President Donald Trump signed Executive Order 13772 on February 2, 2017 in order to lay out core principles for regulators when creating regulations within the U.S. financial system. This order was an important step to streamlining the overly burdensome regulatory regime that has plagued the economic recovery after the Great Recession.

The Core Principles that President Trump listed out in the Executive Order are as follows:

1. Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
2. Prevent taxpayer-funded bailouts;
3. Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
4. Enable American companies to be competitive with foreign firms in domestic and foreign markets;
5. Advance American interests in international financial regulatory negotiations and meetings;
6. Make regulation efficient, effective, and appropriately tailored; and
7. Restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

Within the order, President Trump requested the Secretary of Treasury, Steven Mnuchin, to give a report to the President on the extent to which current regulations, laws, guidance, and more, promote the Core Principles or inhibit them, along with subsequent reports.

This June Secretary Mnuchin released the first of many reports on the financial system’s regulatory burdens. The report covered the U.S. depository sector, which includes banks, savings associations, and credit unions. The Secretary mentions that it is of critical importance for banking regulation to align with the Core Principles. Therefore, the Secretary’s report lists out nine recommendations for regulatory reform within the depository system:

Addressing the U.S. Regulatory Structure: The current structure within the U.S. regulatory system is filled with duplication, overlap, and fragmentation, which can lead to ambiguity and repetitive regulations. This report suggests a number of changes to the function and structure of regulatory agencies in order to have greater coordination and to avoid regulatory overlap.

Refining Capital, Liquidity, and Leverage Standards: There is a heavy burden created by Dodd-Frank on banks when it comes to statutory stress testing. This report suggests raising the threshold of what is considered to be a big bank in order to ease these burdens.

Providing Credit to Fund Consumers and Businesses to Drive Economic Growth: The current regulatory burden has contributed to limited credit being passed onto consumers, which inhibits economic growth. The Treasury recommends increasing banks’ capacities to lend and their abilities to design and deliver lending products while maintaining safety standards.

Improving Market Liquidity: The many regulations implemented through Dodd-Frank have been limiting market liquidity within the banking system. By enacting significant changes to these regulations, including the Volcker Rule, the report suggests that it would support economic growth, avoid systemic risk, and minimize the risk of a taxpayer-bailout.

Allowing Community Banks and Credit Unions to Thrive: Ever since Dodd-Frank law was signed into law, community banks and credit unions have been burdened significantly with an average of one institution being shuttered daily. The report suggests exempting banks with assets under $10 billion from a number of regulatory provisions in order to ease this burden.

Advancing American Interests and Global Competitiveness: Many international regulatory standards create an unfriendly environment for banks of any size and form within the U.S. The Treasury suggests that all international standards imposed on U.S. banking agencies be reviewed in order to minimize negative economic consequences.

Improving the Regulatory Engagement Model:  With a lack of coordination and communication between governmental agencies and boards of banking organizations, there has been a decrease in effectiveness of regulations. A greater degree of inter-agency cooperation with themselves and boards of directors would allow for more transparency and accountability.

Enhancing Use of Regulatory Cost-Benefit Analysis: While Congress has imposed strict cost-benefit analysis requirements on regulatory agencies, the requirements are not uniform and consistent among the different agencies. Therefore, by adopting a more consistent and transparent cost-benefit analysis of regulations, there will be less confusion within the banking system.

Encouraging Foreign Investment in the U.S. Banking System: Foreign direct investment is an excellent way to diversify risk and expand economic growth. The report suggests increasing these investments in order to broaden international corporate investment in our banking system.

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Photo Credit: Stephen Jaffe

This week the House Transportation and Infrastructure Committee, Chaired by Representative Bill Shuster (R-Penn.), released their version of a bill to reauthorize the Federal Aviation Administration (FAA). 

Americans for Tax Reform (ATR) applauds Chairman Shuster and the Committee for not including provisions that would increase or uncap the Passenger Facility Charge (PFC).   

The PFC program allows for the collection of PFC fees for enplaned passengers at commercial airports controlled by public agencies. Airports use revenue generated from PFC fees to fund airport improvement projects that are approved by the FAA.

Currently the PFC is capped at $4.50 and maintaining the PFC at this level is a benefit to the traveling public. Given the current levels of revenue and PFC collections at airports, it is entirely possible for airports to continue making improvements without increasing the cost of flying for passengers.

According to FAA reports, U.S. airports brought in a record $27 billion in 2015 alone including record highs of $10.7 billion from airline rents and fees and $9.1 billion from non-airline revenues such as retail and food and beverage.

For 2016 PFC collections hit a new record high of over $3.1 billion according to FAA data, averaging roughly $260 million a month. FAA projections for 2017 show an additional increase of over $3.36 billion in estimated PFC collections. It is also the case that the Airport and Airway Trust Fund has reached its highest levels since 2001 with an uncommitted balance of over $6 billion. 

Government taxes and fees already overburden airline passengers – taxes make up over 20% of the cost of an average domestic flight. Given the record levels of airport revenue, billions in cash on hand, and PFC collections, there is simply no need to subject the traveling public to increased costs.

While Americans for Tax Reform looks forward to working with lawmakers on other provisions of the FAA reauthorization bill, the Committee's work to ensure that wholly unnecessary increases to the PFC are not included in the reauthorization bill is a positive step to benefit the traveling public. 

Photo credit: Jeff Slinker    

With 50 laboratories of democracy in the U.S., some state legislatures provide examples of smart pro-growth policies that other states would be wise to emulate, while others serve as bad examples by enacting policies that other states should avoid.

Taxachusetts Lawmakers Help The Commonwealth Earns Its Nickname

The past week has underscored this dynamic, in particular when it comes to income tax reform. In Massachusetts, state lawmakers referred a measure to the 2018 ballot that, if enacted, would move the state from having a flat income tax, to a progressive structure with income over $1,000,000 subject to a 4% surtax on top of the commonwealth’s existing 5.10% flat income tax rate. Meanwhile, in North Carolina, Republicans who run the state senate and assembly announced a budget deal that will reduce personal and corporate income tax rates.

Maryland, which enacted a similar millionaires’ tax when Gov. Martin O’Malley was governor, provides a cautionary tale highlighting why Massachusetts voters should reject the surtax that will appear on their 2018 statewide ballot. A year after Maryland’s millionaire’s tax took effect, one-third of the state’s millionaires fled the state. A 2011 study, of migration patterns across the 50 states concluded that millionaires tend to leave states with high income tax rates for states with relatively lower income taxes. Enactment of a millionaires’ tax would be bad news for Massachusetts, but great news for neighboring New Hampshire, one the nine states that does not levy and income tax*.

19,600 Massachusetts tax filers would be affected by the tax increase, 900 of whom are projected to make $10 million annually and would contribute 53 percent of the revenues from the new tax. If just one-third of these 900 tax-filers left, the tax revenue lost would be about $750 million. It is not just the wealthy who would be hit by this tax hike. According to IRS data, over 10,000 Massachusetts small businesses would also be hit by this tax hike, since the majority of small businesses file under the individual income tax system.

The Beacon Hill Institute found that the surtax could cost the state more than 9,000 private sector jobs and $405 million in disposable income. While income tax hikes on the wealthy are often popular with voters, the fact is that the millionaires’ tax will hit small businesses with a 78% income tax rate hike, greatly reducing their job-creating capacity.  

In addition to making the Bay State less attractive to investment and job creators, Increased reliance on upper-income households will make Massachusetts’ revenues less stable, and budgeting more difficult. This is because increasing the progressivity of the tax code leads to greater volatility in revenue collections. One of the worst parts of this proposal is that, if it’s enacted by voters in 2018, there will be no way to amend it until the year 2023. So, if the tax ends up damaging the economy and chasing individuals, families, and employers out of state, like such tax hikes have in other states, lawmakers and voters will have to wait half a decade before they are able to rectify the problem.  

Tax Reform Train Rolls on in the Tar Heel State

Days after Massachusetts lawmakers voted to advance a massive income tax hike, North Carolina legislators announced a budget agreement that will take the Tar Heel State in the other direction by enacting another round of cuts to the personal and corporate income tax rates. Though the house and the senate rolled out similar plans with a $22.9 billion budget, there are some key differences between the proposals and how the budget is spent.

The budget deal announced by legislative leaders makes the following tax changes, which would take effect January 1, 2019:

• Cuts the state’s flat personal income tax rate from 5.499% to 5.35%
• Reduces the corporate tax rate from 3% to 2.5%
• Increased the standard deduction for married couples filing jointly from $17,500 to $20,000

The budget with these reforms will pass both chambers of the legislature this week. Though the budget includes many of Gov. Roy Cooper’s (D) priorities, it is unlikely he will sign this budget into law. Fortunately for North Carolina taxpayers, Republicans hold veto-proof majorities in both chambers of the legislature, and can enact this budget over Gov. Cooper’s objection.

In a year where 31 states are facing revenue shortfalls, North Carolina has a half a billion dollar surplus. In fact, this marks the third straight year that the state has realized a budget surplus.

These surpluses have occurred at the same time North Carolina lawmakers have approved multiple rounds of personal and corporate income tax rate cuts. In addition to the pro-growth tax changes enacted, the key to North Carolina’s fiscal and economic success has been spending restraint. Every year since Republicans took control of the state legislature, spending growth has been held before the rate of population growth and inflation. When it comes to models for pro-growth tax reform and spending restraint, other states and federal officials should look to the Tar Heel State for inspiration, and Massachusetts as an example of what not to do.    

The U.S. Senate is moving forward with repeal of Obamacare, including the nearly 20 new or higher taxes that the law imposed.

These taxes directly hit middle class families and small businesses, raise the cost of healthcare, and reduce access to care. Repealing these taxes is a huge win for taxpayers across the country. 

It is expected that the Senate will phase in the repeal of these taxes over multiple years. Most Obamacare taxes are currently in effect, and relief should be offered as quickly as possible.  

Immediate repeal of the Obamacare health insurance tax is crucial because it is set to go into effect in 2018. Letting this tax go into effect next year and then repealing it at a later date will cause the cost of insurance to climb. Moreover, it will result in unnecessary complexity for middle class families and small businesses.

This tax is levied on insurance premiums, so its costs are inevitably passed to middle class families and small businesses that provide healthcare to their employees. In addition, the tax impacts the care received by seniors through Medicare advantage coverage and low-income Americans who rely on Medicaid managed care.

As a result, allowing the health insurance tax to go into effect will have significant economic consequences. Next year alone, the tax will total $12.3 billion. Over the next decade, the health insurance tax totals $145 billion.

Immediate repeal means strong tax relief for middle and low-income families. According to the American Action Forum, the tax increases premiums by as much as $5,000 over a decade. In total, the tax hits 11 million households that purchase through the individual insurance market, and 23 million households covered through their jobs. Roughly half of the tax is paid by those earning less than $50,000 a year.

In addition, the tax is devastating to small businesses. It is estimated to directly impact as many as 1.7 million small businesses. The National Federation of Independent Business estimates the tax could cost up to 286,000 in new jobs and cost small businesses $33 billion in lost sales by 2023.

Small businesses account for half of all jobs in the US and two-thirds of new jobs in recent decades, so this tax will mean businesses across the country can spend less on investing in new equipment, hiring new workers, or providing higher wages.

American families have already been hit hard by Obamacare’s tax increases. The law imposed multiple taxes that have increased the cost of care for families and reduced choice, including taxes on Health Savings Accounts and Flexible Spending Accounts.

The last thing taxpayers need is for the health insurance tax to go into effect, even for one year. Conversely, permanent and immediate repeal of the health insurance tax is a huge win for Americans and will help decrease the cost of care for millions across the country.