Independent Women's Forum - Research Areas > Taxation/Tax Reform

Does It Pay to Work More?

info@iwf.org (Allison Kasic) — Wed, 16 Apr 2008 13:37:00 EDT

Does it pay to work more hours in order to earn more income? That's the question posed in a new study by the National Center for Policy Analysis:

Virtually all American households are confronted with high to very high marginal tax rates when they increase the number of hours they work in the current year or in future years. Much of the system's highest effective marginal taxation comes courtesy of government transfer programs, particularly Medicaid. In fact, penalties for working are astronomical for some households, particularly lower-income families.

Emphasis mine. More here.

Static Scoring vs. Dynamic Scoring

info@iwf.org (Allison Kasic) — Wed, 19 Mar 2008 11:23:00 EDT

The Center for Freedom and Prosperity wraps up their three-part series on the Laffer Curve with this gem on dynamic scoring:

If you need to catch up, check out part one (Laffer Curve theory) and part two (Laffer Curve evidence).

The Michael Dresser Show: Economy, Rebates, and more.

info@iwf.org (Carrie L. Lukas) — Tue, 11 Mar 2008 13:56:00 EDT

IWF Vice President for Policy and Economics Carrie Lukas joined The Michael Dresser Show to discuss the economy, tax rebates, and more.

IWF Podcast: Squeezing the Middle Class

info@iwf.org (Allison Kasic) info@iwf.org (Carrie L. Lukas) — Thu, 06 Mar 2008 10:33:00 EST

IWF Director of The R. Gaull Silberman Center for Collegiate Studies Allison Kasic and IWF Vice President for Policy and Economics Carrie Lukas discuss the economic stimulus package and what this means for the middle class.

The Right Balance: Squeezing the Middle Class

info@iwf.org (Allison Kasic) — Wed, 05 Mar 2008 11:13:00 EST

Allison Kasic joins The Right Balance with Greg Allen to discuss "Squeezing the Middle Class," an op-ed written by IWF's Carrie Lukas.

The Andy Caldwell Show: Economic Stimulus Package

info@iwf.org (Carrie L. Lukas) — Tue, 04 Mar 2008 13:51:00 EST

IWF's Carrie Lukas joined The Andy Caldwell Show to discuss Gloria Steinem and the economic stimulus package.

One News Now: Taxes on oil

info@iwf.org (Carrie L. Lukas) — Mon, 03 Mar 2008 12:11:00 EST

One News Now

Economic analyst Carrie Lukas says a bill approved by the U.S. House that includes $18 billion in new taxes on the largest oil companies would only further drive up the cost of gasoline at the pump and make America's energy problems worse.

Democrats says the billions collected from raising taxes on oil would provide necessary tax breaks for wind, solar, and alternative energy sources. But House Minority Leader John Boehner (R-Ohio) scoffed at the measure, saying the Democratic majority chose tax breaks for Venezuelan dictator Hugo Chavez over tax cuts for middle-class families. Democrats rejected a GOP proposal that would permanently end the marriage penalty and keep the child tax credit intact.

Carrie Lukas, vice president for policy and economics at the Independent Women's Forum (IWF), a Washington, DC-based conservative think tank, argues the new taxes on oil companies discourage domestic energy production. "That's really not the direction that America wants to go when we have these demands for energy and really high costs," she attests.

Lukas says alternative fuels have a role to play, but the government needs to stop funding politically correct ones and let entrepreneurs decide what sources are the most efficient. "The government needs to stop trying to punish oil and gas companies and instead get out of their way so that they can start developing and finding new sources of energy to bring [down] some of these prices we face ...," says the IWF spokeswoman.

In addition, Lukas argues that America does not need new energy taxes. "When you add a tax, when you make something more expensive, that's going to passed on to the consumer," she points out.

"The simple fact is [that] when our gas prices go up, it's because of a scarcity of oil and gasoline," she continues. "So we don't want to make it worse [and] make it more expensive by taxing it; we need to find new ways, make it easier for gas and oil to come into the marketplace. Really, what we need the government to do is to get out of the way and stop trying to pick winners and losers."

Lukas says she is all for eliminating tax loopholes, but that it must be done in the context of comprehensive tax reform. She notes the U.S. has one of the highest corporate tax rates in the world, which puts domestic companies at a significant disadvantage.

Tax Increase Will Make America's Energy Problems Worse

Fri, 29 Feb 2008 15:24:00 EST

For Immediate Release: Contact: Carol Eberly

February 27, 2008 202-349-5882 or
carol.eberly@iwf.org

Washington, D.C.-Americans frustrated with record high home heating bills and increasing costs at the gas pump may be surprised that Congress is trying to make things worse by passing a bill to raise taxes on energy companies.

"As everyone knows, if you want less of something, you should tax it," said Carrie Lukas, vice president for policy and economics at the Independent Women's Forum. "The propose tax increases on energy companies will discourage investment in energy infrastructure-that means less energy in the future which means prices will continue to rise."

"This is one of those rare instances when both business and labor groups agree. They recognize that American needs more energy, not new energy taxes that undermine our economy and destroy jobs," said Lukas.

While raising taxes on oil and gas companies, policymakers are considering further subsidizing alternative fuels.

"The government should stop attempting to dictate energy use by subsidizing some energy and penalizing others," said Lukas. "Policymakers should focus on creating a level playing field so that providers can compete and have an incentive to increase the supply of energy regardless of its source."

"Those who suggest that these are tax loop holes that benefit the oil and gas industry should join the movement to simplify the tax code. It would be a great to scrap our complicated tax code and dramatically lower the corporate tax rate, which is one of the highest in the world," said Lukas. "Just eliminating a few deductions for the purpose of punishing a specific industry-in this case energy producers-is bad policy and counter-productive."

Squeezing the Middle Class

info@iwf.org (Carrie L. Lukas) — Wed, 27 Feb 2008 12:12:00 EST

Townhall.com

With all the gloomy economic news, politicians from the left and the right want to project concern for middle-class economic anxieties. This led to a rare burst of bipartisanship and the cobbling together of so-called "stimulus" packages. The centerpieces is a tax rebate-which is really indistinguishable from plain old government handouts, since checks will be sent based on income and family size, without any real relationship to tax liability. Yet for all the talk about easing the financial pressures faced by the middle class, the government is still embracing policies that raise the cost of living and make it harder to pay the bills.

Consider the rising cost of food. According to the Bureau of Labor statistics, the cost of "food at home," or food purchased at grocery stores, rose by 5.6 percent between December 2006 and December 2007. This included big increases in some family staples: the cost of milk increased nearly 20 percent, cheese by 13 percent, and bread by more than 10 percent. Why are families seeing their food bills climb?

The government's energy policy shares the blame. Mandates that we use more ethanol have encouraged farmers to grow more corn, which can be used to create ethanol, and as a result farmers dedicated more of their farmland to this one crop. In 2007, twenty percent more acres were used for corn production than in 2006. The greater demand for corn made the price of corn-and products that depend on corn, such as poultry and beef-jump. But since the focus on corn left less land for raising other agricultural products, the price of commodities such as soybeans and wheat also rose to historic highs. If Congress continues to subsidize the production and mandate the use of ethanol, consumer food prices will continue to rise higher.

Heating and gas bills also increased last year. While Congress may provide additional short-term assistance for heating bills to those with the lowest income, policymakers are doing little to encourage an increase in our domestic energy supply. Policymakers still limit domestic exploration for oil and discourage the development of more refining capacity, even though these measures are among the most promising for bringing down energy prices over the long term.

In recent years, American families have been able to cut down on costs by taking advantage of the goods imported from overseas. Liberal elites may sneer at Wal-Mart, but there is a reason why so many families buy their everyday supplies from this retail giant: it saves them money. Wal-Mart leverages the global marketplace to bring in high quality goods at the lowest prices, which are then passed on to the consumer. As a result, the average American family saves an estimated $2,500 per year by shopping at Wal-Mart. Unfortunately, our progress in liberalizing trade has largely stalled, and, given the rhetoric of many presidential aspirants, may reverse in the next Administration. That's the wrong direction for American families. If policymakers want to raise living standards for the middle class, they need to maintain a commitment to trade liberalization.

A rebate of a few hundred dollars will certainly be welcome by families across the country, but it has no impact on their future financial prospects and therefore won't alleviate any feelings of economic insecurity. Workers want a growing, dynamic economy and a tax code that rewards work. Lowering marginal tax rates is the key to rewarding productive activity. For starters, Congress should make the existing tax cuts permanent so that workers will know that a big government-imposed pay cut isn't in their future. While Senate Democrats push to extend unemployment benefits as a part of the "stimulus," American families know that those out of work want jobs, not handouts. It may not sound like good progressive politics, but reforming our corporate tax code and lowering the corporate tax rate, which is among the highest in the developed world, would be among the best ways to encourage economic growth and job creation.

This stimulus package is a missed opportunity. Government can't spend its way into economic prosperity, but policymakers can reverse damaging policies that hinder growth and make life more expensive for American families.

Carrie Lukas is the vice president for policy and economics at the Independent Women's Forum and author of The Politically Incorrect Guide to Women, Sex, and Feminism.

We Need More Than an Economic Stimulus

info@iwf.org (Carrie L. Lukas) — Sat, 19 Jan 2008 13:19:00 EST

With the stock market's big drop, Washington wisdom now dictates that policymakers need to do "something" to give the economy a boost. President Bush came out yesterday with outlines of a package that would rely heavily on rebates to taxpayers, the idea being that people would then go out and spend these rebates and reverse sluggish sales.

On National Review Online, Larry Kudlow gives this idea a luke-warm endorsement, at least compared to other proposals floating out there:

President Bush has made the best of a bad situation by applying his so-called tax rebate proposal within the income-tax code, rather than positioning it as new federal spending, like Sen. Hillary Clinton's $100 billion spending package. He's going to oppose that. He's right to oppose that. It's essential to oppose that.
As I understand it, they're going to waive the 10 percent bracket which goes up to $15,650. Everybody passes through that bracket. I'm sure upper-end taxpayers will not get any of this relief. Lower-end and middle-end taxpayers will.
In doing so, there will be a very tiny incentive effect, although it'll only last a year. As I said, the president is making the best of a bad political situation. He had to do "something." And this is the least harmful thing he can do. It can be classed as income-tax relief, even though there's no permanent incentive effect.

et while I'm all for the government putting money back in the hands of the people, it seems like rebates are about as bad a way as you could do that. Bruce Bartlett makes this case in The Wall Street Journal, arguing that a rebate will do little to boost savings and is really just a political gesture:

In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political -- giving politicians a way of appearing to be doing something about the nation's economic problems that is superficially plausible.

This economic souring seems like a reason for policymakers to refocus on getting the fundamentals right and change some of the big things that we know are a drag on the economy. Obviously policymakers aren't going to be able to quickly scrap the tax code in favor of a simpler, flatter plan (though that would be ideal), but if essentially everyone recognizes that corporate taxes and taxes on savings are too high, why not go ahead and lower those? A cut in income tax rates would encourage productivity and increase income, not just temporarily like a rebate, but over the long term so people might feel more comfortable to increase consumption.

The debate about a stimulus shouldn't just be a Washington give away, but a chance to actually improve our economy's foundation.

Reviving the Economy

info@iwf.org (Carrie L. Lukas) — Wed, 16 Jan 2008 10:15:00 EST

So evidence increasingly points to a contraction in the economy: what does that mean for policymakers? Undoubtedly many will push new government spending initiatives, which would have dubious effects at best.

In today's Wall Street Journal, Lawrence Lindsey offers some more constructive ideas. He focuses on the need to reduce regulatory barriers that are limiting what companies can offer consumer credit, but also highlights the need for the government to get the fundamentals right:

Longer term, fundamental tax reform remains the most sensible way of strengthening the American economy. The cumbersomeness of the current system, and the political inability to cope with it, reached truly embarrassing levels last year when Congress took more than 11 months to come up with an economically vital one-year patch to protect millions of taxpayers from liability to the Alternative Minimum Tax.
Our economic performance is increasingly being held to political ransom, as evidenced by the failure of the current Congress and the ad hoc nature of the so-called "stimulus" packages put together so far. The collateral damage caused by special-interest efforts like the anti-Wal-Mart campaign is further evidence that we are sliding in the wrong direction. While deregulation and tax simplification are not currently in vogue, ultimately they represent the best type of economic stimulus -- by allowing the people who actually create the jobs and wealth of this country to get about their business.

The current economic troubles are just one more reason that the government should get its fiscal house in order: this begins with simplifying our tax code which is an unnecessary drag on the economy and ending the double taxation of savings. Entitlement reform should also be high on policymakers priority list since that is an economic crisis that we know is just around the corner, but I'm not holding my breath...

How Free is Your Economy?

info@iwf.org (Allison Kasic) — Tue, 15 Jan 2008 10:16:00 EST

The annual economic freedom index from the Heritage Foundation and Wall Street Journal is out, ranking 157 economies on 10 economic factors (property rights, regulations, trade, etc.). The index has long shown a strong correlation between economic freedom and prosperity. This year's index shows encouraging news out of Europe, where many countries are moving toward simplified tax codes, such as a flat tax:

While the world as a whole made little progress toward greater economic freedom, there were some surprising improvements by countries such as Mauritius and Mongolia, the survey found.
Hong Kong and Singapore retained their No. 1 and No. 2 rankings respectively on the annual Index of Economic Freedom for the 14th successive year. Both port cities benefit from low taxes and liberalized trade. Hong Kong, however, saw its score dip slightly due to higher inflation and greater tax revenues.
European countries accounted for half of the top 20 economies considered free or mostly free, with Ireland at No. 3, Switzerland at No. 9 and Britain at No. 10. The U.S. ranked No. 5, and Canada ranked 6th.
Moves by newer members of the European Union to introduce straightforward tax policies to attract more investment were having a radical impact on the region as a whole, the authors said.

More info here.

Chairman Rangel's "Tax Relief" Plan Largest Tax Increase in History

Sat, 27 Oct 2007 13:36:00 EDT

For Immediate Release: Contact: Kate Pomeroy
October 26, 2007 kate.pomeroy@iwf.org or 202-631-6704

Chairman Rangel's "Tax Relief" Plan Largest in History
Discouraging Work, Slowing Growth, and Reducing Job Opportunities

Washington, DC - Chairman Charles Rangel (D-NY) has just released a tax proposal that would increase taxes by an estimated $3.5 trillion, making it the largest increase of individual taxes in history.

Among the bill's provisions are dramatic increases in the top marginal rate faced by individual taxpayers. All Americans would be affected by this increase in taxes, but many women would be particularly hurt. This bill would create a significant new marriage penalty and discourage many married women from working.

The higher marginal tax rates would affect not only individual workers, but numerous small businesses that file tax returns as individuals will see their taxes rise. Small businesses play an important role in our economy, driving growth, creating jobs, and encouraging innovation. These punitive taxes will discourage entrepreneurship and impede America's economic progress.

Chairman Rangel's plan would also discourage investment and risk taking by changing the tax treatment on partnerships. Venture capital funds, real estate investment partnerships, and hedge funds play an important role in the creation of new businesses. Levying higher taxes on these partnerships will discourage entrepreneurship, an engine of economic growth.

"This bill is the wrong direction for American women-we need less taxation, not more. High taxes stifle economic growth, reduce job creation, and leave families with less money to spend as they see fit," said Carrie Lukas, Vice President of Policy and Economics at the Independent Women's Forum.

The United States needs tax reform that makes the tax code less complicated and encourages work and investment. IWF believes Chairman Rangel's tax proposal moves in the wrong direction and urges congress to go back to the drawing board.

For more information or to schedule an interview, please contact Kate Pomeroy
at kate.pomeroy@iwf.org or 202-631-6704.

IWF Policy Brief #7: Chairman Charles Rangel's Plan to Penalize Marriage and Discourage Women from Working

info@iwf.org (Carrie L. Lukas) — Fri, 26 Oct 2007 15:19:00 EDT

Download the complete Policy Brief below.

Executive Summary

Chairman Charles Rangel (D-NY) has just released a tax proposal that would increase taxes by an estimated $3.5 trillion, making it the largest increase of individual taxes in history.1

Among the bill's provisions are dramatic increases in the top marginal rate faced by individual taxpayers. All Americans would be affected by the massive increase in taxes, but many women would be particularly hurt. This bill would create a significant new marriage penalty and discourage many married women from working.

Positive provisions such as the reductions in corporate tax rates and repealing the AMT are overwhelmed by the numerous tax increases. This bill is the wrong direction for American women-we need less taxation, not more. High taxes stifle economic growth, reduce job creation, and leave families with less money to spend as they see fit.

Policymakers should go back to the drawing board and focus on creating a simple tax code that encourages work and saving, and lets American workers keep more of what they earn.

IWF Policy Brief: Taxes

info@iwf.org (Allison Kasic) — Fri, 26 Oct 2007 13:33:00 EDT

In a new IWF Policy Brief, Carrie Lukas looks at the latest push for higher taxes. Here is the executive summary:

Chairman Charles Rangel (D-NY) has just released a tax proposal that would increase taxes by an estimated $3.5 trillion, making it the largest increase of individual taxes in history.
Among the bill's provisions are dramatic increases in the top marginal rate faced by individual taxpayers. All Americans would be affected by the massive increase in taxes, but many women would be particularly hurt. This bill would create a significant new marriage penalty and discourage many married women from working.
Positive provisions such as the reductions in corporate tax rates and repealing the AMT are overwhelmed by the numerous tax increases. This bill is the wrong direction for American women-we need less taxation, not more. High taxes stifle economic growth, reduce job creation, and leave families with less money to spend as they see fit.
Policymakers should go back to the drawing board and focus on creating a simple tax code that encourages work and saving, and lets American workers keep more of what they earn.

Download the entire report here.

IWF Policy Brief #1: Baucus-Grassley Tax Increase Could Have a Negative Effect on the Economy...and not just for the rich.

info@iwf.org (Anne Trenolone) — Thu, 21 Jun 2007 15:42:00 EDT

Download the complet Policy Brief below.

The Independent Women's Forum warns that passage of the proposed Baucus-Grassley tax increase on publicly traded partnerships, which has been introduced before the U. S. Senate (S. 1624), could have a profoundly negative effect on the American economy, and not just for the rich.

Baucus-Grassley Tax Increase Could Have a Negative Effect on the Economy...

Thu, 21 Jun 2007 00:00:00 EDT

For Immediate Release:

Baucus-Grassley Tax Increase Could Have a Negative Effect on the Economy...and not just for the rich.

The Independent Women's Forum warns that passage of the proposed Baucus-Grassley tax increase on publicly traded partnerships, which has been introduced before the U. S. Senate (S. 1624), could have a profoundly negative effect on the American economy, and not just for the rich.

Although a tax on equity and hedge funds that go public might appear at first glance to be irrelevant for the vast majority of U.S. taxpayers, this is decidedly not the case. The most immediate impact would be that small fry investors would be denied entry into successful funds when managers refrain from going public to avoid Baucus-Grassley.

Many potentially lucrative IPOs (initial public offerings) which can be sterling investments for retirement simply would not be available for ordinary investors. Thus a tax designed to punish the nation's most successful money managers would affect a far larger segment of the population.

The Baucus-Grassley tax would hinder creativity and stifle the U.S. ability to compete in the global market and ultimately this would have a negative impact in countries around the globe. Only economic expansion keeps unemployment rates low, and this tax would have a dampening effect on economic activity.

Perhaps the most compelling reason to fear this tax, however, is that it is an extremely high tax rate. High tax rates tend to set a precedent and have a trickle down rate effect that could eventually justify higher tax rates on all of us.

Ironically, this tax is not needed. The U.S. tax revenue has set record highs several quarters since the Bush tax cuts have had time to take affect. In addition, the corporate tax base is in no danger of collapsing. It is important, in making any changes in the tax code, to adopt ones that lead to economic expansion, not contraction.

The tax increase proposed by Senators Baucus and Grassley would lead to economic contraction and a slowing of the U.S. economy.

To schedule an interview, please call Kate Pomeroy at 202-349-5889 or kate.pomeroy@iwf.org.

Efforts to Impose New Punitive Taxes on Publicly Traded Partnerships

info@iwf.org (Anne Trenolone) — Wed, 20 Jun 2007 00:00:00 EDT

The Independent Women's Forum argues that the Baucus-Grassley tax increase on publicly traded partnerships, which has been introduced before the U.S. Senate (S. 1624), will threaten the ability of the U.S. economy to compete internationally. Designed to penalize wealthy money managers, this tax increase affects the little guy too.

Capital markets drive the U.S. and the world economy and it is the creativity of the market, not governments that can improve the lives of millions of people all over the world. Government stifling of market creativity inevitably has a negative impact on economies in various countries. Creative structures for investment vehicles drive the economy and set America apart from rivals overseas.

Different organizational structures, i.e., corporations and partnerships that adhere to different tax requirements exist for a reason: to help ensure diversity in the market. Allowing the U.S. government to dictate, through the tax code, what is in essence a single structure for public organizations is a regression policy that takes us back to the days of phone company monopolies. Allowing a measure such as the proposed Baucus-Grassley tax bill to set rules for what companies can and can't be is similar to stipulating that all hamburgers in the U.S. should consist of two all-beef patties, special sauce, lettuce, cheese. The market needs to be diverse and allow organic growth and creativity. The U.S. economy has come a long way in the last quarter century and now is not the time to move backwards.

The U.S. tax code should change with the times, but these changes must not be ones that imperil creativity and economic growth. Only growth can keep unemployment low and feed all sectors of the economy. Taxing investments and the risk that such investments entail will encourage companies not to go public and cause economic stagnation. Companies held privately are also less transparent and subject to less oversight than publicly held companies.

Through their success these equity and hedge fund managers have proved they can do more with these funds than the government can. Ask Americans who manages money more effectively the government or Wall Street and most will look to Wall Street for better returns. The proposed Grassley-Baucus tax increase would prevent many companies from going public and thereby prevent the smaller investor from participating. These IPOs can be a sterling investment that feeds pension funds and charitable endowments, which betters the community as a whole.

Just look at the percentages. Regardless of the amount of money being taxed do Americans want to encourage Congress to institute any tax rate that calculates to an estimated 40 percent of anything? It sets a dangerous precedent no matter the income level of those it taxes. An effective tax rate of 45 percent is draconian and prohibitive and has been cited as the highest corporate tax rate of any developed nation in the world. How would such a prohibitive tax increase America's competitiveness in the global economy? It doesn't. It merely encourages money-generating entities, corporate or partner, to seek other nations to pay their taxes to. It is greedy policy that is designed to impact a minority of the U.S. population that will in fact widely impact the majority of workers and investors who are counting on investments to fund their children's education and their own retirement -- two issues that most Americans care deeply about.

The corporate tax base is in no danger of collapsing. Policies that seek to chill the investment environment through prohibitive and punitive taxes should be abandoned in favor of policies that reform the tax code to encourage more companies to remain in the U.S., create jobs, pay reasonable taxes and not relocate overseas.

Anne Trenolone serves as Director of Foreign Policy and International Women's Issues for the Independent Women's Forum.

A Tax System Only A Politician Could Love

Wed, 18 Apr 2007 11:38:00 EDT

Why is it that America has a ludicriously complicated tax code? Anyone who has ever looked through their personal income tax form knows that the system is absurd and ought to be radically reformed. Neither liberals nor conservatives gain anything from having individuals waste days of their life and hundreds of their dollars filling out forms, uncertain whether they are paying too much or too little and worrying about a potential audit.

John Stossel gets to the root of the problem in an oped today--it’s that politicians do like the tax code since its complexity allows them to give favors and breaks to their favored constituents:

But here’s a problem: Many in Congress don’t really want to reform the tax code. They like things just the way they are. So what if it makes paying taxes a headache for you? It gives them the awesome power to dispense privileges, which helps curry favor with lobbyists.
Congressmen bicker over who gets to hand out these special treats. In 2004, Sen. Olympia Snowe deplored the "financial burden on shipbuilders," many of whom happen to operate in her home state of Maine, and got them a $310 million tax break. Alaskan Sen. Lisa Murkowski got her state a tax break on contributions for "charitable" whaling activities (whatever that means). And Sen. Saxby Chambliss demanded tax relief for the timber industry in Georgia.
So while business gets its tax breaks and congressmen get their campaign contributions, your spring weekend is devoted to wading through Form 1040 instructions.

Some countries have created simplified flat tax systems and are enjoying the rewards. Stossel highlights the example of Estonia:

Twelve years ago, Estonia became the first country to tax everyone -- companies and individuals -- at the same flat rate. It started at 26 percent, dropped to 22, and will go to 20 in 2009. There are a few deductions for things like mortgage interest, educational expenses, and charitable donations. Very low incomes are exempt.
Unsurprisingly, Estonia is booming. The former Soviet republic used to be poor, with an average income 65 percent below its European neighbors. Today, Estonians are almost as rich as their neighbors, and their economy is growing more than 11 percent a year.
Corporations like a tax system that is low and simple, too, and that leads them to do more business in flat-tax countries. American companies such as Microsoft, Colgate, 3M, Bristol-Meyers Squibb, and Johnson & Johnson opened businesses in Estonia after the flat tax was adopted. Twelve years ago, foreign investment in Estonia made up only 5 percent of GDP, but today, it’s up to 20 percent. That means there’s more money in the Estonian economy to tax. So while the tax rate dropped, government revenues actually increased.

American deserves a better tax system, but nothing will happen until individuals demand action from their representatives. Something to consider as the primary season heats up.

More on Tax Day

info@iwf.org (Allison Kasic) — Tue, 17 Apr 2007 10:52:00 EDT

Paul Greenberg calls for a fresh start for the IRS in today's Washington Times:

"Most of us don’t object to paying our taxes -- living in the United States of America is not only a privilege but a great bargain. What we object to, or should, is how hard, how complicated, how expensive and sometimes just plain hopeless it is to figure out how much we owe.
"Awash in a sea of paper, or maybe in an ocean of electronic impulses in this internetted age, the American taxpayer needs help. Every new sweeping tax law Congress enacts -- always called a "reform" -- makes the job even more complicated and, if possible, more confusing. And the tax code longer.

"One such grand reform, makeover and general overhaul was enacted in 2001. It included 441 changes in the tax code. Just one of them -- about how to claim a tax rebate if you didn’t get one that year -- generated a million errors on that single line of people’s returns.
"The country’s tax code has grown as indecipherable to the average American as Hammurabi’s. It might as well be written on clay tablets."

Read the whole article here.

Happy Tax Day

info@iwf.org (Allison Kasic) — Tue, 17 Apr 2007 09:33:00 EDT

And by "Happy Tax Day" clearly I mean "I hate tax day."

Over on our homepage, Carrie Lukas lays out the case for a simplified tax code and provides links to IWF commentary on all sorts of tax related goodness. Check it out.

How is our tax system like a Galapagos finch?

info@iwf.org (Charlotte Hays) — Mon, 16 Apr 2007 08:09:00 EDT

"No Taxation without Representation" is the rallying cry for those who want DC statehood. I shudder. My guess is that the fools probably want to pay MORE taxes.

Kevin Hassett had a fine piece yesterday comparing the original no-taxation without representation crowd to today's happily overtaxed citoyen:

"Early American history was a conservative's nirvana: It was one long tax revolt.
"The British imposed taxes on everything from molasses to tea, and Americans smuggled the molasses, tossed the tea into a harbor and reached for their muskets. Thomas Jefferson's incendiary Declaration of Independence listed King George III's basest transgressions; prominent among them was that he had "sent hither swarms of Officers to harass our people and eat out their substance." The descendants of those royal minions are now, of course, nestled in thousands of cubicles in Internal Revenue Service offices across the country.
"Looking at that history, it's astonishing how low the taxes were. Talk about men being men. One historian estimated the combined burden of the infamous "Navigation Acts," for example, to be 1 percent of income. The other assorted taxes added up to about the same, making the total bite a measly 2 percent.
"And that set off a war.
"Today taxes eat up about 30 percent of income, a much heavier burden. And like our ancestors, we don't believe that our money is particularly well spent. A Washington Post-ABC News poll taken last April found that Americans believe that 51 cents of every tax dollar is wasted. But where's the outrage? Most of us don't even own muskets, and the few of us who have revolted against the IRS are settled safely behind bars, to popular acclaim....
"Like a finch in the Galapagos Islands, the tax code has gradually evolved in a manner that maximizes its chances for survival. So a natural history of our tax system provides an interesting mirror on ourselves and reveals some surprising facts."

Read the column. And weep.

It Shouldn't Be This Hard: America Deserves a Simplified Tax Code

info@iwf.org (Carrie L. Lukas) — Mon, 16 Apr 2007 00:00:00 EDT

Across the country, millions of Americans spent the weekend--not enjoying the beautiful spring with their families--but filling out tax forms. America's tax code is an abomination: It's more than two million words long, with the income tax code alone at nearly 1.3 million words. Complying with the income tax code cost America an estimated $300 billion dollars this year and Americans spent roughly 1.6 billion hours just filling out the 1040 form.

Americans have better things to do with their time and money. It's time for policymakers to take a serious look at scrapping the tax code and creating a simpler, flatter system. This should be a bipartisan issue--Americans of all political persuasion recognize the waste created by this unnecessarily complicated system and should demand better from our government.

More articles on Tax from IWF:
- The Death Tax: Unfair, Inefficient, Bad for Women
- Tax Reform: Slicing through the Red Tape
- Women and Taxes: Understanding Where Your Money Goes
- Taxing Independence: The Price of Feminists' Love Affair with High Taxes

Tax and Spend Democrats Return

Thu, 29 Mar 2007 08:58:00 EDT

With all media attention focused on the battle over the Iraq War supplemental appropriations bill, few are paying attention to the Democrats budget proposal. It should surprise no one that the Democrats are proposing rolling back the recent tax cuts which will amount to the largest tax increases in American history. Robert Novack writes about it in today’s Washington Post:

The bill set to reach the House floor today (resembling the Senate version) would raise taxes an average of $1,795 on 115 million taxpayers in 2011. Some 26 million small-business owners would pay an average of $3,960 more. The decreased number of Americans subject to income taxes would all pay higher taxes, and 5 million low-income Americans would be returned to the rolls.

Republicans are offering an alternative that should remind the public about the differences between the parties:

Rep. Paul Ryan of Wisconsin, the fifth-termer who is the House Budget Committee’s new ranking Republican, has proposed an alternative resolution. It not only retains Bush tax cuts but also proposes deep reductions in spending, protects Social Security payments and runs down the national debt.

As Novak highlights, its a shame that Republican leaders never got behind such a bold vision when they were in charge. Better late than never I suppose and at least this gives Republicans an opportunity to remember what they are supposed to support (and oppose).

The Conservative Definition of Social Security Reform

Thu, 08 Feb 2007 14:45:00 EST

I've taken a good deal of criticism (most recently, in an oped in the New York Sun by Larry Hunter of IPI) for my January 25th article in National Review Online arguing that conservatives shouldn't demand that all tax increases be taken off the table when debating Social Security reform. I'm being caricatured as someone who's itching for a tax increase.

Of course, that's not true at all. But I am just as concerned about the massive tax increases that are scheduled under current law as I am to any tax increase that would be included in a Social Security reform package.

It frustrates me that some Republicans want to ignore the costs associated with letting the status quo reign. This isn't a negotiation in which conservatives and liberals are equally affected if no agreement is reached to change Social Security. The status quo is an enormous loss for those who believe in limited government and free markets, and a big victory for those who want government to expand.

Right now, many conservatives seem to want to focus only on payroll taxes under Social Security - both the payroll tax rate and the amount of income that is subjected to that payroll tax, which rises every year. They ignore that in about ten years, Social Security will also begin drawing on general revenues, most of which come from our income tax system. The money used to "reimburse" the so-called Social Security trust fund is also taxpayers' money. We should be just as concerned about how much Social Security is going to draw from general revenues as we are about the money subject to payroll taxes.

Some Republicans have championed plans that include very big accounts, don't do anything to reduce benefits promised under current law, and pretend that there are no costs associated with paying those benefits. But in fact those costs are huge and taxpayers will feel them one way or another (for anyone interested in the details of how expensive some of these big account plans can be for taxpayers, see this SSA analysis of one of the big account plans).

What confuses me most is when exactly did it become the hallmark of conservatism not to discuss reducing government promises and programs? So-called conservatives recoiled when the President called for very common sense reductions in the growth of future benefits for those in the upper and middle-income brackets. No one was talking about changing the benefits of those already receiving Social Security or those with low-incomes who will depend on Social Security at retirement (in fact, the President's plan would have increased benefits for lower income retirees relative to the benefits the current system can afford to pay). The plan simply would have made Social Security benefits stay the same in real terms for the top 0.5% of earners, instead of growing in excess of inflation, and would have allowed benefits to grow faster than inflation for everyone else. That alone would have done a lot to reduce government's - and that means taxpayers' - liabilities.

Clearly it would be easier to transition to a system based on personal investment if we didn't have the liabilities of the current system hanging over us, so why aren't conservatives willing to talk about ways to reduce the burden of the old system? Whatever this is, it isn't conservatism. It's political calculation, and a departure from the conservative principles of limiting the cost and reach of government.

But in any case, congratulations to Peter Ferrara and Larry Hunter; the hope of Social Security reform any time during this administration is effectively gone. With each passing year Social Security's unfunded liabilities rise by $600 billion, and it becomes more and more costly to move toward a system of personal retirement accounts. But at least I guess, the amount of income subject to the payroll tax will only go up another $3,000 next year, and that's supposed to be some kind of victory for the low-tax movement.