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INDEX

Why the Simpson-Bowles Tax Hike
Is Not the Same As Reagan's
1986 Tax Reform Act

From Ryan Ellis on Thursday, December 2, 2010 6:14 PM
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Senator Tom Coburn (R-Okla.) has said that the Simpson-Bowles tax increase plan is the same or better than the 1986 Tax Reform Act:

“The plan’s provisions to lower tax rates while creating fairness in the tax code are similar to pro-growth policies supported by President Reagan…this tax plan is Reagan on steroids that was passed in 1986”


What Was the Tax Reform Act of 1986?

The Tax Reform Act of 1986 (“TRA86”) was a law passed by Congress and signed into law by President Reagan.  It lowered the top marginal income tax rate from 50 to 28 percent.  It lowered the top corporate rate from 46 to 34 percent.  It “paid for” these rate reductions by eliminating or restricting hundreds of tax exclusions, adjustments, deductions, and credits.

Most importantly for this analysis, TRA86 was designed to be tax revenue-neutral.  Total tax revenues aimed to be the same after as before the reform.


How Did TRA86 lead to the Taxpayer Protection Pledge?

TRA86 gave birth to the Taxpayer Protection Pledge.  Supporters wanted assurances that their support for a broader tax base in exchange for lower tax rates would not be betrayed by higher tax rates later (which is, in fact, exactly what happened in 1990 and 1993).  The Pledge, which has been signed by 235 Congressmen and 41 Senators, is a promise made from an elected official to his constituents and the American people to:

“ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses, and

“TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing income tax rates.”

Senators Tom Coburn (R-Okla.), Mike Crapo (R-Idaho), and Judd Gregg (R-N.H.) are Pledge signers.


Why is Simpson-Bowles Not Like TRA86 and a Violation of the Pledge?

The Simpson-Bowles bill has two things in common with TRA86: first, it lowers marginal income tax rates.  The top individual and corporate rates would fall from 35 to 23 percent under their most aggressive scenario.  Virtually all tax deductions and credits would disappear.  On its face, this appears to be a reform styled after TRA86.  

However, the comparison falls apart in one key aspect—namely, the bill is not tax revenue-neutral, like TRA86 was.  In fact, it’s a ten-year tax hike of over $1 trillion.  Its stated goal is to raise the federal tax burden from its historical 18 percent of GDP to a record and permanent 21 percent.  The money raised from broadening the base is not 100% plowed into lower marginal tax rates, and is therefore a violation of the Pledge. Simpson-Bowles is a massive tax hike masquerading as tax reform.  

It should be obvious that the Simpson-Bowles tax hike is not tax reform akin to TRA86.

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Senators Should Oppose
Simpson-Bowles Tax Hike

From Ryan Ellis on Thursday, December 2, 2010 3:47 PM
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Americans for Tax Reform today sent the following letter to senators Tom Coburn (R-Ok.), Mike Crapo (R-Id.), and Judd Gregg (R-N.H.):

You have today announced that you will support the Simpson-Bowles-Obama debt commission report on Friday.  This report contains a ten-year net tax hike of over $1 trillion and increases tax revenues from their historical 18 percent of GDP to a record and permanent 21 percent.  This report shifts the debate from where it properly should be—spending—and onto deficit reduction, and thereby tax increases.

This report opens the door to a third round of disastrous budget summits.  In 1982, President Reagan agreed to $3 in spending cuts for every $1 in tax hikes.  The tax hikes became law, but spending went up.  President Reagan called this the worst mistake of his presidency.  In 1990, President George H.W. Bush broke his “read my lips” Pledge when he agreed to $2 in spending cuts for every $1 in tax hikes at the infamous Andrews Air Force Base summit.  He later lost re-election largely on the tax issue, and actual spending was higher than CBO predicted it would be before the deal.  

All the tax hikes in Simpson-Bowles are real—they become law upon the bill being signed.  Many of the spending cuts are simply promises to do better on appropriations bills, and have been historically-impossible to enforce.  

The tax increase in question is not “tax reform” along the lines of the 1986 Tax Reform Act.  That bill lowered marginal tax rates and broadened the tax base, just as the commission report does—but with one essential distinction.  That 1986 bill was tax revenue-neutral, whereas the commission report is a massive, $1 trillion-plus net tax hike on the American people.  It’s a tax increase that is merely disguising itself as tax reform.  Real tax reform would lower the rates, broaden the base, and be at worst tax revenue-neutral.  Again, this plan has a stated goal of raising tax revenue to 21 percent of GDP indefinitely, a record never hit in any one year, and higher than the historical level of 18 percent of GDP.  The plan raises the gas tax and raises the Social Security payroll tax.  Taxpayers may have lower marginal tax rates under this plan, but they will have a bigger tax bill to Uncle Sam.

I urge you to only support a plan that is tax revenue-neutral.

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Former Trial Lawyer Appointed to Oversee Industry He Sued for a Living

From Billy Gribbin on Thursday, December 2, 2010 2:03 PM
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In an open letter to Secretary of Agriculture Tom Vilsack, Grover Norquist, President of Americans for Tax Reform, called for the removal of J. Dudley Butler as head of the Grain Inspection, Packers and Stockyard Administration (GIPSA).  Mr. Butler’s tenure as Administrator has come under scrutiny for recent regulatory changes he supervised.

The rulings in question would lessen the evidence required in establishing “undue preference” claims against companies under Sections 202(a) and (b) of the Packers and Stockyards Act, making it easer for trial lawyers to bring, and win, frivolous suits against the American meat industry.  Before running GIPSA, as a trial lawyer Mr. Butler made a career out of suing companies under these exact regulations; he stands to profit from the reworked regulations upon his expected return to the private sector.

“These changes make it much easier for trial lawyers to squeeze money from the American meat industry with little proof of actual wrongdoing,” Norquist advised Vilsack.  “There is no reason to believe that Mr. Butler will not revisit this sort of litigation after his term at GIPSA.” 

Mr. Butler himself has made no secret of the “big money” that will result from the new rules.  Neither the USDA (GIPSA’s parent department) nor the Obama administration has yet made a move to curtail these regulatory malefactions.

“Today, tort reform remains a pressing issue, with attorneys making millions off of frivolous lawsuits across the nation. Taxpayers are unintentionally funding these suits by paying Mr. Butlers salary.  If Mr. Butler is allowed to continue at GIPSA, your administration will be aggravating an already serious situation,” wrote Norquist.

Click here for ATR's press release.

Click here for ATR's letter to Mr. Vilsack.

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Americans for Tax Reform's Statement on Reauthorization of the Volumetric Ethanol Tax Credit

From Chris Prandoni on Thursday, December 2, 2010 1:10 PM
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[PDF Document]

In recent days, Americans for Tax Reform’s opinion on extending the Volumetric Ethanol Excise Tax Credit (“VEETC”)has come into question.  Below is our position on the issue:

  1. VEETC is poor energy policy. Encouraging inefficient fuels which accomplishes neither reductions in carbon—its purported impetus— nor monetary gains for American families is bad energy policy.
  2. The VEETC is a tax credit which expires at the end of 2010.  There is no obligation on the part of pro-taxpayer elected officials to vote to extend an expiring tax credit which they believe is bad policy.  In the past, the question has been the elimination of the VEETC while it was still in force.  This affirmative tax hike would have been a violation of the Taxpayer Protection Pledge, but that issue is not applicable to this debate.
  3. Therefore, Americans for Tax Reform neither supports nor opposes extending the Volumetric Ethanol Excise Tax Credit.

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ATR’s Digital Liberty Project Dismayed by FCC Net Neutrality Proposal

From Kelly William Cobb on Wednesday, December 1, 2010 3:16 PM
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Today, the Federal Communications Commission (FCC) announced it will make a last-ditch effort to enact Net Neutrality Internet regulations before the new year.  While specifics of the proposal have not been released, the FCC has announced that it intends to regulate how Internet service providers manage data that flow on their networks.

Kelly William Cobb, executive director of Americans for Tax Reform's Digital Liberty Project, made the following statement:

“It is highly disappointing that after overwhelming bipartisan opposition from Congress, the American public, and the Courts, the FCC is continuing its pursuit to regulate the Internet. The proposal – released by a supposedly pro-transparency agency, but under the cover of darkness – continues to be a solution in search of a problem.

While the FCC's recent Net Neutrality push remains unwarranted, we are at least pleased that the Commission has abandoned its more onerous proposal to regulate the Internet under antiquated Title II laws.

Chairman Genachowski indicated today that he does not intend to circumvent Congress.  We agree with this approach and continue to believe that any action regarding Internet regulation should originate in Congress, if at all.”

[PDF PERMALINK]

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Response to Bob Barr’s Characterization of the ATR Pledge and Ethanol Tax Credit

From Christopher Prandoni on Wednesday, December 1, 2010 1:48 PM
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Yesterday, Bob Barr ran a piece in the Hill outlining the politics surrounding the proposed extension of the Volumetric Ethanol Excise Tax Credit (“VEETEC”). In his piece, Mr. Barr misinterprets the Americans for Tax Reform Pledge writing:

"The highly influential taxpayer watchdog group, Americans for Tax Reform, has advised the more than 200 members of Congress who are signatories to its “Taxpayer Protection Pledge,” that voting against extending VEETC could be considered a violation of their pledge."

The pledge
has two components, both are important in this VEETC case study. The pledge reads: 

"....I will ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates."

The misunderstanding of the pledge usually has to do with the second clause calling signers to oppose any net reductions or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates. In the past, calls to eliminate the ethanol tax credit without offsetting the increased revenue were clear violations of the pledge. However, the current debate is not whether to eliminate a tax credit (which is a clear violation) but whether or not to renew an expiring tax credit. This is an important distinction.

With the VEETC set to expire, baseline projections assume that the government will garner additional revenue in 2010. In essence, the VEETC’s expiration is expected and creates a new benchmark by which to judge legislation. Using the expected 2010 baseline as our metric to determine whether or not a piece of legislation (in this case the extension of the VEETC, or said another way, the reissuing of a tax credit) is in violation of the pledge, we can see that reauthorizing the VEETC would be a tax cut. Thus, if legislators choose not to reauthorize the tax credit, they are not in violation of the pledge as they are keeping revenue consistent with current 2010 projections.

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President's Debt Commission: Spending Redux

From Mattie Corrao on Wednesday, December 1, 2010 12:34 PM
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Today, the National Commission on Fiscal Responsibility and Reform released the final draft of its long-awaited budget proposal. Modeled largely on the ill-conceived Bowles-Simpson draft, this version 2.0 continues to try to convince taxpayers that the “new normal” of spending restraint is embodied in post-“stimulus”, post-bailout spending levels. Failing to take into account most of the proven spending solutions offered by Americans for Tax Reform President Grover Norquist, the plan chooses to hike taxes rather than institute serious spending reform.

The latest edition of the Commissions’ plan offers a bait-and-switch on outlays, preserving mandatory spending for cuts in discretionary spending. Refusing to address the ballooning obligations of entitlement spending has consequences: mandatory spending under the plan exceeds CBO’s baseline until 2015, when it hits CBO’s projection of 12.4 percent, a full 1.4 percent above 2008 mandatory spending.
 
What’s more, the plan eschews proven health care reform, rejecting the voucher program for Medicare proposed in Ryan-Rivlin in favor of “external reviews” of other premium support programs. The proposal also ignores proven cost-cutting measures offered by Americans for Tax Reform, such as instituting a “Disappropriations Committee” and comprehensive government transparency reforms that have saved taxpayers millions in the states.

“We have long warned the President’s Debt Commission is no more than an excuse to raise taxes,” said Americans for Tax Reform President Grover Norquist. “The latest edition of the trillion-dollar tax hike illustrates this point as much as the last version. The Commission’s Co-Chairs continue to think taxpayers will buy whatever they put in front of them, attempting to sell Americans on the idea that government taking up 21 percent of economic activity is a reasonable objective. Just as the meager spending cuts in the last version failed to mask the Commission’s promotion of profligacy, Version 2.0 does little to assuage taxpayers that this plan addresses the growing government burden. Instead, the plan pushes more than a trillion dollars in tax hikes to protect the sacred cows of Medicare and Social Security. Taxpayers weren’t sold on the Commission’s first attempt at tax hikes, and they won’t buy this latest snake oil either.”

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Simpson-Bowles-Obama Debt Commission
Proposes $1 Trillion Tax Hike...Again

From Ryan Ellis on Wednesday, December 1, 2010 12:05 PM
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The Simpson-Bowles-Obama debt commission today released version 2.0 of their tax increase blueprint.  It’s identical to the tax hike released in November’s “chairman’s mark.”  Below are the salient details:


Massive and Permanent New Levels of Taxation

  • The plan scores out as a nine-year net tax hike of $1.133 trillion
  • The plan seeks to raise the federal tax burden permanently to 21 percent of GDP, up from the half-century average of 18 percent of GDP.  Federal taxes have never once been this high.
  • Creates a tax-hike “trigger” in law.  Tax hikes would be automatic after 2013 unless the Simpson-Bowles-Obama tax plan is implemented.  There is no spending cut trigger.
  • Support for this net tax hike plan violates the Taxpayer Protection Pledge which has been signed by over 235 Congressmen and 41 senators


What Are the Tax Hikes, and What Will They Cost Taxpayers?


Personal Income Tax Hikes (Net tax hike of $785 billion plus bracket creep of $96 billion)

  • Broadens tax base by eliminating deductions and credits, and lowers tax rates (but not enough to avoid a net tax hike).  Falsely calls these tax hikes “spending cuts.”
  • Introduces partial “bracket creep” by slowing down inflation index of tax brackets
  • Raises the capital gains and dividends tax rate from 15 to 23 percent


Social Security Tax Hike (Net tax hike of $138 billion)

  • 12.4 percentage point Social Security tax currently applies to first $100,000 of wages and net self-employment income.  This would rise to the first $150,000 of such income


Gas Tax Hike (Net tax hike of $114 billion)

  • $0.15 hike in the federal gas tax, creating a new federal gas tax of $0.334 per gallon
  • This gas tax hike is $156 per year for a 20-gallon tank filled weekly


Death Tax

  • Creates a permanent death tax with a top rate of 45% and a $3.5 million exemption
  • There is no death tax in 2010


Corporate Income Tax Hikes (Net tax hike included in personal income tax hikes)

  • Barely lowers U.S’. highest corporate rate in the developed world, from 40 to about 32 percent (including states corporate taxes).  That merely moves us from worst in the developed world to fourth-worst, better only than Japan, France, and Belgium
  • By getting rid of many energy-specific tax deductions (LIFO accounting, Sec. 199 deduction, MACRS depreciation, etc.) this corporate tax hike should hit energy consumers and investors hardest of all

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Daily Media Spotlight November 30, 2010

From Will Upton on Tuesday, November 30, 2010 5:01 PM
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Grover Norquist appears in The American Spectator with ‘Tea Timing Republicans’: “The Tea Party movement is the fifth major wave of immigration into the modern Republican Party since World War II. The Tea Party movement became the party of opposition and then grafted itself to the backbone of the modern Republican Party as it approached the 2010 elections. The Tea Party movement has proved it strengthens the Center-Right… In contrast to the observation of the results of Stalin's purge trials where it was said there would now be fewer, but better, communists, the Tea Party activism in Republican primaries and the November 2 election will result in more and better Reagan Republicans.

The Providence Journal’s Edward Achorn highlights a recent study by ATR’s own Josh Culling, noting that, “Failing states have Americans voting with their feet… states likely to gain U.S. House seats this decade through growing population and congressional reapportionment — Texas, Florida, Arizona, Georgia, Nevada, South Carolina, Utah and Washington — have significantly lower taxes, less government spending and greater employment freedom than those losing power at the federal level.”

From The Washington Times, a few observations on the evolving race for RNC Chairman: “Behold, a new set of virtues for the Grand Old Party: "Efficient, relevant, professional and credible." So says Ann Wagneron announcing her bid to chair the Republican National Committee… the second declared aspirant to replace current chairman Michael S. Steele. The other hopeful at this point is former Republican chairman from Michigan, Saul Anuzis…” The Washington Times goes on to note, for those remaining undeclared, “Everyone better hustle, though. The Americans for Tax Reformcandidate debate at the National Press Club is just 34 days away.”

In U.S. News and World Report, Peter Roff asks, ‘What Happens If the Bush Tax Cuts Expire?’  Well?  “The folks at Americans for Tax Reform, a non-partisan coalition of taxpayers and taxpayer groups who oppose all tax increases, released… a helpful reminder of just what is at stake in the debate over extending the current tax rates, which are set to expire at year’s end… If Congress doesn’t act, everyone who pays taxes will see a tax hike in their first paycheck of the year,” ATRsays. ‘The tax hike will hit the small business sector especially-hard, since small businesses pay taxes at the individual tax rates. You can’t raise taxes on people without also raising taxes on small employers.’”

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Conservative Leaders Call on Congress to Consider Defense Spending Cuts

From Mattie Corrao on Tuesday, November 30, 2010 2:38 PM
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Today, Americans for Tax Reform, joined by strong coalition of organizations and individuals, released a joint letter calling on Republican leaders in Congress to consider all areas of the federal budget in their efforts to cut spending. The letter states that leadership on spending reform requires lawmakers to reject the sanctimonious pardoning of Department of Defense waste, and consider military spending cuts when confronting government profligacy. In part, the letter states:

Defense spending, like the rest of the federal ledger, has grown substantially over the past few years. Under President Bush, military spending averaged 3.9 percent of GDP. Under President Obama, it has averaged 4.9 percent—a full percentage point higher. It is outrageous to assume spending under the president who launched the War on Terror, started the Department of Homeland Security and began the wars in Iraq and Afghanistan is not sufficient for even the most hawkish member of Congress.

And yet, defense spending continues to enjoy protected status. The Pentagon is slated to spend $6.5 trillion over the next ten years – equal to the current projected deficit spending in the same time period. Ignoring the burden military spending places on the taxpayers promotes the same reckless spending ethos that led to failed “stimulus” policies, government bailouts and a prolonged economic recession.

Leadership on spending requires commitment that aims to permanently change the bias toward profligacy, not simply stem the tide in the short-term. True fiscal stewards cannot eschew real spending reform by protecting pet projects in the federal budget. Any such Department of Defense favoritism would signal that the new Congress is not serious about fiscal responsibility and not ready to lead.

Americans for Tax Reform President Grover Norquist said: “Voters in the November elections went to the polls to express their concern about one thing only – explosive government spending. If Members of Congress don’t take the mandate to stem government growth seriously by keeping spending cuts on the table for all areas of the federal budget, they will not be asked to stick around to continue to spend taxpayers’ money for long.”

Signatories to the letter include (organizational affiliations listed for information purposes only): Bill Pascoe of Citizens for the Republic, Brian Burch of CatholicVote.org, Chip Faulkner of Citizens for Limited Taxation, Christopher Preble of the Cato Institute, Chuck Muth of Citizen Outreach, David A. Keene of the American Conservative Union, Duane Parde of the National Taxpayers Union, Grover Norquist of Americans for Tax Reform, Jim Martin of 60 Plus Association, John Tate of Campaign for Liberty, Karen Kerrigan of the Small Business & Entrepreneurship Council, L. Brent Bozell of Media Research Center, Lewis K. Uhler of the National Tax Limitation Committee, Lisa Miller of Tea Party WDC, Matt Kibbe of Freedomworks, Mattie Corrao of the Center for Fiscal Accountability, Richard Viguerie of ConservativeHQ.com, Rick Watson of the Florida Center-Right Coalition, Seton Motley of Less Government, Susan Carleson of the American Civil Rights Union, Tim Phillips of Americans for Prosperity, Tom Schatz of the Council for Citizens Against Government Waste, William Greene of RightMarch.com

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