the right time to raise taxes for new spending projects.

Family-owned businesses and entrepreneurs would be harmed by the second death tax and capital gains tax hike. 

Both Rep. Adrian Smith (R-Neb.) and Rep. Jason Smith (R-Mo.) also explained how doubling the capital gains tax and repealing step-up in basis, thus creating a second death tax, would hurt investment, family-owned businesses, farms, and other small businesses.

Biden’s repeal of stepped-up basis means that Americans will be forced to pay a capital gains tax on decades of “gains” that are actually just inflation. Because many family-owned businesses are asset rich but cash poor, under the current law families already have to liquidate equipment, land, and other assets in order to pay the Death Tax. The second death tax will compound this problem, forcing family-owned businesses to sell a significant portion of their business or go into significant debt to pay their tax liability. 

The capital gains tax creates a lock-in effect, discouraging investors from investing in small start-up companies in an effort to delay paying a steep tax. Increasing the tax will compound this effect and increase the cost of capital, decreasing new investment. In turn, this will harm business creation, business expansion, entrepreneurship, and threaten jobs and wages. 

The President's "infrastructure" plan contains little infrastructure spending. 

Later in the hearing, Rep. Vern Buchanan (R-Fla.) made it clear that Biden’s plan hardly includes real infrastructure spending:  

“We agree the crumbling state of our nation’s infrastructure must be addressed, but what we disagree on is what is infrastructure and how to pay for it. The President’s infrastructure plan focuses on anything but infrastructure... Green energy tax credits for people buying a Tesla is not infrastructure.” 

According to some estimates, less than 13 percent of the spending plan is spent on traditional infrastructure including less than 6 percent on roads and bridges, less than 2 percent on waterways, locks, dams, ports, and airports, and less than 5 percent on broadband. A “fact check” by the Washington Post argued that this analysis was misleading. They instead calculated that only about one-quarter (25%) of the Biden plan is spent on traditional infrastructure. Clearly, a vast majority of this spending will go to other projects.  

Rep. Buchanan goes on to highlight a new study by economists John W. Diamond and George R. Zodrow, commissioned by the National Association of Manufacturers (NAM), which found that Biden’s tax hikes would eliminate one million jobs in the first two years, and eliminate 600,000 jobs per year over the first decade.  

Biden's tax hikes would make the U.S. globally uncompetitive. 

During the hearing, several members also asserted that Biden’s tax hikes would make the United States uncompetitive. 

The U.S. currently has a combined capital gains rate of over 29 percent inclusive of the 3.8 percent Obamacare tax and the 5.4 percent state average capital gains rate. Under Biden, this rate would approach 50 percent. This would give the U.S. a capital gains tax that is significantly higher than foreign competitors, with China’s rate at 20 percent and OECD’s weighted average rate at 23.2 percent. 

The U.S. federal corporate tax rate is currently at 21 percent. However, states also levy their own corporate tax rates, averaging an additional 6 percent. Because this state tax is deductible when paying the federal corporate rate, the combined national and subnational rate averages out to 25.77 percent. A 28 percent federal rate, which Biden has proposed, would therefore result in a combined federal and state rate of 32 percent. Meanwhile. China’s corporate income tax rate is 25 percent, while the OECD average corporate tax rate is 23.51 percent.  

ATR applauds the House Republican members of the Ways and Means Committee for pushing back against the Democrats’ narrative that these changes in the tax code will only hurt the “ultra-rich.” In fact, the effects of these policies will be largely felt by workers, consumers, and small businesses.