by | ARTICLES, BLOG, CONSTITUTION, FREEDOM, GOVERNMENT, OBAMA
In the past couple of months, I drew attention to a case that would be decided by the Supreme Court this term, which I felt was probably the biggest property-rights case since the Kelo decision 10 years ago. You can read the background here. In sum, the property in question this time is not land, but raisins. A couple, the Hornes, who were raisin farmers in California were fined for declining to participate in a government sponsored raisin regulatory group in existence since the Truman Administration.
Writing a letter to the Agriculture Department, they called the program “a tool for grower bankruptcy, poverty, and involuntary servitude.” The raisin police were not amused. The Raisin Administrative Committee sent a truck to seize raisins off their farm and, when that failed, it demanded that the family pay the government the dollar value of the raisins instead.”
This morning, SCOTUS ruled 8-1 in favor of the raisin growers, the Hornes. The majority opinion found “that the Agriculture Department program, which seizes excess raisins from producers in order to prop up market prices during bumper crop years, amounted to an unconstitutional government “taking.”
But they limited their verdict to raisins, lest they simultaneously overturn other government programs that limit production of goods without actually seizing private property.
The 8-1 decision was written by Chief Justice John Roberts, with the court’s more conservative justices in agreement. Roberts said the government violates citizens’ rights when it seizes personal property — say, a car — as well as real property such as a house.
While the government can regulate production in order to keep goods off the market, the chief justice said it cannot seize that property without compensation.”
Only Sotomayor dissented. She did not recognize the government’s fines a form of taking, saying that the rule “only applies where all property rights have been destroyed by governmental action.” In saying so, she indicated that the Hornes did retain some of their property rights, a logic that mirrored the ridiculousness of the Ninth’s Circuits’ opinion.
You can read the full court ruling here. The best quote goes to Justice Clarence Thomas who noted in his concurrence to the majority opinion, that “having the Court of Appeals calculate “just compensation” in this case would be a fruitless exercise.“
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One of the major sticking points regarding the free trade talks is a portion known as TAA, or “Trade Adjustment Assistance”. “The Trade Adjustment Assistance (TAA) Program is a federal program that provides a path for employment growth and opportunity through aid to US workers who have lost their jobs as a result of foreign trade,” and this program is slated to expire at the end of September, unless Congress reauthorizes is. The funding source for the new TAA bill, as passed by the Senate last month, is a $700 million reduction to Medicare funding. But the vote neared, the pressure to change the funding source and spare Medicare reached a crescendo.
An alternative funding solution was prepared, one that is particularly odious. TAA, if passed, will be financed by “raising the penalties for misfiled taxes”.
Here’s how it would work. As it stands now, small businesses who pay independent contractor/freelancers are supposed to report that income to the IRS using a 1099 form. Another copy of that form goes to the contractor/freelancer. If a small business files all their forms past the deadline or not at all, it receives a fine. The new proposal, “would double and triple these fines.”
This merely serves to empower the IRS, who frankly, is the last arm of the government who deserves increased power right now. Because this measure specifically creates an incentive to raise revenue for the express purpose of funding another government program, you can be sure the IRS will be incentivized to pay closer attention to our small businesses and pounce on paperwork error.
This proposal is reminiscent of the program that was approved as a revenue raiser for Obamacare a few years ago. Congress initially voted to increase the fines meted out for small businesses who did not file a 1099 for anyone paid a mere $600 or more in a calendar year, but the backlash was so great, that Congress appealed it before the law took effect. Though this new gimmick is not quite the same, it is equally abhorrent.
The underlying assumption is that there are enough businesses who don’t file, or misfile all their forms, so they deserved to be penalized even more by substantially increasing compliance fines – all for the express purpose of funding something else by the government. Instead of the government making spending cuts to existing programs in order the TAA program alive, it chooses to target the private sector again for more money.
Congress has a deadline of July 30th to re-vote on the TAA bill. If it plans to re-authorize the program, perhaps it will find a better way to fund it than off of the backs of small businesses.
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Daniel Mitchell, a libertarian economist and Senior Fellow at the CATO Institute, offered an overall positive review of Rand Paul’s tax plan that was released today. He had three minor quibbles and one major concern with the proposal. It his his evaluation of Paul’s 14.5% business activity tax that is the interesting point for discussion — Mitchell asserts is a Value-Added Tax (VAT) for all intents and purposes.
Paul’s argues that he “would also apply this uniform 14.5% business-activity tax on all companies…. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed, ending complicated depreciation schedules.”
As Mitchell points out, the high corporate tax rate (35%) would be reduced down to 14.5% which is obviously a great thing. His bone of contention is the “business-activity tax doesn’t allow a deduction for wages and salaries” and therefore, “he is turning the corporate income tax into a value-added tax (VAT).” In theory, he argues, a VAT would not be a terrible thing because “is a consumption-based tax which does far less damage to the economy, on a per-dollar-collected basis, than the corporate income tax.”
However, the VAT’s place in other economies have proven to be, as Mitchell suggests, “a money machine for big government”, and therefore Mitchell cautions against its implementation in the United States.
Mitchell contends,
“The VAT helped finance the giant expansion of the welfare state in Europe. And the VAT is now being used to enable ever-bigger government in Japan. Heck, even the IMF has provided evidence (albeit inadvertently) that the VAT is a money machine. All of which helps to explain why it would be a big mistake to give politicians this new source of revenue.
Indeed, this is why I was critical of Herman Cain’s 9-9-9 plan four years ago. It’s why I’ve been leery of Congressman Ryan’s otherwise very admirable Roadmap plan. And it’s one of the reasons why I feared Mitt Romney’s policies would have facilitated a larger burden of government.
These politicians may have had their hearts in the right place and wanted to use the VAT to finance pro-growth tax reforms. But I can’t stop worrying about what happens when politicians with bad motives get control. Particularly when there are safer ways of achieving the same objectives.”
Mitchell gives an alternative suggestion for reforming the corporate part of the tax code. He calls for “an incremental reform”, consisting of the following:
–Lower the corporate tax rate
–Replace depreciation with expensing
–Replace worldwide taxation with territorial taxation
His suggestion is that if there is enough support within Congress to potentially reform the corporate income tax (and replace it with a VAT), there should also be support for an alternative reform done incrementally, which would be far better in the long run than introducing a VAT for good.
So are Mitchell’s concerns about Paul’s “business activity tax” valid? Is it essentially a VAT? Pretty much. The VAT gets added to products along the way in the process of production and distribution, and is ultimately passed on to the consumer in the form of the final price.
One could certainly argue that the VAT is not a positive solution for reasons such as the fact that European economies which have the VAT are also in shambles. Also, though many of the VATs started out small, most VATs average nearly 20%. That would likely happen here too — while we still continue to collect an income tax. What’s more, it also tends to disproportionately affect small businesses because they often can’t pass along the cost increases associated with the VAT, and compliance will be burdensome and expensive.
Overall, though, Mitchell was pleased with Rand Paul’s plan, which is to be expected from a fellow libertarian economist. His points about the business activity tax are fair, but Paul’s roadmap is overall a decent one. As more contenders for 2016 release their tax plans, we’ll evaluate them here. Thoughts?
by | ARTICLES, BLOG, ECONOMY, OBAMA, POLITICS, TAXES
Rand Paul blew up the pages of the Wall Street Journal this evening with his Op-Ed he released a few hours ago on his plan to reform the tax code. The formal announcement comes tomorrow, but his tax plan is what he calls “The Fair and Flat Tax”.
The basic tenets call for a 14.5% tax for both individuals and businesses, elimination of the payroll tax, gift tax, and estate tax, and more. He’ll keep mortgage and charitable deductions, as well as the Earned Income Tax Credit, and the first $50,000 of income of a family of four will not be taxed.
Rand Paul boosts working with Stephen Moore and Arthur Laffer and says his plan will jump start the economy. The only thing he didn’t really delve into was how much federal income his plan would bring.
You can read the entire proposal below, but I’ll give Rand Paul credit for talking about our byzantine, convoluted tax code and making it a focal point of his campaign. Let me know what you think in the comments below. Here it is:
Some of my fellow Republican candidates for the presidency have proposed plans to fix the tax system. These proposals are a step in the right direction, but the tax code has grown so corrupt, complicated, intrusive and antigrowth that I’ve concluded the system isn’t fixable.
So on Thursday I am announcing an over $2 trillion tax cut that would repeal the entire IRS tax code—more than 70,000 pages—and replace it with a low, broad-based tax of 14.5% on individuals and businesses. I would eliminate nearly every special-interest loophole. The plan also eliminates the payroll tax on workers and several federal taxes outright, including gift and estate taxes, telephone taxes, and all duties and tariffs. I call this “The Fair and Flat Tax.”
President Obama talks about “middle-class economics,” but his redistribution policies have led to rising income inequality and negative income gains for families. Here’s what I propose for the middle class: The Fair and Flat Tax eliminates payroll taxes, which are seized by the IRS from a worker’s paychecks before a family ever sees the money. This will boost the incentive for employers to hire more workers, and raise after-tax income by at least 15% over 10 years.
Here’s why we have to start over with the tax code. From 2001 until 2010, there were at least 4,430 changes to tax laws—an average of one “fix” a day—always promising more fairness, more simplicity or more growth stimulants. And every year the Internal Revenue Code grows absurdly more incomprehensible, as if it were designed as a jobs program for accountants, IRS agents and tax attorneys.
Polls show that “fairness” is a top goal for Americans in our tax system. I envision a traditionally All-American solution: Everyone plays by the same rules. This means no one of privilege, wealth or with an arsenal of lobbyists can game the system to pay a lower rate than working Americans.
Most important, a smart tax system must turbocharge the economy and pull America out of the slow-growth rut of the past decade. We are already at least $2 trillion behind where we should be with a normal recovery; the growth gap widens every month. Even Mr. Obama’s economic advisers tell him that the U.S. corporate tax code, which has the highest rates in the world (35%), is an economic drag. When an iconic American company like Burger King wants to renounce its citizenship for Canada because that country’s tax rates are so much lower, there’s a fundamental problem.
Another increasingly obvious danger of our current tax code is the empowerment of a rogue agency, the IRS, to examine the most private financial and lifestyle information of every American citizen. We now know that the IRS, through political hacks like former IRS official Lois Lerner, routinely abused its auditing power to build an enemies list and harass anyone who might be adversarial to President Obama’s policies. A convoluted tax code enables these corrupt tactics.
My tax plan would blow up the tax code and start over. In consultation with some of the top tax experts in the country, including the Heritage Foundation’s Stephen Moore, former presidential candidate Steve Forbes and Reagan economist Arthur Laffer, I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed. For low-income working families, the plan would retain the earned-income tax credit.
I would also apply this uniform 14.5% business-activity tax on all companies—down from as high as nearly 40% for small businesses and 35% for corporations. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed, ending complicated depreciation schedules.
The immediate question everyone asks is: Won’t this 14.5% tax plan blow a massive hole in the budget deficit? As a senator, I have proposed balanced budgets and I pledge to balance the budget as president.
Here’s why this plan would balance the budget: We asked the experts at the nonpartisan Tax Foundation to estimate what this plan would mean for jobs, and whether we are raising enough money to fund the government. The analysis is positive news: The plan is an economic steroid injection. Because the Fair and Flat Tax rewards work, saving, investment and small business creation, the Tax Foundation estimates that in 10 years it will increase gross domestic product by about 10%, and create at least 1.4 million new jobs.
And because the best way to balance the budget and pay down government debt is to put Americans back to work, my plan would actually reduce the national debt by trillions of dollars over time when combined with my package of spending cuts.
The left will argue that the plan is a tax cut for the wealthy. But most of the loopholes in the tax code were designed by the rich and politically connected. Though the rich will pay a lower rate along with everyone else, they won’t have special provisions to avoid paying lower than 14.5%.
The challenge to this plan will be to overcome special-interest groups in Washington who will muster all of their political muscle to save corporate welfare. That’s what happened to my friend Steve Forbes when he ran for president in 1996 on the idea of the flat tax. Though the flat tax was surprisingly popular with voters for its simplicity and its capacity to boost the economy, crony capitalists and lobbyists exploded his noble crusade.
Today, the American people see the rot in the system that is degrading our economy day after day and want it to end. That is exactly what the Fair and Flat Tax will do through a plan that’s the boldest restoration of fairness to American taxpayers in over a century.
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The number of new businesses has been on the decline since 2008, with more businesses closing than opening. The US Census Bureau confirmed the statistics, which was reported on by Gallup earlier this year. This startling trend also reaffirms a study released last year by the Brookings Institute, which noted that 2009, 2010, and 2011 saw the collapse of businesses faster than their creation.
The annoying thing about the Brookings Institute’s study is that they do not attribute the decline to anything in particular, saying that they need “a more complete knowledge about what drives dynamism, and especially entrepreneurship, than currently exists.” This is utter nonsense, and reinforces why I typically don’t pay attention to what the Brookings Institute says. They are providing political cover for the Obama Administration with their non-conclusive conclusion about the decline of new business.
The most suffocating factor is the sharp rise of federal regulations, which now cost the American economy nearly $1.9 trillion every year — more than 10% of our nation’s GDP. Add in state and local regulations, and that total is even higher.
Not surprisingly, the rates of business start-ups and deaths have changed for the worse as regulatory costs have grown. No wonder: Anyone who wants to stay in business has to keep finding more money to pay for higher costs, while anyone who wants to start a new business has to clear financial and legal barriers that get taller every year. The founder of Subway recently remarked that his company “would not exist” if today’s regulatory burden had existed when he started it in the 1960s.
Simply look at the past few years to see how the regulatory state has grown. Between 2009 and 2013, the federal government added $494 billion in regulatory costs to the American economy. The highlight was 2012, when President Obama and his executive agencies published over $236 billion in new costs. As for 2014, the federal government announced over 79,000 pages of new regulations, costing a total of $181.5 billion.
That’s equivalent to 3.5 million median family incomes. But it isn’t flowing to families through new jobs and higher wages — it’s lost on lawyers, paperwork and other compliance costs.
I was curious what some of the largest wealth managers had to say about the economy. Was anyone talking about the recovery (or lack thereof)? High taxes? Regulation? I took a sampling of the CEOs of Citigroup, JP Morgan Chase, Goldman Sachs, and Morgan Stanley to see what, if anything, they’ve publicly discussed in the last 6 months to a year. The only one that has spoken on the subject is Jamie Dimon of Chase, who stated earlier this year that “the U.S. economy is doing well” but he blamed poor government and regulatory policies for hurting growth. “We’re growing at 2.5 percent. We should be doing better. “I blame them all,” Dimon said of politicians. “To me, they waste a lot of time pointing fingers and not collaborating.”
But they do spend time regulating. This is the canary in the coalmine which impacts new and potential entrepreneurs. Many see the start up costs and the regulatory headaches as too burdensome a barrier to even begin, thus deciding it’s not worth it. Small businesses have been the backbone of America, the pathway to our greatness, and this recent, rapid decline in American business is most alarming.
by | ARTICLES, BLOG, ECONOMY, ELECTIONS, FREEDOM, GOVERNMENT, OBAMA, POLITICS, RETIREMENT, SOCIAL SECURITY, TAXES
I recently read a letter to the editor about Social Security in the Wall Street Journal that irritated me. Not the letter writer per se, but more by the Wall Street Journal choosing to print a letter that perpetuates a widely perceived myth about Social Security.
The letter was simply this: “Oh, please don’t blame older Americans for “eating up the budget” through payments of Social Security and Medicare benefits. It is the federal government that raided the Social Security Trust Fund. Older Americans have contributed to this for years. Where is the money now?”
The problem with this letter writer is that they really just don’t understand the truth that people who have paid into Social Security are getting many, many more times the actuarial value than what they put into it. It’s not a simple misunderstanding on this. It really, truly is just a flat-out lie that people who put 30-40 years worth of payments are merely getting back just what they put in.
The politicians need this lie to survive because they risk alienating a large voting bloc of older Americans if they merely even suggest that Social Security needs reform. But it does; the egregious state that Social Security is hidden by the way the federal government accounts for it. They even have a special name for it. Social Security is repeatedly described as a pay-as-you-go (“PAYGO”) system, which gives credence to something that is terribly incorrect. PAYGO is not a system at all; rather it is a method of reporting that hides earned realities, making it totally unacceptable to accounting professions, the SEC, and virtually everybody outside the government.
Calling it PAYGO helps to perpetuate the fallacy that beneficiaries are merely receiving what they paid into to. I don’t want to pick on the poor letter writer, as she doesn’t seem to really know how Social Security works (or hasn’t worked). But the Wall Street Journal should know better.
I suppose it is fitting that the 1936 Bulletin announcing Social Security ends like this: “What you get from the Government plan will always be more than you have paid in taxes and usually more than you can get for yourself by putting away the same amount of money each week in some other way.”
This is why we have accrued trillions in unfunded liabilities such as Social Security. If it sounds too good to be true, it probably is.
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On Monday, the Department of Education announced student loan debt forgiveness for students at the now-closed Corinthian College system in California. At the end of April, the Department of Education slapped the for-profit college group with $30 million in fines for allegedly misrepresenting post-graduation job prospects and/or placement rates to some 900 students in 12 schools since 2007. Read the letter here.
Never mind that in 2010 (a year for which I have numbers), 110,000 students were enrolled in 100 schools in their system. That means the total transgressions represent less than 1% of the entire school population. And yet, the DoE decided that 40,000 students in the shuttered college system were eligible for immediate loan forgiveness for Corinthian’s misdeeds; all the students need to do is fill out a form, and their loan will be covered. By taxpayers, to the tune of an estimated $500 million dollars.
But why? That’s where it gets interesting.
Enter Kamala Harris. She’s the current Attorney General in California and she’s running for retiring Senator Barbara Boxer’s seat. Harris worked in conjunction with the Department of Education specifically targeting the Corinthian College system. According to the Wall Street Journal, “Last summer the Education Department began to drive Corinthian out of business by choking off federal student aid for supposedly stonewalling exhaustive document requests. The Department claimed to be investigating whether Corinthian misrepresented job placement rates as California Attorney General Kamala Harris alleged in a lawsuit.”
Corinthian agreed to turn over their education centers to other non-profits, but Kamala Harris refused to release any buyer of potential future liability, meaning anyone purchasing would be under constant threat of a lawsuit. Last November, “the nonprofit Education Credit Management Corporation (ECMC) “agreed to buy more than 50 Corinthian campuses for $24 million plus $17.25 million in protection money to the feds for a release from liability. But ECMC passed up Corinthian’s 23 schools in California because Ms. Harris wouldn’t quit.” The alternative to having no buyer for these particular schools would ultimately be to shut them down.
It was in April 2015 that Corinthian was slapped with the $30 million fine, which effectively drove the final nail in the coffin of the remaining schools because no one in their right mind would shoulder the liability. As for the hefty penalty, “The Department assessed the maximum fine of $35,000 per regulatory violation, which its bureaucrats count as each student that was improperly counted.” By the end of the month, all the rest of the schools indeed closed, throwing out of employment and school, thousands of people.
For those affected, “to mitigate the political damage, DoE [deputized] financial aid counselors to help Corinthian’s student refugees. Yet most community colleges don’t offer Corinthian’s vocational programs and flexible schedules, and many for-profits don’t accept Corinthian’s credits. Ms. Harris and the feds have also made clear they intend to continue their persecution of for-profits, so students could enroll in another political target.” How generous of them.
What makes this whole affair particularly odious is that that “the federal government doesn’t specify how for-profits calculate their job placement rates. States and accrediting agencies have disparate and often vague rules, which notably don’t apply to nonprofit and public colleges.” Thus, Corinthian Colleges was really just a part of the larger assault on for-profit colleges by the Obama Administration, all tied to his new “Gainful Employment” rules. You can read the regulations released last October.
Part of this new regulation change deals with colleges and federal aid. “In particular, Obama intends to change the parameters of what’s known as the “90-10 Rule”—a federal law that bars these schools from receiving more than 90 percent of their revenues through federal student aid, including loans and grants.” The affect of these changes on the for-profit college system has been noted by Forbes. Though the regulations don’t actually take affect until July 1, 2015, it appears Corinthian was a ripe target. What’s more, the Department of Education found a ready and willing partner in Kamala Harris, who just happens to be running for a very important Senate seat in California.
On can debate the merits of the for-profit college system, but that would be fodder for another post. The fact remains that certainly, the generous student loan forgiveness/bailout will resonate with these 40,000 young, impressionable voters who suddenly got their college costs covered by someone else, even if they weren’t an actual victim of alleged “misrepresentation”. Will there soon be another for-profit college chain shut down and subsequent loan bailout by the Feds in another important election state?
by | ARTICLES, BLOG, ELECTIONS, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAXES
The upcoming Presidential Election Cycle is beginning to get crowded already. Since I’m undecided right now, I’ve chosen to do a scorecard of sorts of each of the major candidates in four policy areas:
*Taxes
*Immigration
*Free Trade
*Entitlement Reform
These issues are among the most crucial for me. Over the next couple of weeks, I’ll be posting about what I believe is the best, most optimal policy in each of these four areas, and then I’ll score the candidates on their positions.
I’ll also post when I have decided to eliminate a candidate, and why. I welcome your thoughts on these particular issues too. The scorecard will be up soon.
