“Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.” — John Locke, Second Treatise of Government (1690)
What is “spending through the tax code?” This is an important question in light of the Obama FY 2014 budget proposal finally unveiled last week. We already know it raises taxes by more than $1 trillion. Much of this is done by eliminating so-called “tax expenditures.”
Here is how the Joint Committee on Taxation defines a tax expenditure:
Tax expenditures are defined under the Congressional Budget and Impoundment Control Act of 1974 (the “Budget Act”) as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”
Among the many tax “loopholes” on the chopping block in the fiscal cliff negotiations are the 401(k) contribution limits. Liberals like to refer to tax deductions, deferrals, and exemptions as “spending through the tax code,” or “tax expenditures.” Of course, there are certain tax subsidies and credits that might best be described as spending (e.g., subsidized coverage on the Obamacare exchanges).
But conservatives and libertarians recognize that private property rights are at the foundation of individual liberty, and that any just government must be dedicated to protecting the individual’s right to the fruits of his labor. Treating a legitimate tax deduction as government spending presumes that the government has a right to those fruits by default - that we are privileged to retain any such fruits, and the government spends its funds in permitting it. This confiscatory mindset is foreign to our founding and inconsistent with our nature.
The proposed changes to 401(k) contribution limits are a good example of the threats to economic liberty we face as the revenue hawks continue to scour the tax code for backhanded tax increases.
What is a 401(k) Plan?
The traditional 401(k) plan is a method of tax deferral. You contribute with pre-tax dollars, the account grows tax-free, and you pay ordinary income tax on the distributions when you retire. If your employer offers a Roth option, you can contribute with after-tax dollars, and both the gains and distributions will be tax-free. In 2012, employees can elect to contribute up to $17,000, and the total employer/employee combined contribution limit is $50,000.
What’s Being Proposed?
Is the Oracle of Omaha a hypocrite? He is, according to the New York Post. For those with faulty memories or who simply weren’t paying attention, Warren Buffett wrote an op-ed claiming that he and his fellow “mega-rich” weren’t really paying enough in taxes. Obviously, this tore through the internet with both sides battling over Buffett’s arguments. However, the Post claims that despite Buffett’s claims that he’s not taxed enough, his own company hasn’t even paid what it owes.
This one’s truly, uh … rich: Billionaire Warren Buffett says folks like him should have to pay more taxes — but it turns out his firm, Berkshire Hathaway, hasn’t paid what it’s already owed for years.
That’s right: As Americans for Limited Government President Bill Wilson notes, the company openly admits that it owes back taxes since as long ago as 2002.
“We anticipate that we will resolve all adjustments proposed by the US Internal Revenue Service (“IRS”) for the 2002 through 2004 tax years … within the next 12 months,” the firm’s annual report says.
It also cites outstanding tax issues for 2005 through 2009.
Buffett is free to argue any position he wishes. However, if he truly feels that he isn’t taxed enough, then why hasn’t Berkshire Hathaway, that he is chairman and CEO of, paid their taxes? Or maybe it’s as the Post suggests, that he only wants to shill for President Obama.
The Internal Revenue Service (IRS) has come under intense scrutiny this year due to its targeting of the conservative and Tea Party organizations that were trying to apply for tax-exempt status. For many, that scandal highlighted the need to do away with the embattled agency and find a better, less privacy invasive way for the federal government to collect revenue.
Rep. Jim Bridenstine (R-OK) has taken up this cause. He has introduced H.J. Res. 104, a measure to repeal the 16th Amendment of the Constitution, which authorizes the federal government to levy and collect the income tax.
“Viable alternative plans for raising revenue fairly to support constitutionally enumerated functions of the federal government have been proposed. As long as the 16th Amendment is in place and lobbyists dominate Washington, these alternatives will never be considered,” said Bridenstine in a press release.
Bridenstine is a cosponsor to the Fair Tax Act, which would also repeal the 16th Amendment and eliminate the income tax. The “Fair Tax” would establish a 23% national retail sales tax. His office said that his 16th Amendment repeal measure also had support from activists who back the flat tax.
The Oklahoma Republican contends that the current tax system is too complex, unfair, and discourages entrepreneurial spirit of Americans and job creation. He also noted that the time needed for taxpayers to comply with the tax code is burdensome.
Facing a mountain of criticism over the agency’s targeting of Tea Party and conservative organizations, acting-IRS Commissioner Danny Werfel is working to cancel the $70 million in bonuses union employees were scheduled to receive:
The acting IRS chief told agency employees on Tuesday that bonuses for managers would be canceled this year, and that he was working to do the same for union staffers.
Danny Werfel, who took over the reins at the IRS in May, told staffers across-the-board spending cuts had required bonuses be suspended elsewhere in the federal bureaucracy, and agency employees serving under union contracts shouldn’t be treated any differently. Werfel is seeking to stop bonuses for senior executives as well.
That’s the good news. What’s more, House Republicans are open to trading a couple of furlough days in exchange for the bonuses, an idea that Werfel is open to. But the bad news is that the union that represents IRS employees is pushing back against scrapping the bonuses, claiming that the agency is legally bound to pay them:
The National Treasury Employees Union (NTEU) has said the IRS is legally bound to pay out those awards. Colleen Kelley, the union’s president, reiterated that stance on Tuesday, saying the agency should cut elsewhere before getting rid of bonuses and noting that the awards being discussed are for work starting in 2012.
During an appearance on Fox News Channel, Matt Kibbe, President and CEO of FreedomWorks, said that it’s time for the IRS to go, in the wake of the agency’s targeting of Tea Party and conservative groups.
When asked about the biggest problem with the IRS, the agency itself or the tax code, Kibbe explained “probably both,” noting that it’s “kind of a ‘chicken and egg’ situation.”
“I think all of these discretionary social engineering provisions in the IRS code has created an incredibly corrupt culture at the IRS,” said Kibbe. “But I do think that we need to acknowledge that the behavior at the IRS, which was institution-wide, it wasn’t a few bad apples, it was everybody exploiting that discretionary authority they have, choosing winners and losers, driving their personal political agendas.”
That’s enough so say we gotta pull it out by the roots’and replace it with a new revenue collection agency that implements the simpler tax provisions under a flat tax,” added Kibbe.
Steve Moore, who also appeared on the segment, noted that there are more IRS agents than border patrol agents, which he found ironic. Moore agreed with Kibbe that the IRS needed to be dissolved and backed the flat tax, though he conceded that this isn’t likely to happen soon. Kibbe agreed and added that it’s going to take a push from the outside to change the system.
Members of Congress are aghast that Apple, makers of Mac and iPhone, used completely legal tax shelters from 2009 to 2012 to avoid paying taxes on $44 billion in international profits. Rather than using the issue as an opportunity to look at the United States’ insanely complicated tax system, a Senate subcommittee brought in Apple for what was basically a show hearing.
Sen. Rand Paul (R-KY), a member of the Homeland Security and Governmental Affairs Subcommittee (HSAGC), had strong words for his colleagues. In his prepared remarks, Paul said that he was “offended by the tone and tenor” of the hearing and noted that Apple had not done anything wrong.
“I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress,” Paul told members of the committee. “I frankly think the Committee should apologize to Apple. I frankly think Congress should be on trial here for creating a bizarre and byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn’t compete with the rest of the world.”
In the wake of a very serious scandal that involved his agency singling out Tea Party groups, Treasury Secretary Jack Lew asked for and received the resignation of acting IRS Commissioner Steven Miller.
President Barack Obama announced this development during a short statement to this press this afternoon. He took no questions, but added that the recommendations made by the Treasury Department’s Inspector General will be implemented.
Quoting a congressional source earlier today, CNN noted that two Cincinnati-based staffers were largely responsible for the discrimination toward Tea Party groups. They have, according to the story, “already been disciplined,” though specifics weren’t provided.
While it’s good that there has been some accountability, much more needs to be done to prevent this from ever happening again. Moreover, President Obama’s response, to this point, had been woefully inadequate. Just Tuesday, the White House still didn’t want to own up that a mistake had been made, despite an admission and apology from the IRS.
The IRS is the problem. It’s very nature is to harass Americans into complying with the United States’ completely incoherent tax code. Couple that with the intimidating nature of this White House, and it’s a recipe for what happened to these Tea Party groups.
Written by Daniel Ikenson, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. Posted with permission from Cato @ Liberty.
Like too many other long-reigning fixtures on Capitol Hill, Senator Carl Levin (D-MI) doesn’t appreciate the magnitude of the challenge to the authority he presumes to hold over America’s job and wealth creators. Or maybe he does, and frustration over that fact explains why he besmirches companies like Apple, Google, Microsoft, and Hewlett-Packard.
Levin presided over a Senate hearing last week devoted to examining the “loopholes and gimmicks” used by these multinational companies to avoid paying taxes – and to branding them dirty tax scofflaws. Well here’s a news flash for the senator: incentives matter.
The byzantine U.S. tax code, which Senator Levin – over his 33-year tenure in the U.S. Senate (one-third of a century!) – no doubt had a hand or two in shaping, includes the highest corporate income tax rate among all of the world’s industrialized countries and the unusual requirement that profits earned abroad by U.S. multinationals are subject to U.S. taxation upon repatriation. No other major economy does that. Who in their right minds would not expect those incentives to encourage moving production off shore and keeping profits there?
Desparate to get his campaign back on track — especially in the face of an alleged affair, Herman Cain unveiled a new video, dubbed 9-9-9: The Movie, that criticizes the current federal tax code and stresses the need for simplification:
The video notes that it would do away with the 35% income tax while also pointing out that the 9-9-9 plan eliminates a host of other taxes, including the payroll tax. Yes, it lowers the rate, but it doesn’t get rid of the tax itself. They don’t outright say it, but that the way that is presented could lead the average voters to believe his plan does something it simply doesn’t do.
They also note the hidden taxes that are embedded into the cost of goods and services, but Cain’s campaign fails to explain how the 9% sales tax isn’t a value added tax (VAT), which has been a frequent criticism of the plan.