Nebraska's LB459 Would Increase Taxes on Life-Saving Products, Lead To Increase In Tobacco-Related Deaths
Americans for Tax Reform submitted testimony today in opposition to Nebraska’s Legislative Bill 459, which would increase taxes on life-saving reduced risk tobacco alternatives such as e-cigarettes and increase the highly regressive tax on tobacco.
ATR Director of Consumer Issues, Tim Andrews, wrote: "These anti-science provisions would have a disastrous impact upon not only businesses, but public health throughout the State, and lead to an increase in tobacco-related deaths. LB 459 also seeks to increase the highly regressive tax on tobacco, disproportionately harming the state’s most vulnerable populations at a time when they can least afford it, while doing nothing to reduce smoking rates."
Andrews noted the ever-growing body of research showing vapor products are an effective harm reduction tool for adults looking to quit smoking: "Extrapolating from a large-scale analysis by the US's leading cancer researchers and coordinated by Georgetown University Medical Centre, if a majority of smokers in the state of Nebraska made the switch to vaping, over 40,000 lives would be saved. In seeking to tax these life-saving products, this bill would place these in jeopardy.”
LB 459 fails to incentivize smokers to move away from deadly combustible cigarettes. Andrews noted that "As the price of a product increases, its use decreases. In previous instances, levying taxes on vaping products has been proven to increase smoking rates as people shift back to deadly combustible cigarettes. Minnesota is serving as a case study on this already. After the state imposed a tax on vaping products, it was determined that it prevented 32,400 additional adult smokers from quitting smoking. Small increases in projected revenue should never come at the expense of human lives.”
The full testimony can be found here.
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Massachusetts Legislators Vote to Keep Taxpayers in the Dark
As a state that ranks 47th out of 50 for political transparency, Massachusetts is already infamous for doing business behind closed doors. But despite growing calls from residents and activist groups for a more open process, legislators on Beacon Hill passed a rules package last week that will deceptively conceal voting records and burden the public with even more opaque procedures.
One proposal in the package would have ensured that legislators and the public have at least 48 hours to read a bill before it’s brought up for a vote. Many Massachusetts bills often reach legislators’ desks just a few hours before the vote, giving them almost no time to file amendments. Ironically, the rules package itself was revealed less than 4 hours before the deadline to file amendments. But business will continue as usual on Beacon Hill after the amendment to require a 48-hour interim period failed miserably in a 39-119 vote.
The legislature also scratched an amendment to reveal how most lawmakers vote on legislation in committee. Now, only committee members who vote “no” on a bill will be identified by name. The rest of the votes, including those who vote “yes” or abstain from voting, will be bundled into a single aggregate number, thus leaving those politicians free from public criticism. As a result, Massachusetts voters will have even less of an ability to hold their other representatives accountable for their support bills.
Perhaps the most straightforward of the failed amendments was one aimed at reinstituting a 4-term limit for the Speaker of the House. Those who opposed term limits pathetically argued that they would “discriminate” against the Speaker (since no one else faces term limits) or that they’re undemocratic (since legislators would no longer be able to choose whomever they want for Speaker at any time). But the failure of the term limits amendment in a 35-125 vote reflects the powerful grip of the legislative leadership over the vast majority of its members. Establishment politicians, particularly Speaker Ron Mariano, opposed all of these amendments to rid the Massachusetts legislature of its secretive, top-down procedures. But, for low-ranking representatives, voting for transparency was simply not worth the cost of future retaliation from the people at the top.
Thanks to the cowardice of freshman legislators who ran on transparency but voted with the establishment, not much will change in the Massachusetts legislature. Even with dozens of protestors on the capitol steps, an open process will once again take a backseat to the personal interests of lawmakers who want to minimize accountability and stay in power.
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Ohio Enacts Bill to Protect Customer Access to Natural Gas
Radical groups have been attacking natural gas in Ohio. In particular, they have been trying to pass local measures that block new natural gas hook ups, putting Ohioans are at risk of losing access to reliable, affordable energy.
Fortunately, legislators have responded to this threat, passing House Bill 201 to prevent municipalities throughout the state from passing legislation that restricts natural gas. Governor Mike DeWine quickly signed HB 201.
Sponsors of the bill argued that it was important to keep natural gas prices from rising from unneeded restrictions. Natural gas has reliably kept Ohio warm for years, but that has been jeopardized by predatory local regulations designed solely to achieve radical left-wing goals.
Natural gas supports 375,000 total jobs in Ohio, contributing $59 billion to the state’s GDP, according to a new study.
“This would be an incredible problem for people across the Buckeye State if we don’t get out in front of this,” Senator Rob McColley said during floor debate on the bill. A small but troubling number of cities on the east and west coast have passed fuel price increasing restrictions, now Ohio residents can feel more secure about their future energy bills.
According to census data Compiled by the legislative service commission, over two-thirds of Ohio residents use natural gas for heat, 25% for electricity. The sponsor of the bill, Rep. Jason Stephens stated that this legislation will safe guard the Ohio economy and benefit all citizens, “Here in Ohio, we want to promote a fair market for all Ohioans, consumers, to have energy options that work best for them — this legislation helps make that a reality… With this bill, I’m ensuring my constituents; all Ohioans and businesses have accessibility within their communities to the abundance of natural gas that our great state has preserved.”
The bill also ensures that customers who want natural gas have a right to purchase the product “the right to obtain any available distribution service or retail natural gas service from a natural gas company with capacity to provide”. This is a win for consumers both in their liberty to patronize what energy service they prefer, and ensuring low prices and competition. This bill continues Ohio’s track record of being one of the least expensive energy states in the country.
Republicans have scored a major win by passing this latest piece of energy legislation. In order to protect consumers, advocates of limited government are having to use state preemption as a tool to stop cities from hampering or banning all sorts of products.
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Sen. Mark Kelly's Support for PRO Act's "Overall Goals" Spells Doom for Arizona Workers
Senator Mark Kelly (D-Ariz.) told a reporter that he is open to passing parts of the anti-worker “Protecting the Right to Organize” (PRO) Act through budget reconciliation and supports the "overall goals" of the bill. The PRO Act would impose a nationwide ban on Right to Work, forcing every Arizona worker to join a union whether they want to or not.
Kelly has been one of three Democratic Senate holdouts on the PRO Act. If Kelly reverses course and supports the PRO Act, it would be a devastating blow to Arizona’s freelancers and franchises.
The PRO Act would dismantle the franchise business model by expanding the definition of “joint employer,” increasing corporate control over mom-and-pop independent franchise locations. Franchises employ 7.6 million Americans nationwide.
Arizona has 14,500 franchise businesses that support 153,300 jobs. Franchises provide $5.5 billion a year in payroll and contribute $8.2 billion a year to Arizona’s economy. 80 percent of Arizona voters view franchises favorably, and 71 percent of Arizona voters say that franchise businesses are a part of their everyday lives. 30 percent of franchises are minority owned, as opposed to 20 percent of non-franchised businesses.
The PRO Act also endangers Arizona’s freelancers by codifying an onerous three-step test that would force independent contractors to reclassify as W-2 employees. Independent contractors come in all shapes and sizes – the Uber you took this week had a freelancer behind the wheel, and your favorite Etsy store is run by an independent contractor. Medical transcriptionists, court stenographers, nurse practitioners, comedians, ballroom dancers, interpreters, and architectural designers often work as freelancers.
Freelancers overwhelmingly prefer the freedom and flexibility of freelancing to the rigidity of traditional employment. According to the Bureau of Labor Statistics, fewer than one in 10 independent contractors want to reclassify as W-2 employees. The PRO Act would jeopardize the livelihoods of the 59 million Americans that engage in freelance work.
Finally, the PRO Act would endanger the privacy of every Arizona worker. The PRO Act forces employers to hand over sensitive employee contact information – including shift information, home addresses, email addresses, and phone numbers – to union bosses during organizing efforts. This would allow union bosses to intimidate Arizona workers at home or workplaces at all hours of the day.
If Kelly votes for the PRO Act, union bosses would win and Arizona workers would lose.
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Lawmakers Should Reject Government “Negotiation” in Medicare Part D
Senate Finance Committee Chairman Ron Wyden (D-Ore.) has released a set of drug pricing principles that will likely be folded into the Democrat’s upcoming multi-trillion tax and spend reconciliation legislation. Wyden’s plan includes a number of concerning proposals including the imposition of price controls on Medicare Part D under the guise of “negotiation.”
Inserting government price setting into Medicare Part D has long been a priority of the progressive left as part of their push for federal control over the American healthcare system.
The fact is, Part D already promotes competition that keeps costs low. Government price setting would do nothing to reduce costs.
Instead, Wyden’s proposal would insert federal bureaucrats into the healthcare system and would harm medical innovation and access to care. It could also threaten high-paying manufacturing jobs across the country at a time that we should be pushing policies that create more of these jobs.
Medicare Part D already has competition and negotiation
Wyden’s call to insert negotiation into Medicare Part D is misleading because there already is competition and negotiation in the healthcare program. Part D facilitates negotiation between pharmacy benefit managers (PBMs), pharmaceutical manufacturers, and plans. This system works because Congress created a non-interference clause when Part D was created which prevents the secretary of Health and Human Services (HHS) from interfering with the robust private-sector negotiations.
Since the law’s enactment, the program has proven to be a successful model of healthcare by saving taxpayers billions of dollars and granting patients access to medicines at low costs. Under this system, plans are free to compete based on the goal of maximizing access and minimizing coverage costs.
Federal spending on Part D has come in 45 percent below projections and is just 14 percent of total Medicare spending. Average monthly premiums in 2019 were just $32.50 and have been stable since 2011. Part D spending also helps keep costs in the rest of Medicare down – it has decreased hospital admissions by 8 percent, resulting in $2.3 billion in annual savings.
According to a 2020 survey, 84 percent of seniors found their Part D premiums affordable and 93 percent found their plan convenient to use. 9 in 10 seniors are satisfied with the Part D drug coverage.
Government “negotiation” would do nothing to lower costs
While Wyden says this proposal is about reducing costs, experts have repeatedly found that negotiation and the imposition of price controls would have little or no effect on reducing costs. A 2007 letter by the Congressional Budget Office noted that there would be very little savings from having the government insert itself in negotiations between private sector stakeholders.
This finding was reaffirmed in a 2019 letter by CBO Director Keith Hall who noted that “providing broad negotiating authority by itself would likely have a negligible effect on federal spending.” In addition, actuaries at the Centers for Medicare and Medicaid Services have also concluded that government negotiations would not produce any savings.
Government “negotiation” would put Washington bureaucrats in charge of Part D
Rather than promoting competition and allowing prices to be set by the free market, Wyden’s plan would allow federal bureaucrats to set prices on arbitrary basis.
This would have several adverse consequences.
First, it would harm the incentive for manufacturers to innovate because there are fewer profits available to finance the next generation of lifesaving and life-improving prescription medicines. In turn, this will result in higher long-term healthcare costs because illnesses need to be treated in a reactive, not proactive way.
Second, restricting innovation will also harm access. The U.S. is currently a world leader in medical innovation and access because it promotes free market competition. As a result, the majority of cures are developed in the United States and are launched years before other developed nations have access to them.
According to research by the Galen Institute, 290 new medical substances were launched worldwide between 2011 and 2018. The U.S. had access to 90 percent of these cures, a rate far greater than comparable foreign countries. By comparison, the United Kingdom had access to 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent.
Government “negotiation” could threaten high-paying manufacturing jobs
In addition to harming the healthcare system, a sweeping federal plan to impose government price controls on medicines could also have economic damage.
Nationwide, the pharmaceutical industry directly or indirectly accounts for over four million jobs across the U.S and in every state, according to research by TEconomy Partners, LLC. This includes 800,000 direct jobs, 1.4 million indirect jobs, and 1.8 million induced jobs, which include retail and service jobs that are supported by spending from pharmaceutical workers and suppliers.
The average annual wage of a pharmaceutical worker in 2017 was $126,587, which is more than double the average private sector wage of $60,000.
President Biden has repeatedly promised to create millions of new high paying manufacturing jobs in America. However, proposals being considered by Democrats like Sen. Wyden would threaten existing jobs.
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Senator Wyden Introduces a Tax Hike on Small Businesses
Senate Finance Committee Chairman Ron Wyden (D-OR) has introduced the so-called, ‘‘Small Business Tax Fairness Act,’’ which imposes a tax hike on small businesses by limiting the Small Business Deduction. This tax hike would hurt small businesses' ability to reinvest money back into new jobs, higher wages, and business growth at a time when small businesses are just beginning to recover from shutdowns and restrictions.
Specifically, the bill limits the Small Business Deduction in the Tax Cuts and Jobs Act, which allows pass-through businesses to take a deduction of up to 20 percent for qualified business income that is available under Section 199A. Pass-throughs include sole proprietorships, partnerships, LLCs, and S-corporations. These are entities that are taxed at the individual owner level and are comprised overwhelmingly of small businesses. This provision enables small businesses to invest more in employee compensation, new hires, capital, or other avenues for business growth. If this proposal along with Democrats’ other tax proposals are passed, it would impose for many small businesses a top tax rate of 39.6 percent.
The majority, or 64 percent, of pass-throughs in 2011 had fewer than five employees while nearly 99 percent had fewer than 500 employees, according to the Congressional Research Service. Of the 26 million businesses in 2014, 95 percent were pass-throughs. Pass-through businesses also account for 55.2 percent, or 65.7 million of all private sector workers.
In this way Senator Wyden’s bill would be a direct tax hike on a major amount of small businesses.
Further, this deduction has been incredibly helpful for small businesses. According to NFIB’s Small Business Introduction to the Tax Cuts and Jobs: Part I survey, “55 percent of small business owners say that the deduction is “very important” with another 29 percent say it is “somewhat important.”” In fact, 90 percent of small business owners support permanently extending the Small Business Deduction.
One example of this is the Cranston Material Handling Equipment Corp in McKees Rocks, Pennsylvania:
“Like many business owners, I pay quarterly estimated taxes,” Cranston testified. “In order to pay those taxes, I take cash from my company each quarter. Those payments suck my working capital right out of my business quarter after quarter. Under the Tax Cuts and Jobs Act’s new Section 199A, I now qualify for a 20 percent deduction on my pass-through income. In real terms, this means I will be able to keep between $1,200 and $2,500 a quarter in my business that I would otherwise have paid in taxes. The ability to keep $5,000 to $10,000 a year in my company is a big deal to a small business owner like me.”
While characterized by Wyden and other Democrats as a “giveaway” or “loophole” for the wealthy, the Small Business Deduction is limited to prevent taxpayers from taking advantage of the tax code by improperly allocating wage income, which is paid by the individual, as business income.
One of the main limitations within Sec. 199A is a wage limitation combined with a capital limitation. The wage limitation applies to taxpayers with greater than $315,000 in income for joint filers or $157,500 for single filers and is phased in over the next $100,000 or $50,000, respectively.
Past this threshold, the 199A deduction is limited to the greater of 50 percent of a business’s W-2 wages or 25 percent of W-2 wages plus a capital limitation of 2.5 percent of the “unadjusted basis” immediately after acquisition of all qualified property.
At a time when small businesses especially have been hit hard, Senator Wyden’s proposal is out-of-touch, short-sighted, and could be incredibly harmful. There are tens of millions of pass-through businesses, and their 65.7 million workers, that would be harmed by the elimination of the deduction, having serious implications on wages, jobs, and economic growth.
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Texas Lawmakers Aim To Deliver Property Tax Relief
Skyrocketing local property tax rates pose an escalating threat to the health of the Texas economy. Many in the Texas Legislature believe that by substituting a broader-based sales tax and limiting government spending growth, much needed property tax relief can be delivered.
Over the last 20 years, data reveals that local property tax burdens across Texas have grown faster than the average taxpayer’s ability to pay for them. Despite the impact of several reforms and buydowns over the years, property tax bills for Texas homeowners rank 7th highest in the nation. And though the state boasts an otherwise friendly business climate, Texas localities levy the 15th worst property tax burden on corporations. In fact, property taxes account for around half of all tax revenue in the state, reaching $70 billion in 2020.
Polling shows Texas families are fed up with the status quo. More than three quarters of Texans say property taxes are a “major burden for them and their family,” according to a recent Texas Public Policy Foundation poll. Onerous property tax burdens hurt low-income earners more than any other group. Since the tax is paid annually and the costs compound over time, property taxes are often an obstacle preventing low-income Texas residents from purchasing their first home. It’s also worth noting that property tax burdens are also borne by renters, as the costs are passed along and factored into monthly rent payments.
Americans for Tax Reform is adjuring Texas legislators to pass tax reform aimed at reducing property tax burdens during this summer’s special session. One option, last proposed in HB 958, would limit government spending over the next decade to buy down school district Maintenance and Operations (M&O) taxes using the surplus dollars. Constituting a whopping 43% of the state’s property tax revenue, an elimination of the M&O tax would mean tens of billions in relief for Texans. If growth in state spending were limited to 4% per biennium, with most of the surplus directed toward school district property taxes, M&O costs would be totally expunged in about a decade, putting those dollars back into the pockets of Texas families.
Another proposal, though recently defeated in the legislature, would substitute M&O property taxes with an expanded sales tax. Vance Ginn, chief economist at the Texas Public Policy Foundation, points out that Texas sales taxes have grown at far lower rates than property taxes. While personal income increased by 157% from 2001 to 2020, property taxes went up by 181%. Sales tax collections, meanwhile, rose by just 133%.
Every year, Texas provides more than $43 billion in exemptions, exclusions, and discounts to the sales tax base. By getting rid of many of those special exceptions written into the tax code, Ginn argues, the state would significantly raise its sales tax revenue and provide a more level playing field.
In fact, significantly reducing property taxes through the elimination of sales tax exemptions would actually lead to an overall reduction in the total state and local sales tax rate, thanks to the tens of billions in additional revenue. “We can eliminate nearly half the tax burden in Texas, that’s the key part,” Ginn points out. “You’re cutting the property tax dramatically, and actually lowering the rate from 8.25 percent today for state and local taxes down to 8.21%.”
These two property tax reform options recently proposed in the Texas Legislature would stimulate economic growth and job creation, according to economists at Rice University’s Baker Institute. Just the first year of gradually replacing property taxes with sales taxes could contribute to a $14.3 billion increase in economic output and 217,000 new jobs. Meanwhile, Texas could see a $12.5 billion increase in economic output and 183,000 new jobs after the first year of buying down M&O property taxes using the dollars saved from limits on government spending.
Reduced property taxes in Texas would lead to greater household after tax income, lower rent payments, and other economic benefits for Texas residents. By rectifying onerous property tax burdens, Texas lawmakers can fix one of the two greatest flaws – the other being the imposition of the margins tax – in what is otherwise one of the most competitive business tax climates in the U.S.
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Jonathan Kanter Would Abandon Consumer Welfare Standard As Antitrust Top Cop
President Joe Biden has nominated antitrust attorney Jonathan Kanter to lead the Department of Justice’s Antitrust Division. Kanter, who has slammed the long-held consumer welfare standard as “judicial activism,” is the wrong choice to lead the Antitrust Division.
A chorus of leading Democrats immediately praised Kanter’s nomination. Sen. Elizabeth Warren (D-Mass.) tweeted that Kanter has been a leader in “[strengthening] competition in our markets.” Left-wing academic Zephyr Teachout said that Kanter is an “extraordinary choice.” Reps. Jerry Nadler (D-N.Y.) and David Cicilline (D-R.I.), leaders in the House effort to weaponize antitrust law, also praised his nomination.
From day one, the Biden Administration and the Democrat Party have not dealt in good faith on antitrust policy, especially with nominations. Lina Khan was confirmed last month in a 69-28 vote, with 21 Republican Senators voting in favor of her confirmation.
Khan’s confirmation was an unprecedented bait-and-switch operation. Biden nominated Khan to serve as an FTC commissioner, not as chair, and withheld that information throughout the entire nomination process. Hours after the confirmation vote, Biden elevated Khan to FTC Chair, blindsiding Republicans.
Given this lack of transparency and good faith, no Republican should vote to hand the Biden administration another antitrust victory.
The DOJ Antitrust Division shares antitrust enforcement authority with the FTC, and Kanter has called Khan a leader of a “new golden age of antitrust enforcement.” This is troubling given that Khan has worked aggressively to shed all bipartisan limits on the FTC’s antitrust authority with barely a month on the job.
Additionally, Kanter is a longtime opponent of the consumer welfare standard that has undergirded antitrust law for over four decades. Under the standard, antitrust cases are generally only brought against companies that are harming consumers through tangible effects like high prices, reduced product quality, or lack of choice. Antitrust enforcers must also consider whether there is a procompetitive justification for the business conduct in question, and whether the conduct results in countervailing benefits to consumers and competition.
The consumer welfare standard protects the competitive process, not individual competitors in a marketplace from being beaten by rival firms. This neutral application of antitrust law fosters the robust competition that delivers better prices and better choices for all Americans.
Kanter would abandon the consumer welfare standard, which developed through decades of common law and expert consensus, in favor of a European-style antitrust approach that ignores harm to consumers and focuses on harm to inefficient competitors. Kanter has slammed the consumer welfare standard as “judicial activism” and “central planning,” and argued that courts should not consider economic efficiency when ruling on antitrust cases.
Antitrust law before the consumer welfare standard was an incoherent mess, and all manner of routine business conduct was considered presumptively unlawful. Enforcers attacked companies purely for their size while ignoring benefits they delivered to American shoppers. Philosopher-king judges handed down incoherent rulings designed to punish political enemies or reward political allies. Famously, Supreme Court Justice Potter Stewart remarked that the only consistency he could find in antitrust law was that “the government always wins.”
The left wants to destroy the consumer welfare standard precisely because it is a bulwark against judicial activism. Without the standard in place, antitrust law would revert back to the broken tradition of the mid-20th century. Companies afraid of abusive antitrust litigation would pull their punches with competing with rivals, robbing us of the robust competition that delivers the best choices and lowest prices for all Americans. Government bureaucrats would win, American shoppers would lose.
If confirmed, Kanter would work hand-in-glove with Lina Khan to attack the consumer welfare standard and turn the clock back decades on antitrust law. For these reasons, no Republican should vote to confirm Kanter.
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Lessons We Should Learn About Pandemics and Government Policy on this Week’s “Leave Us Alone” Podcast
Over the past year, the COVID-19 pandemic has crushed hundreds of thousands of small businesses and caused millions of Americans to lose their jobs. Politicians and public health officials across the country only exacerbated the problem with their myriad of restrictive and overreaching lockdown policies. The next few years will be crucial to America’s economic recovery.
To discuss what lessons conservatives should learn from COVID-19 and the failure of government polices meant to address the pandemic, ATR President Grover Norquist invited Phil Kerpen onto last week’s episode of Leave Us Alone.
On long-term emergencies and extended Governor power, Kerpen clarifies:
“When something is an emergency for this month and then the next month and then the next month and you get into years, you’ve lost your whole system of government if you have one man rule by dictate by the governor. Rather than things going through the legislative channels and your elected officials having an opportunity to vote on them. We cannot tolerate essentially open-ended rule by dictate by governors.”
On state government mandated shutdowns, Kerpen explains:
“The best predictor of whether you have any type of restriction over the past year was the party of the Governor more so than the level of COVID or anything else. Democrats showed they were extremely restrictionist and they were for every lockdown measure and mask mandate you could imagine.”
On the true effectiveness of lockdowns, Kerpen emphasized:
“The kind of lockdown that might actually work, I don’t think is actually possible to be implemented. The kind that we had accomplished nothing except imposing massive economic suffering.”
Listen to the full episode below:
Leave Us Alone with Grover Norquist is a weekly video and audio podcast found on all major podcast streaming services:
Biden’s $600 Financial Reporting Requirement Could Lead to Even More Violations of Taxpayer Rights
The IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating the $10,000 currency transaction reporting requirements, according to a 2017 report by the Treasury Inspector General for Tax Administration (TIGTA). In addition, less than one in ten investigations uncovered violations of tax law.
These findings should be alarming to taxpayers given that President Biden has proposed creating a new comprehensive financial account information reporting regime which would force the disclosure of any business or personal account that exceeds $600. Not only would this include the bank, loan, and investment accounts of virtually every individual and business, but it would also include third-party providers like Venmo, CashApp, and PayPal.
Under the Bank Secrecy Act, financial institutions are currently required to report transactions exceeding $10,000 or multiple transactions in aggregate of $10,000 in a single day. TIGTA examined 306 investigations undertaken by IRS-CI between 2012 and 2014 for violating this law, where a total of $55.3 million assets were seized. During the audit, the sample size was narrowed to 278 investigations, as several did not meet the criterion for inclusion.
TIGTA found that only 8 percent of investigations uncovered violations of tax law. In many cases, IRS-CI had not considered reasonable explanations from those investigated, property owners were not adequately informed of their rights nor informed of seizure of their property, and outcomes in cases lacked consistency, violating the Eighth Amendment to the Constitution.
Given these findings, a new reporting regime that includes the financial accounts of virtually every business and individual could see countless new cases of taxpayer abuse.
Very few taxpayers investigated by IRS-CI were found to have violated tax law.
Taxpayers investigated by IRS-CI were found to have violated tax law in just 21 of the 252 cases, or 8 percent. Similarly, out of the 278 cases, only 26, or 9 percent, of investigations established that funds came from an illegal source or was involved in another illegal activity.
Instead of establishing tax crimes, it appears that many of these investigations were merely IRS-CI fishing expeditions.
Businesses that dealt with a high number of currency transactions, such as retail, wholesale, service, automobile, restaurant, and gas stations were the primary targets for seizures. This involved the seizing of deposits into a bank account and blocking withdrawals from a bank account, which would likely have disrupted owners’ ability to run their business.
Many of these owners explained that funds withdrawn were simply used for business purchases. Over 90 percent of them were telling the truth.
Interviews with property owners were primarily conducted after seizures.
TIGTA found that in 92 percent of cases, interviews were conducted after the seizure of the interviewee’s property, oftentimes on the same day. This is important, as judges did not receive any information from interviews before making their probable cause determination.
In many cases, with explanations given by property owners, judges’ decisions would have been affected.
This history of seizing property with little to no information outside of simple banking patterns should be alarming to taxpayers, given that the IRS is proposing to force the collection of new banking patterns.
IRS-CI did not consider reasonable explanations given by property owners.
In many cases, there was little or no evidence that property owners’ reasonable explanations were considered by the IRS-CI. In fact, in 54 of the 229 investigations, owners provided reasonable explanations, such as “depositing business funds, withdrawing funds for inventory purchases, or conducting transactions under $10,000 due to insurance policy restrictions.”
In most instances, TIGTA found no evidence that CI attempted to verify the property owners’ explanations.
In other cases, the property owners provided other types of reasonable explanations, such as “friends or unidentified bank representatives told them to conduct transactions under $10,000, they did not want to handle more than $10,000 cash due to the time and “hassle” of filling out forms, a desire to avoid bank fees, or for personal safety reasons.”
Again, TIGTA found no evidence that CI considered the defense offered or tried to verify them.
CI procedures require that all “realistic” defenses are considered before a seized asset is forfeited. Against the rights of these owners, CI agents failed to even verify realistic defenses. Given the failure to follow procedure here, there is a compelling case that these owners’ Fourth Amendment right against unreasonable searches and seizures was violated.
Taxpayers under investigation were not adequately informed of pertinent information, such as the purpose of the interview, proper agent identification, and that a seizure of their property took place.
In 171 of 229 cases, special agents did not properly identify themselves as assistants to the United States Attorneys’ Office (USAO) when they were assisting on an investigation or TIGTA did not find evidence they did. This violates the Internal Revenue Manuals (IRM), which states, “that IRS employees... should advise those contacted that they are acting as assistants to the attorney for the government in conjunction with an investigation.”
In 106 of 229 cases, the agents did not state the purpose of the interview or TIGTA did not find evidence they did. IRM procedures in Title 26 cases require special agents to advise the property owner regarding the purpose of the contact.
For 181 of 229 cases, TIGTA identified a problem with the information provided to the property owner about the seizure. In 110 cases, the property owners were not informed until the end of the interview that a seizure took place. In 60 cases, the property owners were not informed that a seizure took place. As the TIGTA report explains, “For Title 26 cases, the IRM procedures requires special agents to advise the property owner regarding the purposes of the contact, and we believe this also relates to the requirement in Title 26 cases for special agents to advise the property owner that a seizure took place.”
Outcomes in cases lacked consistency, violating the Eighth Amendment to the Constitution.
The Eighth Amendment to the Constitution of the United States, precludes excessive fines and requires that penalties be proportionate to the offense. Additionally, under 18 U.S.C. § 983(g)(1), “a court is required to consider whether a forfeiture is proportional to the gravity of the offense giving rise to it.”
TIGTA explains that many of the individual outcomes in seizure cases were disproportionate to the conduct of the taxpayers and were disproportionate to the outcomes in cases of similarly situated taxpayers.
Worse, outcomes did not appear to be consistently determined by the facts of the cases but rather by how willing a taxpayer was to engage in costly litigation against the government and the potential of a criminal prosecution if no settlement was reached.
The few cases where structuring cash transaction was proven, often through owners’ own admission, is where the most disproportionate outcomes were identified:
“The most disproportionate outcomes identified for our sample results included cases for which the property owners were criminally charged and entered into plea agreements solely for legal source structuring. In nine cases from our sample, legal businesses and their owners were indicted for structuring cash transactions for which there was no evidence of any unlawful conduct other than structuring. The businesses included water amusement parks, pharmacies, used car sales, and coin and stamp dealers.”
Disproportionate outcomes are a tell-tale sign of a violation of Eighth Amendment rights, as these rights demand proportionate penalties for the offense itself. The IRS-CI’s practice of determining outcomes by taxpayers “risk tolerance” is a dreadful, egregious violation of their rights.
TIGTA found numerous cases where IRS-CI failed to uncover tax crime, violated taxpayers’ due process rights, failed to notify taxpayers of pertinent information, and improperly determined outcomes in violation of the Constitution.
Given that these investigations were conducted due to possible violations of the $10,000 currency transaction threshold, the Biden proposal to create an entirely new reporting regime for financial accounts that exceed $600 should be alarming to taxpayers. If this proposal is implemented, it is inevitable that we will see new cases of the IRS targeting and harassing taxpayers.
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New York City Council Proposal Places Consumer Privacy at Risk and Hurts Small Businesses
Earlier this morning, Americans for Tax Reform wrote to New York City’s council, urging them to oppose Intro 2311, a bill that would force meal delivery services to share private consumer data with restaurants.
“Intro 2311 would be a disaster for consumers and businesses, placing consumer security and safety and risk, and exposing small family-owned restaurants to significant legal liability” said Director of Consumer Issues Tim Andrews. “With no privacy safeguards in place, customer’s private details could be sold to third parties without their consent, restaurant staff could know the personal addresses of customers subjecting them to stalking and harassment, as has occurred in other countries, and the lack of any security provisions means consumer private data could be easily hacked.”
Andrews continued: “This Bill is not only bad for consumers; it is bad for businesses. Family-owned restaurants don’t have the resources to protect their data from being extorted in increasingly common ‘ransomware’ attacks. Security breaches would not only harm users, but they could also force small businesses to cease operations as a result of multi-million-dollar legal liability costs, in addition to the inevitable loss of customers.”
Andrews added: “Consumer data is one of the most valuable assets of the modern era. To allow restaurants to sell this private information to credit firms, banks, political campaigns, or unscrupulous bad actors with no privacy protections whatsoever violates every rule of sound public policy. Should the very delivery firms that were responsible for keeping restaurants in businesses, and families fed, throughout the pandemic be forced to turn over their valuable data for free to businesses unable to manage it securely, all New Yorkers will suffer as a result."
The full letter can be read here.
Photo Credit: Jörg Schubert
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