Posts Tagged ‘tax’
June 13th, 2013 at 7:01 pm
Pro-Texas Ad Campaign in Anti-Business Blue States

Texas Republican Governor Rick Perry is once again visiting Democratic strongholds in an attempt to lure businesses to relocate to the Lone Star State.

Perry is set to meet with business groups in New York and Connecticut, reports National Public Radio. Previously, Perry extolled his state’s low-tax, light-regulation approach in California and Illinois.

But Perry’s initiative is more than just a series of speeches and photo-ops. His moves are coordinated with the work of TexasOne, a coalition of chambers of commerce and corporations funding a $1 million advertising campaign in the targeted states.

YouTube ads like “Texas is Calling” tout the state’s nine consecutive years ranked #1 for business, hosting the world’s largest medical center and welcoming 1,400 new residents a day.

With states like California, Illinois, New York and Connecticut ranking near the bottom in business-friendly taxes and regulations, it’s no wonder Perry sees an opportunity to let wealth creators in those states know there is an alternative.

April 9th, 2013 at 2:35 pm
Jindal “Parks” Controversial Income-for-Sales Tax Swap

With opposition from Louisiana’s business and religious communities, as well as resistance from Republican state lawmakers, Governor Bobby Jindal announced he will “park” his plan to replace the state’s income tax with a higher sales tax.

The devil was in the details, says Josh Barro, a Bloomberg economics and financial writer.

The other problem was that Jindal’s method of tax-base expansion was not very sensible. An ideal sales tax should apply to all consumption exactly once, meaning it should include business-to-consumer transactions and exclude business-to-business transactions. Taxing transactions between businesses leads to “tax pyramiding”: a sale is taxed multiple times before reaching the final consumer, meaning the tax embedded in the price far exceeds the actual tax rate. This is unfair and also inefficient, because it punishes businesses that choose not to vertically integrate: If I run a restaurant, my customers pay more tax if I buy my pastries from a third-party baker than if I bake them myself. (Depending on how my state taxes pastries.)

Jindal’s administration was bragging that his plan would cause lots of tax pyramiding. An official in Jindal’s department of revenue told the Louisiana House Ways and Means Committee that 80 percent of the new sales tax on services would be borne by businesses. This announcement was meant to be an explanation of how the plan could cut taxes on individuals in all income brackets. But it caused yet two more problems. One, it led the Louisiana Association of Business and Industry, normally friendly to Jindal, to come out against the plan. Two, it undermined the case for reform: Sales-tax base broadening is supposed to make the tax base more ideal, but Jindal was effectively announcing that it would not.

For conservatives, it is part of Economics 101 to remind liberals that all taxes paid by businesses get passed on to consumers.  With a statewide popularity rating now lower than President Barack Obama’s, it’s too bad the very bright Governor Jindal had to (re)learn that lesson the hard way.

March 26th, 2013 at 6:33 pm
Update on Jindal’s Sales-for-Income Tax Swap

Two state-based think tanks, Louisiana’s Pelican Institute and Massachusetts’ Beacon Hill Institute, released a study (pdf) highlighting the likely benefits of Louisiana Republican Governor Bobby Jindal’s proposal to scrap the state’s income tax and raise its sales tax.

In a nutshell, the study estimates that Jindal’s plan would increase disposable income by $1.749 billion by 2017. That’s an extra $910 for each Louisiana family.

The question left unaddressed by the study is the one most likely to be asked by critics – What will be the impact on low income citizens whose cost of living (along with everyone else’s) will go up with a greatly expanded sales tax base?

Whereas progressive income taxes take a larger bite out of the paychecks of wealthy citizens, sales taxes take a larger bite from those of the poorer classes.

One way to avoid the charge that a sales-for-income tax swap would amount to a disproportionate tax increase on the poor is to exempt certain items like food and other necessaries from the tax. So far, Jindal’s plan does this.

That, of course, can lead to the same kind of pockmarked tax code that currently infects most states, as well as the IRS.

To my mind, it makes the most sense to argue for a flat tax on income with very few exemptions or deductions. It’s fair, easy to understand, and is the concept most resistant to special interest tampering.

Moreover, when it comes to the national debate over tax reform, it has one huge advantage over a beefed up sales tax: It can be easily replicated at the federal level.

Unless Jindal has become a fan of a national sales tax replacing the national income tax, then maybe his push to swap Louisiana’s income tax for a bigger sales tax is the clearest sign yet he’s not running for President of the United States in 2016.

H/T: The Pelican Post

March 14th, 2013 at 6:02 pm
Jindal’s Louisiana Tax Reform a (Possible) Model for Other States, Feds

A few weeks ago I wrote on the income-for-sale-tax swap some conservative governors are pursuing as an alternative to Washington’s income tax rate debate.

Today, Governor Bobby Jindal of Louisiana, a big proponent of the sales-for-income-tax swap, announced his plan in Baton Rouge.

A press release from Jindal’s office lists the estimated benefits:

The plan will ensure revenue neutrality by:

  • Eliminating~$2.7 Billion in personal income tax and corporate income and franchise tax
  • Eliminating over 200 exemptions, resulting in $114 Million in additional revenue
  • Broadening the state sales tax base and raising the state rate to 5.88%, which will result in ~$2.1 billion in revenue
  • Maintaining vital local tax offsets and business competitiveness incentives
  • Implementing targeted tax offsets, including a change in the cigarette tax rate, and tightening severance tax exemptions

But there are also some possible drawbacks. As I mentioned in my column, moving to a heavier reliance on the sales tax often requires lawmakers to carve out lots of exemptions. The danger is that, over time, a sales tax code could become as special interest driven as the current income tax code with all its byzantine deductions and exemptions.

Without agreeing to the substance of this critique, Jindal’s press release gives a clue as to what might be in store if his plan passes:

To keep the sales tax rate as low as possible, the plan will expand the sales tax base to many services that are already taxed in other states in addition to eliminating over 200 current exemptions. Many of these exemptions are no longer relevant since they were related to the personal income tax and/or corporate income and franchise tax.

Reducing the number of tax exemptions has many benefits, including limiting the state sales tax rate increase required to generate sufficient revenue and greater stability in revenues. The sales tax exemptions retained under the plan will help protect low-income residents and also preserve Louisiana’s business competitiveness. These include:

  • Constitutionally protected sales tax exemptions, including food for home consumption, residential utilities, prescription drugs and fuel.
  • Manufacturing, machinery, and equipment (MM&E), non-residential utilities, farm and agriculture, drilling rigs, vessels greater than 50 tons, tangible personal property for lease or rental, manufacturers’ rebates and trade-in value on new vehicle purchases, and preservation/rehabilitation of historic structures.
  • Exemptions for vendors compensations
  • Exemptions for certain non-profit organizations (religious, military, disabled)
  • Sales tax exemptions on purchases whose cost is already borne by the taxpayer: those made by federal, state and local governments.

Reasonable people can debate the merits of which kind of tax reform is best to make the code simpler and fairer. Personally, I prefer a flat tax on income with few if any exemptions because it leaves the least amount of room for special interest mischief.

That said, Jindal’s plan deserves a hearing. If it passes and works in practice, expect to see Jindal’s tax reform model – if not Jindal himself – on the 2016 presidential campaign trail.

March 7th, 2013 at 5:45 pm
Tax Bite Makes NFL’s Highest Paid Second in Net Income

Fresh off his Super Bowl win, Baltimore Ravens quarterback Joe Flacco signed a contract extension worth $120.6 million, making him the highest paid player in the National Football League.

But as Americans for Tax Reform points out, that’s just on paper.  After state and local taxes are factored in, Flacco actually makes less take home pay than the New Orleans Saints’ Drew Brees.

Reason TV ran a similar commentary when NBA star LeBron James left his hometown Cleveland Cavaliers to play for the Miami Heat.  Because Florida doesn’t have an income tax, some tax experts predicted that James could have a higher net income playing for the Heat even if the value of his contract was less than what he could make as a Cavalier.

While there’s no indication that professional athletes are making contract decisions based solely on a team’s state and local tax rates, it would certainly make sense in the long run.

After all, according to ATR’s analysis, after taxes Brees is projected to make $470,000 more every year than Flacco.  At $470,000 a year, that’s $2.82 million in extra taxes over the course of Flacco’s new contract.

With that kind of contribution to the city and state, Ravens fans should count any Super Bowl repeat as icing on the cake.

February 19th, 2013 at 12:31 pm
More Local Govt. Corruption in California

An investigative report from the Orange County Register deserves to be read in its entirety, but here’s my executive summary.

Hundreds of schools in California enlisted the services of a bank to underwrite school construction bonds, known on Wall Street as “capital appreciation” bonds.  The key attraction: no payments on principal or interest for 35 years.

Of course, that kind of delay isn’t free.  One school district in Orange County is estimated to owe $13 for every $1 borrowed when the bills come due.  This means that for one $22 million bond issue in 2011, the Placentia-Yorba Linda school district will eventually owe $280 million – 13 times the original amount.

It gets worse.  In 2008, thanks to arguably illegal politicking by the bank underwriter, district voters approved up to $200 million in bond issuances.  But while not all of the total are capital appreciation bonds, those that are could very well bankrupt the district for a generation or more.

The failures on display here are all too familiar.  Public officials opting to mortgage the future to look like a hero in the present saddle taxpayers with huge financial burdens.  Financial whizzes with no ethical scruples abuse the system for big profits.  And money wasted on concrete eye-candy – a football stadium and 600 seat performing arts center – while funding for classroom instruction gets reduced.

While there is no silver lining to the Register piece, it’s worth reading as a reminder of how much American government at all levels needs a deep renewal of ethics, thrift, and a commitment to the common good.

February 16th, 2013 at 7:06 pm
ObamaCare’s Most Expensive Tax Flies Under the Radar

According to America’s Health Insurance Plans (AHIP), ObamaCare’s health insurance tax needs to be repealed as soon as possible:

  • Starting next year the ACA imposes a new $100 billion tax on health insurance.  The tax will start at $8 billion in 2014, increasing to $14.3 billion in 2018, and will continue to increase each year.
  • The health insurance tax is larger than the device tax and the prescription drug tax combined.
  • The health insurance tax will increase costs for individuals and families purchasing coverage on their own, small businesses, seniors and people with disabilities enrolled in a Medicare Advantage plan, and state Medicaid managed care plans.
  • The health insurance tax is far greater than the minimum penalty for those who choose not to buy health insurance – further incentivizing young, healthy people to forgo purchasing insurance until they need medical care.

The health insurance tax is just one of twenty-one new taxes imposed by ObamaCare on the health industry and its consumers.  Thankfully, there is already bipartisan legislation filed in the House of Representatives to repeal this monstrosity, but unless there is a major breakthrough to convince liberals how bad ObamaCare will hamper health care, it looks unlikely to become law.

February 5th, 2013 at 5:25 pm
CA’s Brown Faces Big Test over Shale Oil Fracking

It’s an interesting time to follow California politics.

Last month, Democratic Governor Jerry Brown announced that, thanks to the voter-approved tax hikes from last November, the state looks poised reap budget surpluses for the first time in years.

But instead of using those projections as an excuse to restore funding for programs pared back by budget cuts, Brown is promising to set aside the money in a rainy day fund.

Moody’s and S&P rewarded Brown’s announcement by upgrading California’s credit rating.

Now Brown faces an even bigger test.

There’s an estimated 15.4 billion barrels of oil in California’s Monterey Shale formation, or four times as much as North Dakota’s Bakken Shale reserves.  Another way to put it is that California is home to two-thirds of America’s projected shale oil reserves.  Opening it up would be a game changer for the nation’s oil security and California’s economy.

But here’s the rub, according to Walter Russell Mead:

The intrigues in this drama are many. Does California’s Democratic Party come down on the side of low income Californians, who desperately need the jobs and state services new oil extraction will fund? Or does it come down on the side of a green lobby that is heavily backed by some of the wealthiest people in the state? To what extent does the wealthy coastal elite control the future of the inland poor in California? Can the GOP use the issue as a wedge to rebuild its credibility in a state it once dominated? Will black gold bail out big blue California?

Bring lots of popcorn. This is going to be a terrific show.

February 1st, 2013 at 1:00 pm
Could a Higher Sales Tax Lead to Less Expensive Government?

A blog post by finance writer Liz Farmer includes a little history lesson for conservative governors looking to swap income tax cuts for higher sales taxes.  In order to avoid a massive drop-off in tax revenue in such a scenario, states would be obliged to not only increase their sales tax rate, but expand it beyond goods to include services as well.

But an example from Florida’s recent past gives reason to pause:

Expanding the sales base to include services would address both of those issues. However, getting that idea past the powerful lobbies that advocate for the affected industries is another question. In 1987, the Florida Legislature enacted an expanded sales tax on services like including advertising, legal, accounting and construction services. The move was met with enormous outcry. Major corporations like Coca-Cola and Procter & Gamble canceled or reduced their advertising in the state to protest the tax while business groups canceled at least 60 conventions they had booked in the state. The tax lasted just six months until it was repealed and the legislature instead voted to raise the sales tax from 5 percent to 6 percent, a rate that is still in effect today.

It’s worth noting that a tax expert quoted in the blog confirms that income taxes are the most destructive tax because they create a disincentive to build wealth.  However, as the experience in Florida shows, a workable sales tax runs the risk of becoming quickly unpopular once consumers start seeing the true cost of government on every commercial transaction.

Assuming some states do enact the income-for-sales-tax swap, maybe the sticker shock will prompt another round of reform; one that perhaps lets third-party vendors compete for government contracts to deliver services at a fraction of what it costs to fund a bureaucracy.

December 27th, 2012 at 8:00 am
The Fed Taxes Savers to Pay for Govt. Spending

Richard Rahn explains how the Federal Reserve’s low interest rate manipulation taxes savers to help government spend more of taxpayers’ money:

By artificially holding down interest rates to lower-than-expected real market rates, the Fed is, in effect, expropriating interest income (an implicit tax) that savers normally would be expected to enjoy. This interest manipulation enables the government to fund its debt at less than what would be real market rates at the expense of savers, making the deficit appear much smaller than it really is.

And don’t forget that the main reason given for not auditing the Federal Reserve and opening it up to other oversight measures is that it’s supposed to be an independent government agency staffed by experts who operate above the political fray.


November 17th, 2012 at 10:35 am
Obamacare Medical Device Tax Already Killing Jobs

Recently, Quin argued that Obamacare’s medical device tax would be a huge job-killer if implemented.  A story from Fox News about massive layoffs at medical supply giant Stryker confirms his grim prediction:

The company will cut 1,170 jobs, or five percent of its worldwide workforce…

A “medical device excise tax” included in the mandate imposes a 2.3 percent levy on medical device manufacturers and suppliers, which critics say will raise prices on everything from pacemakers to prosthetics to stents. Companies will be required to pay the tax regardless if they have a profit or loss for the year. The tax is estimated to cost the medical device industry $20 billion.

“Here we are, one of the greatest industries in the country, and we’re staring down on Jan. 1, 2013 and the addition of a 2.3 percent excise tax, while meanwhile on the other side all the discussion in Washington is about creating jobs,” Stryker President and CEO Stephen McMillian said during a national conference of medical device manufacturers in Washington, D.C. last September.

October 11th, 2012 at 8:30 pm
Moore: There’s Nothing Fair about Making Everyone Poor

Stephen Moore of the Wall Street Journal in an interview with the Daily Caller frames the tax debate in terms both Mitt Romney and Paul Ryan should use when attacking President Barack Obama’s soak-the-rich economic policies:

“Fairness is a good principle but should not be put ahead of growth,” Moore said when discussing his new book, Who’s the Fairest of Them All?: The Truth about Opportunity, Taxes, and Wealth in America.  “There’s nothing fair about making everyone poor.”

October 10th, 2012 at 5:35 pm
O-Care Lets IRS Tax Refunds, Monitor Daily Life

Last week Byron York highlighted two important Nanny-state features of Obamacare when it gets fully implemented in 2014:

Administration officials and Democrats in Congress have stressed that Obamacare does not permit the IRS to garnish wages or seize cash and assets from taxpayers.

What they mention less frequently is that the IRS has another way to get the money. About three-quarters of U.S. taxpayers receive refunds after filing their returns each year, with the average refund nearly $3,000. After 2014, those people will discover the IRS can take the penalty out of their refunds.

The IRS will also determine who is eligible for taxpayer-financed subsidies to purchase health care on the exchanges that will be set up in every state. Anytime anyone’s situation changes — a raise, a new job, a move to another state — that person will be required to report it to the IRS for the purpose of recalculating their eligibility.

This is not a small group. Obamacare will give tax credits for the purchase of health coverage to people who make up to four times the poverty level — at the moment, that’s $44,100 a year for an individual and $88,200 for a family of four. Those millions of Americans had better keep the IRS informed of their status every step of the way.

So, failure to buy a product that the feds approve of can get your tax refund wiped out, while failure to update your status with the IRS like it was Facebook can get you fined?

These are the kinds of details that need to be hammered home in the upcoming debates by Romney and Ryan so that voters can know what a vote for Obama – and Obamacare – really means.

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June 29th, 2012 at 11:40 am
No, The Taxing Power Isn’t Infinitely Elastic

I hate to disagree with my friend Tim, with whom I almost always agree, but I think he is dead wrong (and the dissenting opinion provides ample evidence, much more eloquently than I, as to why) why he says:

It is beyond significant dispute that Obama and the Pelosi-Reid Congress could have passed ObamaCare and its individual mandate as a “tax.”  The text of Article I, Section 8 of the Constitution explicitly provides that “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States.”  Thus, the federal government can tax and spend on behalf of almost anything it considers to advance the nation’s general welfare, even if its power to more crudely compel or prohibit actual behavior beyond that spending carrot is more limited.

Well, no. Not really.

The taxing power, as the dissent notes, NEVER EVER EVER has been construed to extend that far. The government can tax people; it can tax property; it can tax purchases or other activity; — but it CANNOT (or at least could not, until now) tax inactivity or the decision to remain inactive. Just as with the Commerce Clause argument, the same applies here: Under Roberts’ theory, now the government can impose a tax on you for NOT doing calisthenics in the morning, for NOT eating broccoli, for NOT buying a Chevy Volt, or for anything else it darn well pleases.

The taxing authority has never stretched so far.

And that leaves aside all the other facts at play here, such as that this isn’t a tax at all, but a penalty; that it isn’t even in the section of the bill devoted to revenue (thus indicating again that it is not a tax); and that it doesn’t operate like a tax because it is assessed in a way completely at odds with all definitions of a tax. (The dissent explains this well.)

Roberts bizzarrely conflates a tax “incentive” (an exemption from paying a tax otherwise generally levied) with a tax. He says giving a tax break for buying a home is meant to encourage home buying, so what’s the big deal about placing a tax on not purchasing health insurance in order to encourage the purchase of said insurance? Well, the key word is “not.” In the first instance, the tax already exists. It is a property tax. The property tax is reduced, though, if it is a primary homestead. But NOWHERE IS THERE A TAX ON NOT OWNING PROPERTY. Thus, it is an entirely different thing than imposing a tax on not purchasing insurance.

It’s an incredibly foolish comparison for Roberts to have made — but it is in keeping with the slipshod, hurried, almost desperate way he wrote the three pages on the taxing power, completely at odds with the careful exposition he made of the limits on the Commerce Clause.

This wasn’t a constitutional exposition at all; it was a politicized act of judicial legislating from the bench to create an entirely different law than the one passed by Congress and signed by the president.

June 25th, 2012 at 12:57 pm
California Wood Tax Turns Forests into Suburbs

Michelle Steel, the Republican Vice Chair of California’s Board of Equalization – an independent tax gathering arm of state government – found a pernicious little wood tax tucked away in Democratic Governor Jerry Brown’s recent budget proposal (emphasis below is mine):

The new tax is expected to raise $30 million annually, but that revenue won’t go to the general fund or to debt payments. According to the revised budget, lumber tax revenue will go to support the regulatory activities of the Departments of Forestry and Fire Protection, Fish and Game, Conservation, and the State Water Resources Control Board related to Timber Harvest Plan review.

California’s forest practice regulations are the most restrictive of any state in the nation. Regulatory compliance costs California forest-landowners more than 10 times what it costs similar companies in Oregon and Washington. According to a recent Cal Poly San Luis Obispo study, “California’s regulatory environment is having the unintended consequences of harming forest health,” by making it so difficult to manage timberland that owners are selling their land to housing developers.

Excessive environmental regulations are turning our forests into suburbs. Yet, instead of saving tax dollars by reducing regulation, the governor has chosen to compound the problem by increasing the funding of an inefficient regulatory program.

California tax policy: deforesting the woodlands in order to save them.

H/T: Jon Fleischman’s FlashReport

June 7th, 2012 at 4:56 pm
Senate Angling for Lame Duck Deal on Taxes, Spending

Politico reports that a group of Democratic and Republican senators are “quietly pushing to have a major tax and budget package ready by September so a bill can be introduced immediately after the November elections and passed by Christmas.”

In other words, during a lame duck session.  Only in the U.S. Senate could people seriously think that a multi-trillion dollar deal negotiated in secret and passed by a Congress that no longer reflects the electoral will of the people somehow counts as statesmanship.

This isn’t to say a lame duck Congress should never hold consequential votes.  A terrorist attack, a foreign military invasion, or an asteroid hitting the earth all qualify as legitimate reasons to let retiring and dethroned members decide national policy.  But the fear of falling off a “fiscal cliff” that’s been approaching for years – unsustainable deficits, exploding entitlements, budget sequesters that gut the Defense Department, expiring Bush tax cuts that raise rates on individuals – certainly does not.

It’s been said, rightly, that major reforms need bipartisan support.  But that’s only half of the equation.  Major reforms of the magnitude now being contemplated need to be road-tested on the campaign trail.  The 2012 election is one of the most important electoral moments in the modern era.  If there are good ideas brewing in the Senate, members should establish some consensus and make it part of the public debate.  Otherwise, enjoy the perks of office and let the next Congress, and the next President, decide.

April 17th, 2012 at 1:02 pm
Buffett Rule Hits Entrepreneurs Hardest

Yesterday, Senate Republicans blocked consideration on President Barack Obama’s so-called ‘Buffett Rule’ to impose a minimum federal income tax on some millionaires earning income on certain kinds of investments.  As I discussed in my column last week, no tax authority thinks implementing the Buffett Rule will make a scintilla of difference in the federal deficit.  So good riddance to a time-wasting distraction.

But before we pivot to the Obama reelection campaign’s next economic inanity, let’s pause to consider what liberal support for the Buffett Rule really says about modern liberalism’s discriminatory use of the tax code.

In a splendid piece published yesterday, former Reagan advisor Richard Rahn explains that the Buffett Rule only hits the type of investment income most used by entrepreneurs, and thus blocks those trying to ascend the personal wealth ladder.

Even if the Buffett tax ever passes, it was crafted by members of Congress to hit few of their own. Very rich members of Congress, such as Sens. John F. Kerry and John D. Rockefeller IV, receive much of their income from tax-exempt state and local bonds and from trust funds, which largely avoid the tax. Members of Congress generally are restricted from entrepreneurial activities. So, of course, they have decided to increase the tax on entrepreneurs — the capital gains tax — which is a tax on becoming rich, not a tax on being rich.

Most people, such as students, are relatively poor by government methodology when they are young but rise through the income ranks as they become more productive and experienced and then fall in relative income as they near and enter retirement, even though they may have considerable net wealth. By increasing the tax on capital gains and marginal rates, the government makes it more difficult to move into higher income brackets, thus actually reducing income-class mobility.

Those who support the Buffett millionaires’ surtax as written reveal themselves either to be economically ignorant or to believe the voters are fools who will not see through their destructive games.

Three cheers for the fiscal conservatives in the Senate who blocked consideration on this atrocious bill.  It’s time to get beyond gimmicks, and implement policies that get America back to work without further distorting the tax code.

February 23rd, 2012 at 7:05 pm
Rise of Self-Employed Grows Constituency for Health Care Reform

My column this week explains how WWII wage ceilings and a compliant Congress teamed up to create employer-based health insurance, a market distorting phenomenon the reduces take-home pay while increasing both health care spending and widespread dissatisfaction with the results.  (When was the last time you heard anybody happy about the cost or care in an HMO?)

Of course, one of the reasons this problem is allowed to persist is the lack of a motivated constituency to change the status quo.  That may be changing thanks to the Great Recession.

According to Economic Modeling Specialists, Inc., between 2007 to 2011 there has been a steady rise in the numbers of independent contractors in industries like real estate, financial services and natural resource extraction.

More recently EMSI showed how self-employed money management consultants are adapting very well to the new economic landscape. “The surprising thing to note is the huge growth that took place in the three money management occupations – personal financial advisors, securities/commodities/financial services sales agents, and financial analysts.”  Many of these jobs are classified as non-covered, i.e. independent contractors who service clients rather than employees who work for employers (and thus get benefits).

The rise of the independent contractor makes perfect financial sense for a business looking to shred costs while maintaining quality in services and products.  The legal profession is being transformed by a switch to contract-based work for attorneys while other white collar jobs like money management are following the same route.

It is very likely that this type of vendor-client relationship will come to redefine the work life of many Americans who in a previous era may have counted on a brick-and-mortar institution to cover everything from an expense account to health care benefits.  But if millions of American workers are to be recast as intellectual entrepreneurs, the federal tax incentive to exempt employer-based health insurance but not insurance purchased by individuals or families has to change.

As I explain in my column, the Heritage Foundation has an easy fix to this problem.  From my column:

In Saving the American Dream, a team of Heritage experts propose transforming the existing exemption into a “uniform, nonrefundable federal tax credit” to assist individuals and families purchase health insurance.  The annual net value of the tax credit would be $2,000 for an individual and $3,500 for a couple or family.  The credit could be used “either to offset the cost of coverage offered through the workplace or to buy insurance outside the workplace.  For most middle-income working families, the value of the credit is similar to the tax relief that they receive for health insurance today.”

Law always lags behind reality, but if a presidential candidate wants to make an easy reform that will remove a huge disincentive to become an intellectual entrepreneur, adopting the Heritage Foundation’s health insurance tax credit would be a huge step in the right direction.

February 16th, 2012 at 8:14 pm
Bad Week for Obama Budget Director

It’s been a bad week for Office of Management and Budget Director Jeff Zients, the man tasked with defending President Barack Obama’s 2013 budget proposal.

In testimony before the House Budget Committee Zients told Rep. Scott Garrett (R-NJ) that the penalty for not complying with ObamaCare’s mandate to buy health insurance is not a tax increase.  (Subscription wall.)  In response, Rep. Garrett said, “Okay.  I just want to be clear on that because that’s not the argument the Administration is making before the Supreme Court.”

Before the Senate Budget Committee Zients was even more out-of-touch.  Under questioning from Senator Jeff Sessions (R-AL), Zients claimed that Obama’s 2013 budget contained spending cuts – a distortion Sessions would not tolerate:

Mr. Zients, there are no spending cuts in this budget. This budget increases spending. Surely you know that. It increases taxes. So to say you cut $2.50 in spending for every dollar in tax increase is beyond the pale.

So too is the entire shell game about ‘deficit reduction’ when what liberals like Obama really mean is tax increases to pay for spending increases.  If the President won’t admit it at least his budget director will be made to.

December 22nd, 2011 at 12:32 pm
We Can’t Afford a Payroll Tax Cut Extension

Quin makes some excellent points about the PR disaster that is the payroll tax cut extension debacle.  In addition, the spin on the debate is missing two important angles: (1) the Senate GOP’s apparent backstabbing of House Speaker Boehner, and (2) the fact that a trivial 60 day pay raise (the most any taxpayer will save is $40 per paycheck) won’t make a difference in anybody’s bottom line.  If the payroll tax “holiday” is extended, however, it will take another misguided step toward eliminating the tax permanently.  Recently, former Bush press secretary Ari Fleischer explained why that’s bad (requires WSJ subscription):

Make no mistake, if the payroll-tax cut is extended, it will become permanent. Social Security will become another welfare program as the tie between what someone pays and what they receive gets broken. To a large degree, the tie has already been broken. Social Security’s trust fund has been raided for years by both parties and Medicare is already significantly financed through general revenues instead of through its dedicated trust fund.

Instead of squabbling over how to extend the payroll tax break, the GOP should concentrate on revising the tax code so it promotes growth and jobs, while reforming our entitlements.

Quin’s right.  Republicans need to use the payroll tax cut debate to educate the American public.  Phony nickel-and-dime policies like a 60 day, $40 tax cut are not solutions to Washington’s deficit addiction.  Neither, frankly, is a year-long tax holiday that moves Social Security from an under-funded to an unfunded mandate.

Since the Senate went home and President Barack Obama is in Hawaii on vacation, it looks like a great opportunity for Boehner to call a primetime press conference to explain why good policy is good politics.