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Blog Contributors

Brandon Arnold
Vice President of Government Affairs 

Dan Barrett
Research and Outreach Manager 

Melodie Bowler
Government Affairs Intern 

Demian Brady
Director of Research 

Christina DiSomma
Communications Intern 

Jihun Han
Communications Intern 

Timothy Howland
Creative Content Manager 

Samantha Jordan
Communications Intern 

Curtis Kalin
Communications Intern 

Ross Kaminsky
Blog Contributor 

David Keating
Blog Contributor 

Douglas Kellogg
Communications Manager 

Sharon Koss
Government Affairs Intern 

Michael Liguori
Government Affairs Intern 

Richard Lipman
Director of Development 

Joe Michalowski
Government Affairs Intern 

Diana Oprinescu
Communications Intern 

Austin Peters
Communications Intern 

Kristina Rasmussen
Blog Contributor 

Taxes

Corporate Inversion: Fleeing from the Terrifying Tax Code
Posted By: Melodie Bowler - 07/24/14

“The American tax code is an anti-competitive mess.” Chairman Ron Wyden (D-OR) of the Senate Finance Committee stated the complicated problem quite simply in his opening remarks for the hearing titled “The U.S. Tax Code: Love It, Leave It or Reform It!” On July 22nd, the committee heard testimony from six witnesses on the recent flood of corporate inversions. Dozens of U.S.-based companies have decided to acquire competitors abroad in order to relocate their headquarters and lower their tax bills. U.S. corporations pay the highest income tax rate among OECD countries at 35 percent. When state taxes are included, U.S.-based businesses bear on average a 39.1 percent tax burden. In comparison, the OECD tax average is 25 percent, putting American businesses at a disadvantage.

The first witness, Robert Stack who is Deputy Assistant Secretary for International Tax Affairs at the Department of the Treasury, made the statement upon which everyone could agree: “there is universal consensus that our rate is too high.” Obviously, the high U.S. corporate tax rate compared to other developed nations is the primary reason for corporate flight, yet disagreement remains on how to solve the problem. Chairman Wyden highlighted the issue facing Congress today, that “tax reform is moving slowly, inversions are moving rapidly.” For that reason he would prefer to enact punitive, retroactive laws to attempt to stop inversions immediately. Two such bills, S. 2360 in the Senate and H.R. 4679 in the House would seek to prevent further inversions in the short term by changing the IRS criteria for being considered inverted, based on the portion of stock the foreign entity holds and the volume of business activities which continue in the U.S. Both bills would be retroactive to May 8, 2014, but S. 2360 would sunset in two years, whereas H.R. 4679 would be permanent.

The Finance Committee’s Ranking Member Sen. Orrin Hatch (R-UT) would rather see immediate, comprehensive correction of the tax system. While Congress generally moves slowly, especially on taxation, the rapid loss of the tax base could be the impetus needed to force an overhaul. Sen. John Thune (R-SD) agreed, not wanting to punish corporations for leaving because “when you make bad rules, you get bad outcomes.” Sen. Rob Portman (R-OH) also felt “this is an opportunity for us to encourage solving the problem rather than dealing with the symptom.” Medical analogies were used to illustrate the issue, describing a short-term fix as a tourniquet which will stem the flow to allow for time to deliberate over changes to the tax code. However, as one witness mentioned, if the tourniquet is left on for too long with no resolution to the underlying problem, the result will be gangrene.

The witnesses floated a number of ideas on how to reform the tax code to discourage inversions. For instance, the U.S. could switch to a territorial tax system, in which the IRS would only tax multinational corporations for the income they generate domestically. One witness, Dr. Leslie Robinson, a business professor at Dartmouth, suggested simply ending deferral and lowering the rate. Either choice could improve upon the system currently in place. All business owners search for cheaper inputs to lower their costs and increase profits, and the U.S. tax burden has been targeted as an input well worth adjusting.

One reason corporate inversion is generating greater attention now is the consequent loss of tax revenue for the government. With mounting debt and yearly deficits, Congress and the White House cannot bear to see taxpaying companies move elsewhere. Treasury Secretary Jacob Lew outlined these concerns in a letter he sent to Sens. Wyden and Hatch and Reps. Dave Camp (R-MI) and Sander Levin (D-MI), who are Chairman and Ranking Member of the House Ways and Means Committee. Secretary Lew stated that, “What we need is a new sense of economic patriotism,” and “We should not be providing supporting for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.” He implies that the current tax rate constitutes a “fair share,” but corporations considering inversion clearly view it differently. When operating abroad, U.S. multinationals face the same taxes that other corporations pay, but to bring profits home, they must comply with a much higher tax. The federal government has caused this problem through their own mishandling of the tax system, and now it is time for a permanent fix.

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High Corporate Taxes: One Explanation for America’s Painful Recovery
Posted By: Michael Liguori - 07/22/14

Just looking at the numbers, June seemed like an example of strong economic recovery, with the Dow growing, unemployment shrinking, and more jobs entering the economy. However, writing in The New York Sun economist Lawrence Kudlow found some problems brewing in the seemingly positive June jobs report:

But there were some important glitches in this good-news report. For one, worker wages remained soft, rising only 2% over the past 12 months. Total hours worked are 2.1% ahead of a year ago, suggesting that overall income and nominal GDP are growing at a relatively slow 4% rate.

Meanwhile, the U6 unemployment rate, which includes part-time workers who want better full-time jobs or folks who have given up, dropped only slightly to 12.1%. That’s still a historically high rate. And the labor-force participation rate was unchanged at 62.8%, a 30-year low.

One of the problems Kudlow highlights is that unemployment goes down in two ways—either more people are employed, or more people stop looking for work. He notes that while, “2.15 million people gained employment in June, 2.35 million dropped out of the labor force.” In order for the economy to have true increases in employment, businesses need to be able to freely add more positions to their payrolls. The answer to this problem is simple: stop holding the market back, and lower the corporate tax rate. With the highest effective corporate tax rate in the developed world, the U.S. is making itself into a much less desirable home for the kind of lucrative corporations that provide the economic growth that Americans need.

Kudlow cites a dynamic economic model released by the Tax Foundation that demonstrates the market potential currently being restrained by the 35-40% corporate tax. Cutting the tax to 25% would, “over ten years raise real GDP by more than 2 percent, increase private business-capital investment by more than 6%, boost worker wages by 2%, and increase total federal revenues by nearly 1%.”

In June, The Wall Street Journal published an op-ed regarding the fact that numerous corporations are doing exactly as feared and choosing to leave America in favor of kinder tax rates in places like Ireland, and why shouldn’t they? Medical technology firm Medtronic is planning to shift its principal executive offices to Ireland, which boasts a corporate tax of 12.5%, and according to The Wall Street Journal, corporate friendly countries are numerous.

Ireland isn't the only place with a more competitive tax policy. The near-40% U.S. average rate is almost double the 21% average in the European Union, or the 22% in Asia, according to KPMG. As we noted recently, about the only place outside of captive Marxist countries with a higher corporate tax rate than the U.S. is the United Arab Emirates. But its top rate of 55% is generally applied only to foreign oil companies.

By overtaxing, we are intentionally sending jobs, wealth and innovation away from the United States. The corporations that the current tax-and-spend administration seems so eager to hold back are the very entities that can bring vitality to the struggling American economy. Relieving them of excessively high tax burdens relieves the American people and helps put the economy on the road to recovery. The rest of the world knows this, and it’s high time our government caught up.

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Increase in Expats: FATCA a Factor in Stunning 70 Percent of Citizenship Renunciations
Posted By: Samantha Jordan - 07/11/14

A recent poll conducted by The Heritage Foundation found that in 2013 alone, a record 3,000 Americans living overseas voluntarily gave up their citizenship or green cards. The percentage increase of expats from 2012 was an overwhelming 221 percent, an increase never seen before in the United States. There has been much speculation as to what caused the concerning increase but the most discussed cause is the passage of the Foreign Account Tax Compliance Act (FATCA).

Passed in 2010, the act took effect on July 1st of this year and it nominally aims to crack down on the use of offshore banks and fight against tax evasion. By forcing foreign banks and other financial institutions to exchange data, the act is incentivizing many Americans to abandon their US citizenship to avoid FATCA’s complexity and overreach.

The previously mentioned Heritage survey revealed that 70 percent of Americans working and living abroad have considered giving up their U.S. citizenship because of FATCA.

Among those who have recently relinquished their US citizenship are some surprising and extremely well known faces.

Perhaps the most famous of the expats is singer Tina Turner.  The US embassy in Bern Switzerland confirmed that the famous American singer signed a “Statement of Voluntary Relinquishment of U.S. Citizenship” in October 2013. Ms. Turner has been living in Switzerland since 1995 with her husband Erwin Bach, a German record executive. A Forbes article notes, “While it doubtless wasn’t tax motivated, our tax system doesn’t exactly help.” And “Concerning taxes, it is worth noting that Swiss rates are high.”

What makes FATCA so burdensome is how it inserts the U.S. Government into the financial matters of people who have as little as $10,000 in an account. Combine that with America’s already nonsensical “double taxation” system where citizens living abroad can owe domestic income taxes (even if they did not spend a day in the U.S.), and you have a big reason to cut bait, and almost no reason to retain citizenship any longer.

Social media pioneer, Eduardo Saverin received slightly more criticism from the media for his relinquishment of his US citizenship. The Washington Post explains that the Facebook co-founder renounced his U.S. citizenship to become a resident of Singapore. His spokesman countered, “We are unequivocal in our position that taxes were not a factor in his decision.” However, unlike Ms. Turner’s new home in Switzerland, Singapore’s taxes will favor Mr. Saverin.

Socialite, songwriter and former high-profile Democratic Party fund-raiser, Denise Rich also handed in her U.S. passport. Reuters explained in 2012 Rich renounced her citizenship in for an Austrian Citizenship “and, with it, much of her US tax bill.”  But FATCA isn’t just causing the rich and famous to relocate their allegiance to tax-friendlier countries, the act is also having a rather large impact on over 7 million Americans who are living overseas.

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Alaska Bypass: Risk Without the Reward for Taxpayers
Posted By: Samantha Jordan - 06/30/14

For the average consumer, a 12 pack of Coke may cost around $12. For some Alaskans, a 12 pack costs $15.15. But for postage stamp buying taxpayers, the cost for a 12 pack to get to an Alaskan consumer is $21. How can this be? The answer: the Alaska Bypass. 

The Alaska Bypass is a program delegating responsibility for shipping over 100 million pounds a year in consumer items—mostly groceries—to off-road Alaskan villages to the United States Postal Service. Since it’s origins in 1972, the program has cost taxpayers $2.5 Billion.

Though rural Alaskans are paying around $3 more for a can of Coke than consumers in, say, Boston, many Alaskans believe the Alaska Bypass is the only program keeping isolated villages afloat.  Postmaster General Patrick R. Donahoe told the Washington Post on Saturday “If you talk to people in Alaska, they’re very satisfied with this service.” 

And why wouldn’t they be? One pallet that cost the Postal Service nearly $3,200, cost Alaska Commercial only about $485 in postage. The Washington Post explained that “not only is this well below commercial rates, it’s even less expensive—about 20 percent less per pound, postal regulators say—than customers anywhere else in the country pay to send a package via parcel post.”

But the Alaska Bypass isn’t just a treat for hungry Alaskans. The program has also been extremely beneficial to retailers as well. Retailers such as Coke are able to mark up their products by 30 percent or more. This is because the subsidy allows the retailers to pay the USPS roughly half of what it would cost to ship the goods commercially.

While this is all fine and dandy for Alaska and many retailers, the United States Postal Service is clearly suffering from the costs. Last year alone, the Alaska Bypass cost the USPS $77.4 Million. 

With insufficient revenues, unfunded liabilities of nearly $99.3 Billion and debt to the U.S. Treasury of $15 Billion, the Postal Service may ask taxpayers to deliver relief if they can’t cut down on expenses like the Bypass.

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Still No Solution on Highway Funding
Posted By: Nan Swift - 06/26/14

The Senate Finance Committee was expected to markup Sen. Wyden’s (D-OR) Preserving America’s Transit and Highways (PATH) Act today, but the vote was put on hold until after the week-long July 4th recess while the two parties continue to negotiate. The bill attempts to provide a short term funding boost for the long-troubled Highway Trust Fund, which is expected to run out of cash by late July as TheHill.com explains:

The traditional funding source for transportation projects has long been collected from the federal gas tax, which is currently set at 18.4 cents per gallon. Infrastructure expenses have outpaced revenue from the gas tax by about $16 billion annually in recent years, partly due to increases in fuel efficiency and a decline in driving.

The PATH Act purported to provide a $9 billion cash injection to the Trust Fund primarily by eliminating stretch IRAs (essentially raising taxes on investments and nest eggs by $3.5 billion over ten years), increasing taxes on heavy trucks, and a hodge-podge of other tax-loophole gimmicks, such as revoking passports for nonpayment of delinquent taxes.  However, a Chairman’s modification to the underlying bill issued only a few hours before the scheduled markup struck the  Heavy Vehicle Use Tax hike, which was expected to raise $1.3 billion over ten years, leaving a large gap in revenue and making it even harder for Senators to find agreement on the legislation.

This isn’t the first time the Highway Trust Fund has hit a “roadblock,” so to speak.  The fund has been repeatedly bailed out with billions from the General Fund over the past six years.  It’s clear another short-term measure is only kicking the can down the road and won’t address the program’s underlying problems. So far, lawmakers on Capitol Hill seem to be focused only on the revenue side of the ledger as one proposal after another has focused on raising taxes or even trying to find savings from the U.S. Postal Service to fund highways, truly a robbing Peter to pay Paul scenario.  However there are some commonsense steps lawmakers should take first to restore solvency to the trust fund before turning to taxpayers with hat in hand.

  1. Repeal the Davis-Bacon Act: The 1931 law requires that workers on federally funded projects of $2,000 or more be paid a “prevailing wage”—the hourly wage paid to a majority of other workers in the area. This often pegs wages to the typically high cost of union labor, artificially inflating the price of public projects and boxing less-skilled or well-connected laborers out of the job market. Reason.com explains the problems with Davis-Bacon here:

Davis-Bacon is a blatant piece of special-interest, pro-union legislation. It hasn't come cheap for taxpayers. According to research by Suffolk University economists, Davis-Bacon has raised the construction wages on federal projects 22 percent above the market rate.

James Sherk of the Heritage Foundation finds that repealing Davis-Bacon would save taxpayers $11.4 billion in 2010 alone. Simply suspending Davis-Bacon would allow government contractors to hire 160,000 new workers at no additional cost, according to Sherk.

2. Stop raiding the Highway Trust Fund for non-highway projects:  The Heritage Foundation’s recent issue brief on the infrastructure funding crisis highlights the way funds are diverted to state and local projects that are outside the intended use of the trust fund:

Transit—including light rail, trolleys, and buses—marks the largest diversion. In 2010 alone, it received 17 percent, or $6 billion, of federal highway user fees, even though it accounted for only about 1 percent of the nation’s surface travel.[3] Despite receiving a portion of federal user fees for decades, transit has failed to reduce traffic congestion or even maintain its share of urban travel. For example, between 1983 and 2010, traffic volumes in the nation’s 51 major metropolitan areas increased by 87 percent, peak travel times in those areas increased by 125 percent, and transit’s share of passenger miles fell by one-fourth.[4]

The transportation alternatives program is another diversion. From FY 2009 to FY 2011, the Federal Highway Administration obligated over $3.1 billion for these activities, which included pedestrian and bicycle paths and facilities, recreation trails, landscaping, environmental mitigation, and transportation museums.[5] The current surface transportation law, Moving Ahead for Progress in the 21st Century (MAP-21), eliminated a handful of previously eligible activities but still required a 2 percent set-aside of total highway funding to fund the remaining ones.

3. Increase privatization and implementation of private-sector innovation:  Decreasing the role of big government is the go-to solution for one problem after another, from student loans to health care to energy. Transportation and infrastructure are no different, despite the tendency of some to believe otherwise. The Mercatus Center has a recent working paper that outlines numerous ways increased privatization and adaption of private-sector technologies can address transportation costs and inefficiencies. As the paper explains:

 The funding shortfalls result mainly from the lack of basic economic principles to guide the provision of public highway and aviation infrastructure. Prices are not aligned with users’ contributions to congestion and delays, investments are not based on benefit-cost analyses, and regulation inflates operating costs.

Increased privatization would help better align use and cost and would change user behavior based on economic benefits.

Of course, the bottom line is that we shouldn’t be spending money we don’t have. The coming Highway Trust Fund shortfall has been anticipated for a long time and not only have lawmakers waited until the eleventh hour to try to strike a deal, but funds have continued to be dispersed above the rate gas tax revenues have come in.  Last-minute deal making rarely bodes well for taxpayers. We should reject tax increases and insist on a long-term solution that addresses our out of control spending problems first.

 

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Florida’s 19th Special House Election: A Budgetary Guide
Posted By: Dan Barrett - 06/20/14

In what some are calling a quiet election, there’s still a lot to be said. Though the challenges of taking drug tests have largely been replaced with who can help create the most jobs in the next five months, before the next election for the same office, Florida residents are asking the same questions of candidates as they did in Florida’s other recent special House election: What will you do in Washington, D.C.? Especially in the wake of their last Congressman, Trey Radel, who resigned after being arrested for possession of cocaine.

In just a couple of short months, three front runners have emerged to battle for the 19th District’s seat: businessman Curt Clawson (R), businesswoman and former political activist April Freeman (D), and former health worker Ray Netherwood (L). Each candidate offers different general solutions to America’s fiscal ills but details have yet to come out about how each would actually change the federal budget. However, by using a methodology similar to National Taxpayers Union Foundation’s (NTUF) BillTally project, taxpayers can see where the candidates stand on at least some of the spending issues. For this brief study, we took direct quotes and campaign materials of candidates and matched them with budget and legislative data to see exactly what the differences and similarities are.

Similar to the New Jersey Special Senate and Florida’s 13th Special House elections, details were few and far between. Even with the campaigns releasing economic plans and platform summaries, we’re still left asking what will they do if elected as the House of Representative’s newest member?

Check out the entire line-by-line analysis of all three candidates. As with NTUF’s other BillTally and campaign studies, only changes in current spending are recorded (similar to the Congressional Budget Office). The reports do not include changes in revenues or costs outside the federal government. Below are summaries of each candidates’ proposals.

Curt Clawson (R) has proposed two (out of 12) quantifiable policies that NTUF was able to score. Combined, they would decrease annual spending by $395.8 billion. The largest budget-influencing item that he supports would cap federal expenditures at 19 percent of GDP, which would be implemented using the “Penny Plan,” which would cut spending by one percent each year as long as the budget is not balanced.

  • Block Grant Education Funds to States: Unknown
  • Continue Federal Flood Insurance Rates: Unknown
  • Create a Budget Cutting Committee: Unknown
  • Freeze Federal Employment: Unknown
  • Limit Federal Spending: $331.9 billion (savings)
  • Require Congressional Approval for Major Regulations: Unknown
  • Block Grant Medicaid Funds to States: Unknown
  • Eliminate Government Health Care Bureaucrats: Unknown
  • Protect Health Insurance Access for those with Pre-Existing Conditions: Unknown
  • Provide for Health Care Plans and Accounts: Unknown
  • Repeal the Patient Protection and Affordable Care Act: $63.9 billion
  • Restore Medicaid Advantage Funding: Unknown

April Freeman (D) has two (out of 12) policy items that NTUF could fiscally score. Together, they would increase spending by $20.203 billion each year for the next five years. Her largest quantifiable proposal would overhaul the immigration system.

  • Ensure Wage Equality: $3 million
  • Support Domestic Industries: Unknown
  • Support Teachers: Unknown
  • Ban Hydraulic Fracturing: Unknown
  • Expand Alternative Energy Sources: Unknown
  • Fully Fund Water Infrastructure Improvements: Unknown
  • Fight Human Trafficking: Unknown
  • Pass Immigration Reform: $20.2 billion
  • Protect Citizens’ Privacy: Unknown
  • Secure the Border: Unknown
  • Normalize Relations with Cuba: Unknown
  • Ensure Veterans’ Benefits: Unknown

Ray Netherwood (L) had one proposal that NTUF could identify. It would be to replace the current income-based tax system with a national sales tax, known as the Fair Tax. The measure would cut an average $19 billion in federal outlays for each of the next five years.

Normally, there would be some overlap between the candidates’ platforms. In the other Florida Special Election, the front runners supported increasing current spending by $180 million per year to delay a scheduled rate increase for the National Flood Insurance Program. That was not the case in this House race, although the three candidates were not asked similar questions when interviewed by the same source.

What does this mean for taxpayers and residents of the 19th District? It’s time for the campaigns to give Americans more details. While candidates are asking Floridians for their vote, taxpayers are asking for the roadmap of each candidate’s path to reach a better and expanding economy. As highlighted above and in the full report, the absence of budgetary facts and figures opens the possibility that all of the candidates could have much larger or smaller spending aspirations in mind. Clawson, Freeman, or Netherwood need only clarify their intentions with dollar figures to help complete this report and help educate Americans on important and pressing issues that we’re all facing.

Note: National Taxpayers Union Foundation is a 501(c)3 nonprofit organization. Our research efforts are intended only to educate Americans on how their tax dollars are being or will be spent by those in office, seeking office, or in appointed positions. For more information on NTUF go here.

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Permanent Internet Tax Freedom Act Moves Ahead
Posted By: Michael Liguori - 06/20/14

Wednesday, the House Judiciary Committee passed the Permanent Internet Tax Freedom Act (PITFA), and there is plenty of reason for the American taxpayer to get excited. Congress has previously held a temporary moratorium on Internet access taxes. This bill sets that moratorium in stone, ensuring that burdensome state and local taxes don’t create a fiscal hurdle for engaging in the one of the fastest-growing, most productive parts of our economy and culture. Taxes on a resource like the Internet are not only a tax on free speech and communication, but a tax on an educational and economic resource that all Americans can access.

NTU Vice President of Government Affairs, Brandon Arnold recently wrote a letter to Congress in support of this admirable piece of legislation:

Any nation seeking to remain technologically and economically competitive should not punish the very citizens who are reaching out into the digital realm, especially by levying charges that are unlikely to have anything to do with bettering Internet service. Taxpayers need long-term protection from state and local authorities seeking to add taxes to the various routes consumers use to access the Internet, and this bill would provide such safeguards.

NTU urges lawmakers to bring PITFA to the House floor for a full vote immediately, as removing the uncertainty of Internet taxation would create a boon for both consumers and investors. However, it is important that other unrelated tax bills aren’t tacked on. One particularly concerning piece of legislation that has been lurking in the shadows is the Marketplace Fairness Act. This bill  would allow states governments to collect sales taxes from out-of-state businesses. This would increase costs for businesses, prices for consumers, and allow states to discriminate between one online business and another. In a commentary piece, NTU’s Nan Swift debunks some of the worst myths about this harmful piece of legislation.

National Taxpayers Union supports laws that encourage free enterprise and minimize unnecessary government burdens. PITFA is an excellent step toward this ideal, and we hope that legislators vote “yes” and a clean bill and avoid potential pitfalls, like the disastrous Marketplace Fairness Act.

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In New Jersey, 76ers Come First, Taxpayers Second
Posted By: Melodie Bowler - 06/18/14

Various ideas are cropping up in the New Jersey legislature to close the looming $2.7 billion budget gap for fiscal year 2015, and Governor Christie has had to cut pension payments to pay for this year’s $800 million shortfall. Despite these fiscal woes, the state has approved an $82 million gift (paid in yearly $8.2 million installments) for the Philadelphia 76ers basketball team to build a training facility in Camden. While legislators debate raising income taxes on millionaires and an e-cigarette tax, Governor Chris Christie lauded the 76ers decision, which he believes will bring “additional revenue and other things and business for the city of Camden.” The New Jersey Economic Development Authority voted unanimously in favor of the grant, given their authority by the Economic Opportunity Act of 2013.

Local politicians believe the construction of the training facility will boost the economy in Camden, where unemployment continues to soar above national rates at 16 percent. For $82 million, the 76ers facility will bring only about 250 jobs to Camden, 200 of which are already filled by players and current members of their staff, according to reports. Still, Governor Christie and Camden’s own representatives believe that the facility will revitalize the area, bringing in new businesses to meet the demands of people visiting and working in the facility. Camden Mayor Dana L. Redd asserts, “The ancillary services that are going to be needed provide a great opportunity for small businesses, to reap rewards. There's going to be a spill-over effect."

Based on the area’s current attractions, however, a spill-over effect seems unlikely. The 76ers’ training facility will be built at the Camden waterfront, a long-time local attraction. At the waterfront currently sits the Adventure Aquarium and Susquehanna Bank Center, along with the Battleship New Jersey and the Camden Children’s Garden. Despite the jobs these brought to Camden when they were first built, the existing attractions have done little to improve economic growth in the area. The state currently predicts the deal will bring in $76.6 million in benefits over 35 years. In the end, New Jersey will give the Sixers an $8.2 million per year tax cut, only to see approximately $2.19 million per year in net benefits. Next time, before catering to a multi-million dollar franchise, perhaps Governor Christie should give his own heavily-taxed constituents a break.

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IRS Targets the Long Departed for Peanuts, Ignores the Living for Billions
Posted By: Dan Barrett - 06/03/14

If you didn’t like the 2008 Farm Bill before, get ready for an IRS-sized dose of malarkey. The massive bill, officially enacted to support farmers but in reality does more to benefit the billion-dollar agribusiness industry, has paved the way for the IRS to come after your tax refund, even if you have good standing with Uncle Sam. According to the Washington Post, Congress’ enacted Farm Bill repealed a statute of limitations on old debts owed to the feds. Historically, this statute prevented the Treasury Department from coming after debtors after ten years.  Now, taxpayers across the country are seeing the effects and the government aims to get $1.1 billion.

The article mentions one woman who suddenly had no tax return because the IRS determined that her family was overpaid for her father’s death benefits, which had been paid out since 1960. IRS officials are not sure specifically who was overpaid so they chose her to make up the difference. In all, the IRS has collected $424 million in “new” debt, i.e. debt that has only recently been available to collect in the wake of the statute’s repeal. Yet, this new tactic is not limited to the IRS. The Social Security Administration is now working to get benefits from nearly 400,000 taxpayers, totaling some $714 million.

What does the IRS have to say? “... [W]e understand the importance of ensuring that debtors are treated fairly.” Perhaps the agency should clarify what it means by “fairly” when many taxpayers have received no notice of the actions taken against them. The same woman mentioned above was apparently sent a notice from Social Security but to an address she had in the late 1970s. Generally, the IRS suggests that you keep tax documents for three years, so the accused are depending on the government to produce evidence from their records. It seems that Social Security’s records are often incomplete, making it difficult to contest officials’ claims.

So, to reiterate: a bill presumably designed to protect the agriculture industry included a new power enabling federal officials to take money from Americans who may have indirectly benefited from a payout beyond ten years ago; BUT, those officials don’t really have the records to back up their claims.

There are a few takeaways from this:

  • Taxpayers are paying for massive benefits programs that can’t accurately keep track of payouts (the initial problem).
  • Congress passed a law that included a provision that now permits agencies to take Americans’ money seemingly at will, and with little proof.
  • The IRS and Social Security are expending new efforts (with added administrative costs) to recover about $1.1 billion.
  • Tax collectors have decided that this method is better than the alternatives.

What are the alternatives? Quite a few, but let’s look at two. One would address the core problem and one would be a more fair way to get outstanding debt.

If Americans had a simpler tax system, one which didn’t take 6.4 billion hours and $192.6 billion to comply with, some of these errors and inefficiencies would go away. Some proposals would try to cut down on the number of exemptions and deductions one can take, resulting in a more streamlined and less error-prone tax bill. Others take further steps to reform the entire system in the hopes of making tax preparations a mere inconvenience, instead of a heavy burden. NTU Foundation has examined some of these proposals, including the flat tax and the Fair Tax, many of which would reduce federal spending in addition to less time and money spent by taxpayers.

Another option is to change who the government goes after for outstanding debt. Instead of targeting debt that is decades old, IRS and Social Security investigators could shift their focus to those who are alive and kicking. One easy place to start is inside the government itself. According to a handy chart on Don’t Mess With Taxes, the government could recover $3.3 billion in back taxes (that’s 65 percent more than what is being collected in old debt AND it would be from the debtors themselves, not relatives who had no say in the matter).

If legislators should take just one lesson from all of this (and I know that’s asking a lot), it is to write bills that are simple, succinct, and single-issue focused. Taxpayers are on the receiving end of these bloated Acts that put more complexity in the Tax Code. This is also not a wholly partisan issue. As Republicans rally against the Affordable Care Act and the Dodd-Frank Wall Street reforms, Democrats are pitching fits over the Farm Bill and Defense Authorization, all of which are putting taxpayers on the hook for more when they are in need of less.

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When It Comes to Foreign Investment, Sales Pitch Should be to Congress
Posted By: Nan Swift - 05/20/14

Marketplace reports that President Obama is meeting with business executives today to pitch investment in the U.S.:

Last year, foreign investment in the U.S. was roughly $193 billion -- down from its peak of $310 billion in 2008.

Dartmouth’s Matthew Slaughter says the U.S. attracts investments from foreign companies by telling executives that the U.S. is "the most innovative, open, largest economy on the planet.”

But Slaughter says many foreign company leaders respond by saying growth in the U.S. has slowed compared to developing countries like China, not to mention an aging infrastructure, complicated immigration system and high corporate taxes.

Slaughter does a good job summing up the problem, however, in the past six years our infrastructure hasn’t aged a great deal and the immigration system hasn’t grown significantly more complicated.  While those things don’t help, what is hurting the most is our high corporate tax rate. For the past two years running, the U.S. has had the highest corporate tax rate among industrialized economies and the effects are clearly taking a toll. This problem continues to worsen as more and more countries cut their rate each year.

As NTU has noted again, and again, and again, the best way to declare the U.S. open for business is to lower the corporate tax rate and pursue other reforms, such as rolling back burdensome regulations, making our business climate competitive once again.  Before President Obama sits down with global investors, he should first sit down with the legislators on Capitol Hill who need to act before the U.S. falls further behind.

 

 

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