United Liberty

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.”

With the focus on the sequester, Alan Simpson and Erskine Bowles, who co-chaired the National Commission on Fiscal Responsibility and Reform, are hoping to become relevant again by pushing a new deficit-reduction plan. Last week, the two announced a plan that would reduce deficits by $2.4 trillion over the next 10 years:

A quarter of the deficit reduction – $600 billion – would come from healthcare savings, with Bowles and Simpson calling for lower provider payments, higher premiums for higher earners, savings from lower drug costs and “adjustments to account for an aging population.”

Bowles and Simpson call for an additional $1.2 trillion in other spending restraints, including mandatory spending cuts, tighter discretionary spending caps and a new formula for calculating inflation that would slow the increase in government benefits.

A reform of the tax code that loweres rates while also eliminating tax breaks would provide the other $600 billion.

It looks like Senate Democrats, who have not passed a budget since April 29, 2009, are once again falling down on the job. Over at the Washington Examiner, Conn Carroll notes that they’re blaming the sequester for their failure to perform one of the most basic functions of government:

Well that was fast. Less than a month after Senate Democrats passed a debt limit hike that included a provision delaying their pay if they failed to pass a budget this year, Senate Democrats are already signaling that no budget should be expected.

“Senator Murray is working on a budget right now and we hope we can get that done,” Sen. Jack Reed, D-R.I., told CNN yesterday. “But we need time. So the sequestration will prevent — preempt us from getting a budget done and other factors.”

So don’t blame the Democrats if they can’t pass a budget. It’s the sequester’s fault. Never mind that Democrats never had any intention of passing a budget anyway. Pressed to commit to a budget in November, Senate Budget Committee Chairman Patty Murray, D-Wash., told The Hill she “had no idea” whether Democrats could come to an agreement.

Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.

I’m a strong believer in fundamental tax reform. We need a system like the flat tax to improve economic performance.

No tax system is good for growth, of course, but the negative impact of taxation can be reduced by lowering marginal tax rate(s), eliminating double taxation of saving and investment, and getting rid of loopholes that encourage people to make decisions for tax reasons even if they don’t make economic sense.

While the general public is quite sympathetic to tax reform and would like to de-fang the IRS, there are three main pockets of resistance.

For the last couple of weeks, we’ve been saying that the likelihood of House Republicans caving on taxes is pretty high. House Speaker John Boehner has said that he wants tax reform, but he’s sent mixed messages. Just last year during the debt ceiling fight, Boehner was willing to trade $800 billion by eliminating tax loopholes for a broader deficit deal. More recently, Boehner submitted a counterproposal to the White House that would have cut spending, reformed entitlements, and raised tax revenue; the specifics of which were not revealed.

They are some that say that Boehner’s approach is pro-growth and will create jobs. However, whenever money is taken out of the private economy — whether through closing loopholes or raising tax rates — it is to the detriment of investment and job creation.

If by some off-chance you were hoping that House Republicans would fight to the bitter end on taxes, Byron York explains why that isn’t likely to happen (link via Doug Mataconis at Outside the Beltway):

 

Republicans will cave on the question of raising the tax rate for the highest-income Americans. The only question is whether they do so before or after the government goes over the so-called fiscal cliff.

During the debt ceiling debate last year, House Speaker John Boehner made a compromise on tax revenues, offering the White House $800 billion by closing tax loopholes, rather than raise tax rates. Boehner and at least some House Republican leaders saw the offer as necessary to reach a broader agreement on spending cuts. President Barack Obama played along, but eventually told Boehner, according to Bob Woodward, that he needed an additional $400 billion in tax revenue to make a deal work.

Boehner backed down and eventually all sides agreed on the sequestration deal — $1.2 trillion in automatic spending cuts over the next 10 years — that make up part of the “fiscal cliff” scenario that the White House and Congress are now trying to avoid.

The lesson for Boehner and Republicans should have taken from that particular situation is that when you show that you’re willing to compromise on a core economic principle, you’re almost always going to be asked to go another step. And now with many Republicans in Congress signaling their willingness to break their pledge not to raise taxes, provided that it is coupled with other fiscal reforms, Democrats are seizing the opportunity, according to The Hill, by raising their asking price in fiscal cliff negotiations by taking entitlements off the table:

Senate Democratic leaders signaled Tuesday they would not agree to any entitlement reforms before the end of the year that cut spending on Medicare and Medicaid beneficiaries.

Since the electoral picture became clear on Tuesday night, political analysts and pundits have been discussing whether President Barack Obama received an mandate from the American people. The answer to that question is “no.” Sure, Obama’s share of the popular vote decreased from four years ago, however, Republicans managed to maintain control of the House of Representatives.

Despite this, House Speaker John Boehner said yesterday that Republicans were willing to trade tax revenues for as part of a broader tax reform and debt deal, confirming what he hinted on Monday:

Boehner claimed an equal mandate with the president, on the grounds that the same voters who approved a second term for Obama also affirmed a Republican majority in the House.

The Speaker, who spoke to Obama by phone Wednesday morning, had already warned that Republicans would stand firm against raising “tax rates,” including on wealthy Americans. He noted that during negotiations in 2011, Obama had endorsed tax reform that put the top rates at lower than the current 35 percent.

But, in a concession to Democrats, the Speaker on Wednesday said Republicans would accept a broad fiscal deal that increases tax revenue to the Treasury — the type of agreement that many conservatives consider a tax increase.

During the fight over the debt ceiling last year, Sen. Tom Coburn (R-OK) took a lot of heat from conservative groups for his part in the “Gang of Six” negotiations, which would have raised taxes in addition to cutting spending.

Coburn, who has been on the frontlines in fighting government waste during his two terms in the Senate, fought back as loudly as much as he could until it was evident that the bipartisan group’s efforts would go to waste. While I don’t agree that revenues are the problem in Washington, Coburn at least took a principled stand and worked for a solution to the nation’s long-term fiscal problems, not just short-term fix on which so many eventually settled.

But Coburn done with the issue. In his new book, The Debt Bomb: A Bold Plan to Stop Washington from Bankrupting America, Coburn explains our fiscal situation and offers his own plan for bring Washington back on the path to sustainability. He also criticizes “careerist” politicians for catering to special interests instead of tackling fiscal issues:

Sen. Tom Coburn’s new book, “The Debt Bomb: A Bold Plan to Stop Washington from Bankrupting American,” critiques Congress in harsh terms and warns of further economic crisis if lawmakers do not get the nation’s deficit under control.

“Congress today is a stagnant pond that needs to be drained and refilled with a steady stream of new public servants,” he writes, according to excerpts provided to ABC News. “I’m a fan of the Jack Welch principle in reverse for Congress … fire 90 percent of members every election and only keep the 10 percent who were productive.”

While many in the media have taken used to the failure of the Supercommittee to come up with some sort of an agreement as an opportunity to criticize Republicans, a recent Gallup poll shows that Americans blame both parties for the impasse:

The hang up was over taxes, even though Republicans offered some $400 billion in new revenues through closing loopholes — a move that will be seen as a betrayal of the base, and understandably so. Democrats, however, balked at this and wanted more in terms of tax hikes. With the likelihood of another recesssion, raising taxes is just a bad idea. What Congress should be doing is cutting spending.

And while you point to the automatic cuts that come with the failure of the Supercommittee, Jacob Sullum explains that these are not cuts to real spending, rather cuts in future increases in spending:

For the last few days, Republican leaders have been dodgey when it comes to whether they will support tax hikes as part of deal that comes out of the Super Committee. It’s not hard to see the writing of yet another betrayal on the wall.

The deal that was on the table from Republicans on the Super Committee would have increased revenues by over $400 billion by closing loopholes. Part of the reason Republicans are proposing tax hikes is because they are so insistant that defense spending cuts, roughly $600 billion over 10 years, that would come if no deal is reached. Keep in mind that defense spending is at its highest level since World War II.

Over at the American Enterprise Institute, economist James Pethokoukis gives us five reasons why raising taxes, which many Republicans seem intent on doing, is an incredibly dumb idea:

1. The economy stinks. From Wall Street to Washington, the baseline economic case for 2012 is miserable 1-2 percent growth and around 9 percent unemployment. (Indeed, Federal Reserve research finds that when year-over-year real GDP growth falls below 2 percent, recessions follow within a year 70 percent of the time.) Beyond that … not much better. The IMF, for instance, sees sub-3 percent growth through 2016, resulting in continued high unemployment. And this all assumes the eurozone financial crisis doesn’t get much worse, which it likely will. Hardly the time for raising taxes and turning America permanently into slow-growth, no-growth Europe.