tax increase

A Backdoor Tax on the Poor

by Ryan Young on November 9, 2011

in Economy, Politics as Usual, Regulation

For some time now, the IRS has been flirting with what’s called a return-free system. Instead of you having to sit down and fill out your 1040, the IRS would fill it out for you and tell you how much you owe.

It’s being touted as a time-saver. But it would also raise taxes on the poor. No matter how much personal information the IRS collects on someone, it is almost certain to miss deductions that person qualifies for.

There is also the tiny little conflict of interest that occurs when one’s tax collector is also one’s tax preparer. In an op-ed in The Hill, I explain why people of all political stripes should oppose a return-free program:

A return-free tax system has something for everyone to hate. Progressives should be up in arms over its disproportionately hurting the poor. So should privacy advocates; the IRS does quite enough snooping as it is. And conservatives should oppose return-free because, even though tax rates would remain unchanged, it is still a tax increase.

There are much better ways to reduce the 26-hour burden Americans face every year. The obvious solution is to simplify the 70,000-page tax code.

Read the whole thing here.

$7 Billion or More in New Taxes for Virginians Under EPA Mandate

by Hans Bader on December 1, 2010 · 1 comment

in Deregulate to Stimulate, Economy, Environment

The EPA told Virginia earlier that it would impose costly measures on Virginia Counties, measures so costly that they would result in record property tax increases in places like Fairfax County Virginia. The measures were designed to make the Chesapeake Bay cleaner. The EPA left open the door to less costly measures to achieve the same goal if Virginia could suggest any to the EPA’s liking.

Virginia has now attempted to do just that, submitting a $7 billion plan to make water going into the Chesapeake Bay purer. But The Washington Examiner reports that the EPA will likely reject it in favor of more costly measures.

So it looks like Virginia taxpayers will be paying at least $7 billion, probably a lot more, to comply with the EPA’s costly mandates. (Virginia, like most states — but unlike the federal government — has a constitutional requirement that it maintain a balanced budget, so it can’t just borrow and spend the $7 billion, it has to raise taxes to pay for it, or dump the cost on its municipal governments to raise themselves through higher property taxes.)

Virginia officials have been critical of the EPA’s proposed measures, calling them a “massive unfunded federal mandate.” 

In addition to higher property taxes, homeowners in liberal Washington suburbs face costly new “green building” regulations at the hands of local governments. For example, the Arlington County Board is also mulling new energy regulations that could increase the cost of home renovations by as much as 40 percent.

Taxpayers in Maryland counties like Montgomery may also end up paying increased taxes due to the EPA’s Chesapeake Bay regulations.

No Sense in Maryland’s “Dime-a-Drink” Tax Increase

by Michelle Minton on November 22, 2010

in Odds & Ends

Maryland’s proposed “dime-a-drink” tax increase doesn’t sound bad, but the deceptive name hides the true impact of such an increase on local businesses.

First, it is not ten cents a drink for all liquor:

“Bills filed in both the House of Delegates (HB 832) and the state Senate (SB 717) would raise the alcohol tax from $1.50 to $10.03 per gallon for distilled spirits, from 40 cents to $2.96 per gallon for wine, and from 9 cents to $1.16 per gallon for beer.”

If one considers that a gallon has 128 ounces of liquid and the average beer comes in a 12 oz. serving size, then yes, the proposed tax increase does work out to about $0.10 per drink. However, the tax increase is significantly more for other types of alcohol.  Currently in Maryland, when you purchase an average sized glass of wine  (6 ouncesl) the amount of tax you pay works out to about $0.02 per glass. The “10-cent-drink-tax” would increase that tax to $0.14 per glass. For distilled spirits (about 3 ounces per shot) the tax would increase from the current 3 cent tax to about a $.25 tax per shot.  Broken down per bottle, glass, or shot, the tax may not seem like much, but calculations show that the actual price increase is around 700% to 1,300%. Moreover, the tax will not be paid per serving initially–restaurants, retailers, and distributors of alcohol will pay the full increase in price .

Lawmakers underestimate the negative impact on businesses:

Because the taxes on alcohol are imposed on distributors (Note: anyone selling alcohol must purchase it from distributors), the cost of purchasing alcohol will increase not by 10 cents, but by $10.03 per gallon of spirits, $2.96 per gallon for wine, and $1.16 per gallon for beer. For businesses that purchase large quantities of alcohol, the increase could bust their budgets.

Assuming that restaurants can cope with the increased costs of purchasing alcohol for their businesses, they are then left with two options: either “eat the cost” and keep prices for their customers the same, or increase the prices in order to “pass the tax” on to their customers. Most restaurants will choose to increase their prices on alcohol as well as food, which means that patrons not even imbibing alcohol will pay the cost for the increased tax.

While it may seem easy enough for restaurants or bars to increase prices a few cents, lawmakers don’t seem to be considering the fact that many business owners and consumers are still recovering from the last few years of economic decline.

Many businesses in Maryland closed in the last few years, but some were able to stay afloat by taking out lines of credit and reducing their profit margin. Regardless of how low Maryland’s current alcohol tax is compared with the rest of the U.S., any increase in the rate will negatively impact businesses who have calculated their operating costs and slim profit margins based upon the current tax rates. One must also consider the myriad other taxes imposed on businesses–the state sales tax for example–and the costs of other regulations, like licensing, etc.

As Alexander Piches, the owner of Li’s & The Kat Lounge in Hagerstown put it:

“They seem to think businesses have deep pockets…But right now, restaurant business is down tremendously and now is not the time to add new taxes…We’re a dry sponge”

The result of increased drink tax on service industry workers:

Another element lawmakers don’t seem to consider with the proposed tax increase is the effect on service-industry workers. It is true that increasing taxes could result in less foot-traffic, businesses failing, and jobs lost. However, the per-drink tax will affect waiters and bartenders in a more subtle way: by decreasing their tips.

Most customers at bars and restaurants calculate the tip they give to servers by simply rounding up, the so-called “keep the change” method. If the cost of a drink increases by 10 cents, customers aren’t likely to alter their “keep the change” calculation. Thus, the tax is coming almost directly out of the tip of the already low-wage service industry worker.

In tough times, it is understandable that lawmakers look to unessential items like alcohol to increase state revenue rather than cutting “essential” services. However, the proposed increase could end up costing the state of Maryland businesses, jobs, and customers–ultimately resulting in fewer tax dollars, fewer patrons, and an overall decline in the quality of life in Maryland.

Basic Irony

by Ryan Young on February 19, 2010

in Economy, Politics as Usual

From yesterday’s WSJ.com Political Diary (subscription required):

The same day President Obama called for another $50 billion to $100 billion stimulus plan (and concomitant increase in the deficit), he also appointed the chairmen of his Deficit Reduction Commission. It says a lot about Washington that almost no one got the irony of those paired announcements.

Indeed it does. Fortunately, the Commission’s job is pretty simple. There are only two ways to cut the deficit. One is to cut spending. The other is to raise taxes. Cutting spending is the right thing to do. But it is also politically difficult. There is a lot of fat to trim from the budget. But government has little incentive to put itself on a diet.

That’s why the Commission is expected to recommend a tax increase, probably in the form of a VAT. A prestigious bipartisan Commission can provide the political cover that Congress and the administration need to avoid the embarrassment of backtracking on their policies.

Wayne Crews and I recently warned why a VAT is a bad idea in Investors’ Business Daily. Hopefully some of the arguments will find themselves into the debate.

Against a Value Added Tax

by Ryan Young on November 17, 2009

in Deregulate to Stimulate, Economy

Over at Investor’s Business Daily, Wayne Crews and I make the case against a Value Added Tax. Policy makers have been flirting with the idea as a way to reduce the $1,400,000,000,000 budget deficit.

We argue that a VAT is:

-Complex; it would require roughly doubling the size of the IRS.

-Untransparent; most VATs don’t show up on receipts the way sales taxes do. Taxpayers are clueless as to how much tax they actually pay.

-Vulnerable to special-interest tinkering; politically incorrect goods are routinely penalized with higher rates. Politically favored goods are granted exemptions.

-Prone to increases; 20 out of 29 OECD countries with a VAT have increased their rates since implementing a VAT.

A point we didn’t make is that VATs affect industrial organization. VATs are applied at each stage of the production process. That gives companies an incentive to reduce the number of taxable steps. That means more vertical integration than would otherwise occur. This can decrease the efficiency of the manufacturing process. Which means higher prices and fewer goods. Plus the tax.

Cap-and-Trade Global Warming Bill Is A Scam, Experts Reveal

by Hans Bader on November 1, 2009

in Agriculture, Energy, Environment, Ethanol, Features, Global Warming, Natural Resources, Politics as Usual, Precaution & Risk, Sanctimony, Zeitgeist

Two EPA lawyers criticized the cap-and-trade energy bill passed by the House as a scam, noting in The Washington Post that it will be manipulated to profit politically connected corporations and reward certain kinds of pollution, while not cutting greenhouse gas emissions.  A similar scheme enacted in Europe in the name of fighting global warming enriched polluters, while not reducing emissions, which actually rose faster in most of Europe than in the U.S.

The Washington Examiner explains how the bill will lead to deforestation, and thus increase greenhouse gas emissions in the long run.

The bill, which is loaded with pork for special interests, is backed by Obama, who once admitted that under his cap-and-trade scheme, electricity and utility bills would “skyrocket” and coal-fed power plants would go “bankrupt.”  Treasury Department analysts estimated it could increase taxes on the average American household by $1,761 per year.

The bill also contains environmentally harmful provisions, such as massive ethanol subsidies, which will result in “damage to water supplies, soil health and air quality.” Ethanol subsidies have resulted in forests being destroyed in the Third World, and caused famines that have killed countless people in the world’s poorest countries.

“Public Option” Is a Gimmick That Won’t Improve Healthcare

by Hans Bader on October 26, 2009 · 1 comment

in Deregulate to Stimulate, Economy, Health and Illness, Healthcare, Insurance, Politics as Usual, Precaution & Risk, Sanctimony

In the Washington Post, Robert J. Samuelson explains in the “Public Plan Mirage” how the so-called “public option” contained in congressional health-care reform bills is just a gimmick: “It pretends to control costs and improve access to quality care when it doesn’t.” Steve Chapman wrote earlier about the “‘Public Option’ Health Care Scam.”

In other news, a study by PriceWaterhouseCoopers found that the provisions in the Senate health care “reform” bill sponsored by Sen. Max Baucus (D-Mont.) would add $1,700 a year to the cost of family coverage in 2013 and $600 for a single person. By 2019, family premiums could be $4,000 higher and individual premiums could be $1,500 higher.

CEI’s Greg Conko calls the Baucus bill “worse than the disease.”  In a recently-released paper, “A Cure Worse than the Disease: Obama Care Won’t Cut Costs, But May Cut Quality,” Conko notes that most of the alleged cost-cutting measures in the Baucus bill merely shift costs from the federal government onto the states or private payers, without reducing long-term health care inflation.  The only measures that could conceivably reduce the annual rate of growth in health care costs would erect government barriers between patients and their doctors, while jeopardizing long-term medical innovation.

A new study by the Oliver Wyman consultancy found that provisions contained in the health-care reform bills, like guaranteed issue and community rating mandates, would drive up premiums by 50 percent for individual policies and 19 percent for small group plans.

A study from the Independence Institute says that ObamaCare would drive up inflation and medical-care costs, while shrinking the economy.

As CEI’s Conko notes, many states have highly concentrated markets.  In Hawaii, Rhode Island, and Alaska, for example, 95 percent or more of the health insurance market is served by just two insurers.  But Obama and congressional Democrats oppose letting insurers compete across state lines, blocking competition that could make health insurance cheaper.  Other countries with cheaper health insurance permit insurers to compete nationally.

ObamaCare would raise taxes.  It would also explode state and federal budget deficits, and would actually cost $2 trillion — far more than its promised $800 billion price tag.  It also ignores needed reforms that would actually reduce the costs of health care, like steps to reduce the cost of defensive medicine, which wastes $200 billion annually.  And it contains special-interest pork, like racial preferences.

AP: Obama Health-Care Plan Raises Taxes, Breaks Campaign Promises

by Hans Bader on September 21, 2009

in Energy, Environment, Global Warming, Healthcare, Natural Resources, Politics as Usual, Sanctimony

The Associated Press is now chiding President Obama for falsely claiming that his proposed tax on uninsured people is not a tax.   It is a tax increase, the AP says, and it would be enforced by the IRS: “Memo to President Barack Obama: It’s a tax. Obama insisted this weekend on national television that requiring people to carry health insurance – and fining them if they don’t – isn’t the same thing as a tax increase. But the language of Democratic bills to revamp the nation’s health care system doesn’t quibble. Both the House bill and the Senate Finance Committee proposal clearly state that the fines would be a tax.”

The AP also notes that the Administration’s proposed health-care tax increases contradict “Obama’s campaign pledge on taxes”:  “”I can make a firm pledge,’ he said in Dover, N.H., on Sept. 12, 2008. ‘Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.’ He repeatedly promised ‘you will not see any of your taxes increase one single dime.’”

Obama earlier broke his promise not to raise taxes by signing into law a regressive SCHIP excise tax increase and backing a massive new cap-and-trade energy tax (supposedly to fight global warming)

It’s part of a long line of broken promises, such as Obama’s pledge to enact a “net spending cut,” which he broke with huge budgets that will explode the national debt through $9.3 trillion in massively increased deficit spending.

The costly cap-and-trade energy legislation passed by the House and supported by Obama would lead to big tax increases, Administration officials privately have conceded, even though they publicly claim otherwise.  “Officials at the Treasury Department think cap-and-trade legislation would cost taxpayers hundreds of billion in taxes, according to internal documents circulated within the agency and provided to The Washington Times” by CEI.  It could raise household taxes by $1761 per year, equivalent to a 15 percent tax increase.   It would also result in “loss of steel, paper, aluminum, chemical, and cement manufacturing jobs,” as jobs migrate overseas to countries which have fewer environmental protections than the U.S. does.

Obama earlier admitted that “under my plan of a cap and trade system, electricity rates would necessarily skyrocket,” since its costs would be passed “on to consumers.”  Although cap-and-trade backers claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air, as well as harming forests and water supplies.

Americans for Tax Reform summarizes the tax increases in ObamaCare: an individual mandate tax of $900 per individual or $3800 per family (if you don’t have health insurance); an employer mandate tax of $400 per employee if health coverage is not offered; an “excise tax on high-cost health plans”; a “medicine cabinet tax”; capping Flexible-Spending Accounts (FSA’s); abolishing most HSAs; and increasing tax penalties for HSAs.

All these tax increases won’t even pay for Obama’s massive spending binge.  He is relying on $2 trillion in imaginary savings to pay for his health-care plan.  Even Democratic governors have criticized its huge cost.

One of Obama’s economic advisers said his health-care plan would lead to “crippling deficits” and “higher taxes.”  The Congressional Budget Office also says it will increase the deficit.

Massive Tax Increase and Marriage Penalty from Obama

by Hans Bader on May 12, 2009 · 1 comment

in Economy, Energy, Environment, Features, Global Warming, Politics as Usual, Sanctimony

Obama’s proposed tax increases create a massive financial penalty for married couples, by subjecting them to much higher income taxes than if they had chosen to live together without getting married. (Unmarried people voted decisively for Obama. But as the Associated Press notes, “married people tend to favor” Republicans like McCain).

Under the tax increases contained in Obama’s recent budget proposals, a married couple making $232,000 a year would be in a higher tax bracket than many unmarried couples making $370,000 a year. Simply by getting married, a man and woman making $170,000 each would be pushed up from their current level of 28 percent to 36 percent. But an unmarried couple making $340,000 a year ($170,000 each) would be taxed at 28 percent. And a married couple making $380,000 would be taxed at 39.6 percent — not counting certain adjustments that bring the rate to 40.7 percent. (That’s just the federal standard rate. You have to add to that state income taxes (up to 10.3 percent), and federal self-employment taxes, which many small business owners pay — which could result in marginal rates of well over 60 percent).

Obama’s proposals impose tax increases on any single person making over $190,650. Worse, they increase taxes on all married couples making over $231,300 — even if each spouse only makes half of that, or $115,650, far less than the $190,650 that drives up the rate for singles.

These tax increases are breaches of Obama’s campaign promise not to raise taxes on people making less than $250,000 a year, which he earlier broke by signing into law the regressive SCHIP excise tax increase and by proposing a global-warming “cap-and-trade” energy tax that could charge up to $2 trillion.

It’s part of a long line of broken promises, such as Obama’s pledge to enact a “net spending cut,” which he flouted with proposed budgets that will explode the national debt through $9.3 trillion in massively increased deficit spending.

Here is mega-accounting firm Deloitte’s summary of Obama’s tax increases:

“Tax increases, deduction limitations for high-income earners

Second, Obama’s budget outline delivers on several of his campaign promises to increase income taxes on higher-income individuals, including:

* Reinstating the top two individual income tax rates, currently 33 and 35 percent, at their pre-2001 levels – 36 and 39.6 percent – beginning in 2011. The 36 percent bracket would begin at taxable income of $190,650 for singles and $231,300 for married couples. While the budget proposal does not specifically indicate the taxable income level at which the 39.6 percent rate would apply, under current law for 2009, the highest tax bracket starts at $372,950 for singles and married couples. Presumably, this taxable income level would not likely change significantly for the new 39.6 percent bracket, although the Obama administration says the taxable income levels for this rate would “vary by filing status.” The 28 percent tax rate bracket would be expanded to reflect modifications to the upper limit of that bracket (where the 36 percent bracket would begin).
* Increasing the capital gains and dividends rate to 20 percent for taxpayers in 36 and 39.6 percent tax brackets. The reduced rates on gains on assets held over five years would be repealed. In both cases, the increased rates would apply beginning in 2011.
* Reinstating in 2011 the personal exemption phase-out and itemized deduction limitation, which are scheduled to be fully phased out starting in 2010. Phase-out thresholds would be $200,000 of adjusted gross income for singles and $250,000 for joint filers.

In effect, the Obama budget would raise the top income tax rate, considering these phase-outs, to 40.79 percent.”

90 Percent Tax Rate Proposed

by Hans Bader on March 7, 2009 · 7 comments

in Bailout Watch, Economy, Politics as Usual, Stimulus to Nowhere

Congressman Jerry McNerney (D-California) has advocated raising marginal tax rates to 90 percent. Such a tax increase on the wealthy would be necessary, but not sufficient, to pay for the vast spending increases proposed by the Obama Administration, if it is to keep its promise not to raise taxes on those making less than $250,000 per year. Indeed, it would not raise enough money, since there simply are not enough wealthy people to pay for all the proposed spending.

In the National Journal, the disillusioned centrist Stuart Taylor, who once praised Obama, notes that Obama’s budget projections are based on bogus accounting, and would result in mushrooming deficits as far as the eye can see unless taxes are raised radically. Obama, he writes, “has been deceptive in basing his deficit projections on phantom expenditure cuts and wildly optimistic revenue estimates.” Moreover,

“The numbers don’t add up — and still won’t if and when, as seems almost certain, Obama ratchets up his so-far-fairly-modest new taxes on the top 2 percent. ‘A tax policy that confiscated 100 percent of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue,’ according to a February 27 editorial in The Wall Street Journal. ‘That’s less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable ‘dime’ of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.’

As for the budget’s $2 trillion in projected net “savings,” Obama’s budget director, Peter Orszag, admitted in testimony on Tuesday under questioning by Rep. Paul Ryan, R-Wis., that $1.6 trillion comes from phantom cuts of the money that would be needed to sustain the troop surge in Iraq for another decade — money that nobody ever intended to spend.

Other supposed savings — especially from Medicare — seem unlikely to materialize absent benefit cuts, which Obama has not proposed. And the cost of any health care legislation — to be drafted largely by a Congress that is allergic to the kind of cost-cutting necessary to make universal care sustainable — is likely to be two or three times the $634 billion over 10 years that Obama has budgeted.”

Ironically, even as Obama advocates raising taxes on families making more than $250,000 per year, he bails out irrresponsible, high-income mortgage borrowers, even if their current mortgage payments are not high. His $75 billion-plus mortgage bailout, announced last week, reduces borrowers’ mortgages even if they have big homes (covering mortgages up to $729,750) — and even if their mortgage payment is not high (they can qualify if their mortgage, plus property taxes and insurance, amounts to as little as 32 percent of income — less than many responsible homeowners have long paid on their mortgage).

Obama’s bailouts reward the irresponsible rich, even as his proposed tax increases would punish thrifty high-income households by increasing their capital gains and income taxes, and raise taxes on the small businesses that create most of America’s jobs. Bush launched a war on terror. Obama has launched a war on thrift and American investors.

Since Obama signed the bloated $800 billion stimulus package into law, the stock market, a leading economic indicator, has plunged like a stone. (The Congressional Budget Office predicts the “stimulus” will actually shrink the economy in the long-run). Investors are spooked, as Stanford University economist Michael Boskin notes in his Wall Street Journal column, “Obama’s Radicalism Is Killing the Dow.” Another commentator notes, “In less than 50 days, Obama has spent more than three times the cost of the entire Iraq War so far. This year, he will more than triple the largest deficit of the Bush era.”