McAuliffe: Municipal Broadband Networks Plunge Cities into Debt
Americans for Tax Reform’s Katie McAuliffe, the executive director of Digital Liberty and federal affairs manager, wrote an op-ed for the Hill on the false promise of 'municipal broadband' networks. McAuliffe found that while Americans may want faster internet, municipal broadband networks tend to be failures:
“The problem is – building and operating broadband networks is expensive and complex. They need to be rebuilt and updated almost continually to stay ahead of the breakneck pace of innovation in this space and the constantly spiraling demand for higher and higher speeds online.”
According to McAuliffe, most attempts to create municipal broadband networks results in horror stories, like “the failed iProvo network that cost the city $39 million to build but was ultimately sold to Google for $1 dollar are legion. Indeed, according to new data, over half of these municipal fiber systems fail to bring in enough revenue to cover their ongoing operating costs, bleeding red ink every day they operate and falling further and further into debt.”
These municipalities struggle to keep up with large private companies that can easily invest millions in maintaining the infrastructure for the broadband. Of the 20 municipalities that have tried to implement broadband networks, “only two bring in enough revenue to recover construction costs before the networks become obsolete in 40 years. The rest won’t be paid off for decades after they become useless – or even centuries!”
These risky investments seem troubling at a time when most governments are scrambling to fund more necessary projects, like education and transportation.
Read more here
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Judiciary Committee Reaches Agreement on Prison Reform
Flanked by members of the Senate Judiciary Committee, Senator Chuck Grassley (R-Iowa) announced sweeping new legislation to reform the nation’s criminal justice system. The Sentencing Reform and Corrections Act would address America’s unsustainable prison population and the harm caused by an ineffective correctional system—though the changes in question come short of a final fix, they are an important step towards a justice system that saves taxpayer dollars and keep our communities safe.
The proposed legislation is the result of months of negotiation between the members of the judiciary committee. Many of the provisions, such as recidivism reduction and rehabilitation, have been successfully applied in conservative states like Texas and Georgia. Congressional lawmakers should be applauded for their efforts to replicate proven success at the federal level.
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Lifting Crude Export Ban would reduce Deficit over a Billion
Momentum has been building over the last month in Congress to overturn the outdated crude oil export ban. The house is now poised to vote on overturning the ban soon - as early as next week - and a new government report released this week confirms that doing so would not just be a boon for the U.S. economy but would reduce the national deficit by over a billion.
The crude oil ban is a measure from the 1970s that was originally intended to protect U.S. oil supplies during a time of scarcity after the 1973 OPEC oil embargo. However, the U.S. is no longer a nation of energy scarcity; rather, the U.S. is now enjoying an energy renaissance. It is increasingly evident the ban is no longer justified and is a burden to the nation’s economic prosperity.
According to a cost estimate released this week from the Congressional Budget Office (CBO), overturning the ban would reduce the deficit by more than $1.4 billion over 10 years. The CBO projects that lifting the ban would in turn increase production under federal leases.
These funds would come from expanded royalties derived from leases granted to companies to explore for oil on federal land. This figure only accounts for federal revenues; the federal government only receives half of the receipts from these royalties. The other half of the royalties go to state governments, accounting for another 1.4 billion in revenue for states, like Texas, North Dakota, and Oklahoma.
In addition to the CBO report, on September 25th Congressman Fred Upton, chairman of the House Energy and Commerce Committee, submitted a report on H.R. 702 to the House floor. This report highlighted some of the benefits that overturning the ban would have on the deficit and national economy.
According to the report, overturning the ban would spur economic investment and increase GDP by billions of dollars. In addition, it would create thousands of new jobs, galvanizing hundreds of communities across the country. It would also lower gasoline prices for the American consumer. Lowered fuel prices will save families thousands of dollars per year, effectively raising household incomes.
Overturning the ban would also strengthen national security. Exporting crude oil will move the U.S. closer towards energy independence. The U.S. will become less reliant on oil from foreign sources, and exports would also allow U.S. allies in Europe and Asia to diversify their crude oil supply. Allowing U.S. oil exports also would strengthen America’s economic power, furthering our role as an energy power house.
Lifting the crude oil export ban is a much-needed measure to modernize the nation's outdated, draconian energy policies and institute policy that reflects the nation's economic realities. It is imperative that Congress moves further towards taking action. Overturning the crude oil export ban will usher the U.S. into further economic prosperity and energy security.
Photo credit: Ken Hodge
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Rep. Tim Murphy Leads Charge Investigating $5.5 Billion in Obamacare Waste
Earlier today, Chairman Tim Murphy (R-Pa.) and the House Energy and Commerce Oversight Subcommittee held a hearing examining Obamacare state exchanges. An investigation into this issue is long overdue, and Chairman Murphy and the Oversight Subcommittee should be applauded for their leadership on this issue.
According to GAO, $5.51 billion in federal funds have been spent on the planning and construction of these exchanges, yet very little oversight has been conducted over the use of these funds. Unsurprisingly, it appears that a large percentage of these funds were wasted. In addition, exchanges across the country have encountered numerous operational difficulties since launch including poor user functionality and lack of scale.
Witnesses from six states - California, Connecticut, Hawaii, Massachusetts, Minnesota, and Oregon – attended the hearing. Combined, these states received over $2 billion in funds.
Illustrating the near-limitless freedom that states received and the absence of federal oversight, only one of the six witnesses could say how much was spent on construction per enrollee. That state, Hawaii spent close to $50,000 according to the witness.
Even though this hearing is a good first step, questions remain regarding the federal government's oversight over state exchanges, particularly now that many exchanges are beginning to encounter fatal operational problems and may soon abandon ship to join the federal exchange.
Chairman Murphy best summed up the situation when he concluded “it was not rainbows and unicorns. It was a mess.”
As has been well documented, many of the exchanges that were called to testify have mismanaged the hundreds of millions of dollars they received:
- Oregon received $305 million in grants but could not produce a workable website months after launch forcing customers to fax a 20 page document to enroll. Since then, the state has come under investigation over allegations the exchange was run by the Governor’s reelection campaign and decisions were made based on political calculations.
- Massachusetts was required to upgrade their working exchange due to new Obamacare regulations. But $233 million later, the state broke its system, displacing 300,000 individuals on Medicaid and leaving the state with over $1 billion in costs.
- California was awarded $1.1 billion in grants, but now faces an $80 million budget deficit for fiscal year 2015-2016. Despite often being referenced as a “successful” exchange, the system has been plagued with enrollment and tax-related errors. In some cases, this has prevented consumers from receiving healthcare for months.
- Hawaii received $205 million and constructed a workable exchange only for state officials to realize they had no way to pay for day-to-day costs. The exchange is now transitioning to the federal system.
Watch the full hearing below:
Grover Norquist Statement on Carried Interest
I oppose higher taxes on carried interest capital gains. On principle, capital gains should be taxed as capital gains not at artificially higher rates. In a conversation with a reporter about a world with drastically lower tax rates across the board, my position on carried interest capital gains was taken radically out of context. My point was and is that increasing taxes on carried interest capital gains is a shiny bauble conceived in left-wing academia, is not serious tax policy and is not part of a grown up conversation on tax reform.
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Hillary Clinton’s Drug “Affordability” Plan Will Destroy Medical Innovation
Last week, Hillary Clinton released her drug affordability plan, vowing to “demand lower drug costs.” Piggybacking off the public outrage from Turing Pharmaceuticals’ proposed 4,000 per cent increase of drug Daraprim, Hillary’s plan included capping out-of-pocket drug costs at $250 per month and permitted the importation of drugs from other countries where price controls are already in place.
These two proposals would be a disaster for medical innovation and the drug market. In fact, both have been suggested and rejected time and time again in Congress because they are bad healthcare policy and bad for the free market.
In a tweet, Clinton argued “if the medicine you need costs less in Canada, you should be able to buy it from Canada—or any country that meets our safety standards.” On its face, this probably sounds like a reasonable proposal, but it demonstrates a fundamental misunderstanding of the markets, and the importance of protecting innovation.
If Clinton had her way, consumers would not only be importing medicine, but also the price control of the country of origin. In many countries, price controls give supposedly cheap medicine, yet there is a hidden cost of innovation.
Already, the razor-thin profit margins means there is little left over for drug companies to finance new research and development. This is made worse by the prohibitively high R&D costs – it costs innovators an average of $2.6 billion to develop a new prescription drug, in part due to FDA over-regulation.
In a world of Hillary Clinton-style price controls, companies will be squeezed until they have no money left for innovation. If anything, the 4,000 per cent price increase that so outraged Hillary last week will become more common as drug companies look for ways to make enough revenue to re-invest in new innovations.
This plan may well work in a world of free trade utopia with no market-distorting price controls. But in the real world, her proposal is closer to unilateral disarmament.
Clinton’s other proposal – a price control on drug costs – would artificially lower the price of medicine here in the US. But the same problem exists as her other proposal, it distorts prices and prevents the free market from regulating supply and demand. As a result, the next miracle cure may never get discovered.
Clinton often accuses Republican politicians of being stuck in the past. But under her drug “affordability” plan, medical innovation will be forever stuck in the past for future generations.
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Puerto Rico Should Adopt Enterprise Zones, Not Austerity Tax Hikes
Puerto Rico is on the verge of a debt-driven collapse in many of its basic governmental structures. This problem is made worse by the fact that Puerto Rican municipalities, unlike mainland cities and counties, have no ability to restructure using federal bankruptcy law.
But Puerto Rico's problems go even deeper. If these issues are to be avoided in the future, the island must transform from a black hole of capital to a magnet for capital.
Some think the solution lies in tax increases. That would be like giving poison to a dying man.
The best way to fix what ails San Juan is to turn the entire island of Puerto Rico into an enterprise zone.
Initially conceived by the late, great Jack Kemp, enterprise zones are pockets of pro-growth nirvana (especially on tax policy) strategically placed inside economic disaster areas.
What might some elements of a Puerto Rican enterprise zone look like?
Business tax rates. The United States has the highest business tax rates in the developed world (35 percent for corporations, and as high as 43.4 percent for unincorporated firms). There's no reason this shouldn't be 15 percent or even lower in Puerto Rico.
Personal tax rates. You can't have Puerto Rican businesses without Puerto Rican jobs. So the best workers should be attracted to the island by a low tax rate on wages (15 percent or less), a FICA tax holiday, or both.
Capital gains. We want to encourage capital into Puerto Rico, and that means investing in start up ventures and other ownership ventures. To encourage this, Puerto Rico should be a capital gains tax free zone. Even more to the point, there should be no "death tax" in Puerto Rico.
Business fixed investment. Capital investment in Puerto Rico also means buying the hard assets which become the capital stock a growing economy needs. That's why Puerto Rico ought to benefit from 100 percent full business expensing for all the computers, machinery, and buildings investors want to deploy. This would move Puerto Rico away from the slow-deduction "depreciation" regime it labors under today.
If this enterprise zone concept, or anything close to it, was put into place, Puerto Rico would become THE place to do business in America.
It may be in the Caribbean, but it would sure start to look and feel a lot like Hong Kong.
The Grover Norquist Show: Donald Trump’s Tax Plan: Pro-Growth and Pro-Simplification
Grover Norquist analyses Donald Trump’s newly unveiled tax plan. Trump gives Americans a deal they can’t refuse, almost. With what Grover calls “Ronald Reagan” style growth, the Donald’s plan should give the United States 4 percent a year in economic growth. Trump’s plan is consistent with the Taxpayer Protection Pledge. The plan details four different tax brackets for individuals, lowering capital gains, lowering business taxes, and repealing taxes that were meant to be repealed several generations ago. Grover says that the plan would make us more competitive for business amidst the global market. Norquist even goes as far to say, “Trump’s plan is dead center of Reagan Republican thinking, when it comes to what would create growth in the United States.” To find out more, tune into the episode 35 of the Grover Norquist show, and don’t forget to email, tweet, or leave a comment for Grover to let him know what you think.
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Congress Set to Investigate Obamacare Waste, Repeal Burdensome Regulations
After five years of Obamacare, it is clear the law is doing far more harm than good. Of most concern, the law has hiked taxes for Americans families and businesses at least 21 times, including seven that directly hit the middle class. Since the law was passed, billions have been wasted on the construction of barely working healthcare exchanges, premiums and administrative costs have skyrocketed, and confusing regulations have made tax compliance a nightmare.
Fortunately, the Republican controlled Congress is poised to dismantle some of the most damaging provisions of this law, while conducting rigorous oversight over wasted taxpayer dollars.
Earlier today, the House Ways and Means Committee released legislation that would repeal major components of Obamacare through a process known as reconciliation. Specifically, this legislation repeals the employer and individual mandates, the Cadillac tax, and the unnecessary Independent Payment Advisory Board.
Most Obamacare regulations and taxes, like the Cadillac tax have harmed access to affordable healthcare. Even though this tax will not come into effect until 2018, insurers have already begun cutting health benefits in preparation for this onerous law. Some fear that if implemented, the Cadillac tax will cause flexible spending accounts to vanish.
Not only will these reforms be good for taxpayers, they will also be good for the economy. A recent analysis by the Congressional Budget Office and the Joint Committee on Taxation finds that repealing the individual mandate would decrease spending by $311 billion over ten years and reduce the federal deficit by $305 billion over the same window.
The Ways and Means Committee, led by Chairman Paul Ryan (R-Wis.) should be congratulated for taking up this package of reforms.
Others in Congress are taking steps to get to the bottom of the billions that have been wasted during Obamacare’s implementation. Tomorrow, Energy and Commerce Oversight Subcommittee Chairman Tim Murphy (R-Pa.) will hold a hearing examining Obamacare’s state exchanges.
In order to construct these exchanges, the Centers for Medicare and Medicaid Services awarded over $5.5 billion in grants to states, while conducting non-existent levels of oversight. Since then, several state exchanges, including Oregon’s $305 million exchange, have failed. Others remain on the brink of failure, despite millions in federal funds.
An investigation into this waste is long overdue, and Chairman Murphy should be congratulated for taking the lead on getting to the bottom of this egregious waste of taxpayer dollars.
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Tax Hikes Shouldn't Be Part of West Virginia Tax Reform
For decades, the West Virginia legislature has budgeted without fiscal restraint or reforms. In 2014, for the first time since 1929, Republicans took control of the House of Delegates and state Senate. Confronted with an overspending problem, some legislators are considering a short-term fix, a tax increase.
Tax revenues are falling, the state budget has used the Rainy Day fund three years in a row, and there is an estimated outstanding $1 billion in repairs for upgrading roads and bridges. The solution that some West Virginia legislators have come up with is a cigarette tax hike on low and middle-income consumers.
Senate minority leader Jeff Kessler, D-Marshall, has criticized the cut in taxes that eliminated grocery taxes, phased out the business franchise tax, and the recent business tax reductions from 2006. Kessler proposed legislation last year that would have raised taxes on cigarettes.
“We need to start investing in our people. If that requires raising some taxes, then that’s the way to go,” Kessler said. According to a Gallup poll, “More than half of smokers earn less than $36,000 per year.” Even worse, over a third of smokers make less than $12,000 a year.
He claims, “things folks want — a qualified, skilled, educated and sober workforce; workforce participation; infrastructure and roads” are at stake if legislation to give tax cuts to big businesses are in the works.” Kessler claims he wants to help blue collar workers, but raising cigarette taxes will hurt those consumers most.
Even more, cigarette tax hikes rarely meet revenue expectations. Of the 32 state tobacco tax increases that went into effect between 2009 and 2013, only three met or exceeded revenue projections. After cigarette tax hikes, consumers seek out alternative tobacco products that are less expensive or available across state borders in lower taxed states.
58% of cigarettes smoked in New York, for example, are smuggled from out of the state, according to the Tax Foundation. This also results in decreased tax revenue.
For decades, as the population has declined and West Virginia has failed to attract new businesses or taxpayers, the government has overspent instead of enacting pro-growth reforms. There absolutely is waste to cut from West Virginian spending but unfortunately there is very little accountability to the budget processes. The State Integrity Investigation gave West Virginia a D- in that category. Taxpayers have to pay for the feckless choices of their representatives according to Kessler’s philosophy on taxes.
“It [lowering taxes] hasn’t worked and no one can show me a place where it has.” Try Arizona, Florida, or Texas for examples Senator Kessler. The correlation between states with lower tax burdens and taxpayers and business migration is quite strong. From income to corporate tax reductions, states that let taxpayers keep more of their income are the bigger beneficiaries of those looking to leave less friendly states. Many governors and legislatures that understand that entrepreneurs bring growth have made their states competitive, tax-wise. It is an act of willingly ignorance for Kessler to deny this.
It’s time for the West Virginia government to get serious, cut spending, lower taxes, and stay out of the pockets of its citizens as much as possible. Some have suggested it may not be the right time for tax reform. In the case of West Virginia, this couldn’t be further from the truth.
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ATR Analysis of Donald Trump Tax Reform Plan
GOP Presidential candidate Donald Trump released details of his tax reform plan today. It features a system with much lower tax rates than current law, and a broadened tax base for high income earners.
“Trump’s plan is certainly consistent with the Taxpayer Protection Pledge,” said Grover Norquist, president of Americans for Tax Reform. “Trump has said he opposes net tax hikes and has made clear that the real problem is spending. This plan is a reform, not a tax hike.”
The plan is not a tax cut, but is rather intended to be revenue neutral under a dynamic score.
Basic elements of the Trump tax plan include:
Carried interest: The plan "ends the current tax treatment of carried interest for speculative partnerships that do not grow businesses or create jobs and are not risking their own capital." Partnerships that do not speculate but rather buy hard assets for the long run will not face a tax increase – for example, private equity firms.
Private equity firms do not speculate, but rather grow businesses and create jobs. Most importantly, private equity partnerships risk their own capital, namely the capital provided by the pension funds, colleges, and charities which invest in them for long term investment returns. These types of investments are vital for workers with traditional pensions, for the colleges Americans send their children to, and for the charities they support.
The carried interest tax hike in the Trump plan is intended to only apply to the type of funds Trump has always said they would apply to: "hedge fund guys." Americans for Tax Reform opposes any change to the tax treatment of carried interest -- including those on hedge fund guys -- but is pleased that the usual target of this left wing ivory tower tax hike proposal--private equity partnerships -- is held harmless in the Trump plan. This is not the case, for example, in Governor Jeb Bush's plan.
As the rest of the GOP field prepares to release their tax plans, they should keep in mind the Left's long term goal to tax ALL capital gains as ordinary income. That's why this carried interest tax hike idea originated in the bowels of leftist academia, and is nearly universally supported by the progressive Left -- it's the camel's nose under the tent toward taxing all capital gains at ordinary rates. Republicans and conservatives should not give aid and comfort to this long term strategy.
ATR has detailed the case against carried interest tax hikes with op-eds in USA Today and Forbes.
Tax rates: Individual tax brackets of 0, 10, 20, and 25 percent (the top rate today is 39.6 percent). The "zero bracket" would apply to married couples' first $50,000 of income (half that for singles).
Capital gains and dividends: By repealing Obamacare's savings surtax, the capital gains and dividends rate is reduced from 23.8 percent today to 20 percent under the Trump plan.
It's also important to note that with a top ordinary income tax rate of 25 percent, the carried interest tax rate hike on "hedge fund guys" is fairly modest, rising from 23.8 percent today to 25 percent under the Trump plan. ATR opposes this tax increase.
Business tax rate: The tax rate on corporate and non-corporate businesses is 15 percent, down from 35 percent today for corporations and 39.6 percent for pass-through firms.
Death Tax: Repealed.
Alternative Minimum Tax (AMT): Repealed.
Marriage Penalty: Repealed.
The plan is intended to be revenue-neutral under a dynamic analysis. In order to make up the remaining lost revenue, the plan features the following major base broadeners:
Deduction phase out: All itemized deductions except for charitable contributions and mortgage interest will be subject to a steeper means-test phaseout than they face under current law.
Deemed repatriation and an end to deferral: An immediate "deemed repatriation" tax of 10 percent is assessed on the $2.5 trillion of U.S. company profits sitting overseas. Going forward, companies would no longer be able to defer U.S. double tax on profits earned overseas.
According to the OECD, the U.S. business tax rate would fall from highest in the developed world to one of the lowest. When state rates are factored in, the U.S. would face the same tax rate as the United Kingdom, and lower tax rates than trading competitors China, Japan, Canada, Mexico, Germany, and France. We would be far below the developed nation average business marginal tax rate of 25 percent.
The loss of deferral is troubling, but two elements should be kept in mind. First, the new 15 percent tax rate is far lower than the double tax companies face today. Second, businesses will be able to credit against this 15 percent U.S. tax any foreign income tax they have already paid overseas. With one of the lowest tax rates in the developed world, it's very unlikely much if any double taxation will, in fact, occur.
Life insurance tax shelter repealed: Life insurance will no longer be tax-advantaged for high-income taxpayers
Business interest: This deduction will face a phased in cap.
Other deductions and credits: Tax breaks for high-income taxpayers and large firms will also be eliminated, but these are not specified.
No movement to full business expensing: The most disappointing part of the Trump plan is that the tax system would move no closer to full expensing of business fixed investment. Businesses would still be saddled with the complex, distorting, and growth-inhibiting "depreciation" regime where an asset is deducted over several or even many years. Far better would be to move to a full-expensing business cash flow model, where all business inputs including investments are deducted in the year spent. While this is somewhat ameliorated by the far lower tax rates, a lack of progress here is the plan's biggest drawback.
To hear more analysis of Donald Trump's tax plan, listen to the latest podcast of The Grover Norquist Show here.
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