Tag: fiscal policy

House Committee Threatens to Subpoena Documents Related to IRS’s Illegal ObamaCare Taxes

Last Friday, House Oversight Committee chairman Darrell Issa (R-CA) and colleagues sent a letter to Treasury Secretary Timothy Geithner and Internal Revenue Service Commissioner Douglas Shulman accusing Treasury of “either willfully misleading the Committee or…purposefully withholding information that is essential to the Committee’s oversight effort.”

As Jonathan Adler and I document in our forthcoming Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” the IRS has announced it will impose ObamaCare’s taxes on employers and individuals whom Congress expressly exempted from those taxes, and will send potentially hundreds of billions of taxpayer dollars to private health insurance companies, also contrary to the plain language of the statute. Oklahoma attorney general Scott Pruitt has filed a legal challenge to the IRS rule that imposes those illegal taxes.

On August 20, the committee sent IRS commissioner Shulman a letter requesting “all legal analysis, internal or external, conducted by the IRS which authorizes IRS to grant premium-assistance tax credits in federal Exchanges,” and “all documents and communications between IRS employees and employees of the White House Executive Office of the President or any other federal agency or department referring or relating to the proposed IRS rule or final IRS rule.”

When Treasury responded for the IRS on October 12, according to committee member Rep. Scott DesJarlais (R-TN), it “failed to include a single document, memorandum, communication, or email created before the publication of the proposed rule on August 17, 2011”—i.e., when all the interesting discussions would have occurred. The committee’s second letter complains, “Treasury did not provide a single piece of evidence to support its claim that IRS complied with the standard process when issuing this rule.”

Thus, the committee threatened, “If you do not provide all of the requested information by Thursday, October 25, 2012, the Committee will consider the use of compulsory process.” Developing…

For more on this issue, see here, herehere, here, here, here, and here.

Exactly What Is Max Baucus Saying Here? (Updated)

At a packed Cato Institute briefing on Capitol Hill yesterday, Jonathan Adler and I debated ObamaCare expert Timothy Jost over an admittedly wonky issue that nevertheless could determine the fate of ObamaCare: whether Congress authorized the IRS to subsidize health insurers, and to tax employers and certain individuals, in states that refuse to establish one of ObamaCare’s health insurance “exchanges.”

I want you, dear Cato@Liberty readers, to help us get to the bottom of it.

Adler and I claim that Congress specifically, repeatedly, and unambiguously precluded the IRS from imposing those taxes or issuing those subsidies through federal “fallback” Exchanges. We maintain the below video shows ObamaCare’s chief sponsor and lead author–Senate Finance Committee chairman Max Baucus (D-MT)–admitting it. Jost says Baucus’s comments have “absolutely nothing” to do with the matter. You be the judge, and tell us what you think.

A bit of background will help to frame what’s happening in the video: Both sides agree this issue hinges on whether the statute authorizes “premium assistance tax credits” through both state-created and federal Exchanges, or only state-created Exchanges. The video is from a September 23, 2009, Finance Committee markup of ObamaCare. In it, Baucus rules out of order a Republican amendment on the grounds that medical malpractice lies outside the committee’s jurisdiction. Sensing a double-standard, Sen. John Ensign (R-NV) notes that Baucus’s underlying bill directs states to change their health insurance laws and to establish Exchanges, matters which also lie outside the Finance Committee’s jurisdiction, and asks why aren’t those provisions also out of order. Okay, go.

I might note that these are the only comments anyone has unearthed from ObamaCare’s legislative history that bear directly on the question of whether Congress intended to authorize tax credits in federal Exchanges.

Baucus’s response is hardly a model of clarity. But I can see no possible interpretation other than Baucus is admitting that (A) the statute makes tax credits conditional on states establishing an Exchange, and therefore does not authorize tax credits through federal Exchanges, and (B) that this feature was essential for the Senate’s tax-writing committee to have jurisdiction to legislate in the area of health insurance.

But maybe I’m wrong. What do you think Baucus is saying? Since we don’t enable comments on Cato@Liberty, post your interpretation here on the Anti-Universal Coverage Club’s Facebook page. Or post it on your own blog and send me a link.

For more on this issue, see what Adler and I have written for the law journal Health Matrix, the Wall Street JournalUSA Today, the Health Affairs blog, and National Review Online.

Update (August 22, 2014): I blogged over at DarwinsFool.com that I have changed my mind on the Baucus-Ensign colloquy. Not that it matters much. The D.C. Circuit placed no weight on Baucus’ comments and ruled for the plaintiffs anyway.

‘Dems and GOP Agree, Government Needs More Money’

That’s the (fair) title of this blog post over at National Journal’s Influence Alley:

The federal government needs more money. That’s one thing both parties can agree on, Republican and Democratic lawmakers said Tuesday. The rub, of course, is how to get it.

Reps. Peter Roskam, R-Ill., and Allyson Schwartz, D-Pa. said at a National Journal panel on Tuesday morning that there’s no question that more revenue is needed. Democrats say they can raise the money by letting upper-income tax cuts expire, while Republicans say economic growth alone will help raise the cash.

“We need more revenue,” said Roskam, the House GOP’s chief deputy whip. “If you can get the money to satisfy obligations, that’s an area of common ground.”

Let’s hear it for duopoly, eh, comrades? Without it, we might suffer political parties that question whether those government “obligations” are wise, or necessary, or constitutional; or that point out governments don’t have needs, people do; or that reject the premise that politics is an exercise in deciding who needs what; or that argue for eliminating entire spheres of government activity. Can you tell I’ve just watched a presidential debate?

Why Sebelius Campaigns So Hard for Her Boss — and Why He Won’t Fire Her

Secretary of Health and Human Services Kathleen Sebelius has been campaigning so enthusiastically for President Obama that she – whoops! – broke a federal law that restricts political activities by executive-branch officials. Federal employees are usually fired for such transgressions, but no one expects that to happen to Sebelius. Heck, she got right back in the saddle.

Every cabinet official (probably) wants to see the president reelected, and no president relishes dismissing a cabinet official. But in this case, there’s an additional incentive for Sebelius to campaign for her boss and for Obama not to fire her.

ObamaCare creates a new Independent Payment Advisory Board that – “fact checkers” notwithstandingis actually a super-legislature with the power to ration care to everyone, increase taxes, impose conditions on federal grants to states, and wield other legislative powers. According to legend, IPAB will consist of 15 unelected “experts” who are appointed by the president and confirmed by the Senate. Yeah, good one.

In fact, if the president makes no appointments, or the Senate rejects the president’s appointees, then all of IPAB’s considerable powers fall to one person: the Secretary of Health and Human Services. The HHS secretary would effectively become an economic dictator, with more power over the health care sector than any chamber of Congress.

If Obama wins in November, he would have zero incentive to appoint any IPAB members. The confirmation hearings would be a bloodbath, not unlike Don Berwick’s confirmation battle multiplied by 15. Sebelius, on the other hand, would not need to be re-confirmed. She could assume all of IPAB’s powers without the Senate examining her fitness to wield those powers. If Obama fired her, or the voters fire Obama, then the next HHS secretary would have to secure Senate confirmation. Again, bloodbath. That makes Kathleen Sebelius the only person in the universe who could assume those powers without that scrutiny.

No wonder she’s campaigning so hard. No wonder Obama won’t fire her.

New Video Shows that Obamanomics Is a Failure

I’ve narrated a video on why Keynesian economics is bad theory, I’ve also narrated a video specifically debunking Obama’s failed stimulus, and I’ve put together a post with data from the Minneapolis Fed showing how Reaganomics worked far better than Obamanomics.

But this video from the Center for Freedom and Prosperity Foundation does all that—and more—in only about six minutes.

By the way, for those who like gory details, a previous video in the CF&P Foundation’s Economics 101 series looked at how the so-called stimulus was a rat’s nest of waste and corruption.

Not that anybody should be surprised. Big government facilitates corruption in the same way that a dumpster attracts rats and cockroaches.

My concern is long-term trends. Politicians should be complying with Mitchell’s Golden Rule, which means reducing government spending as a share of GDP (to put it in terms that make economists feel warm and fuzzy, gov’t exp/GDP should be decreasing).

What irks me about Obama is that he wants to increase the burden of government spending, which means the numerator in the equation is going in the wrong direction. And he wants class-warfare tax policy and more red tape, which makes it even harder for the denominator to move in the right direction.

And if that ratio continues to deteriorate, as both the BIS and OECD are predicting, then it’s just a matter of time before the United States becomes Greece.

Post-Debate Analysis: Debunking Obama’s Flawed Assertions on Tax Deductions and Corporate Welfare

In a violation of the 8th Amendment’s prohibition against cruel and unusual punishment, my brutal overseers at the Cato Institute required me to watch last night’s debate (you can see what Cato scholars said by clicking here).

But I will admit that it was good to see Obama finally put on the defensive, something that almost never happens since the press protects him (with one key exception, as shown in this cartoon).

This doesn’t mean I like Romney, who would probably be another Bush if he got to the White House.

On the specifics, I obviously didn’t like Obama’s predictable push for class warfare tax policy, but I’ve addressed that issue often enough that I don’t have anything new to add.

I was irked, though, by Obama’s illiteracy on the matter of business deductions for corporate jets, oil companies, and firms that “ship jobs overseas.”

Let’s start by reiterating what I wrote last year about how to define corporate income: At the risk of stating the obvious, profit is total revenues minus total costs. Unfortunately, that’s not how the corporate tax system works.

Sometimes the government allows a company to have special tax breaks that reduce tax liabilities (such as the ethanol credit) and sometimes the government makes a company overstate its profits by not allowing it to fully deduct costs.

During the debate, Obama was endorsing policies that would prevent companies from doing the latter.

The irreplaceable Tim Carney explains in today’s Washington Examiner. Let’s start with what he wrote about oil companies.

…the “oil subsidies” Obama points to are broad-based tax deductions that oil companies also happen to get. I wrote last year about Democratic rhetoric on this issue: “tax provisions that treat oil companies like other companies become a ‘giveaway,’…”

I thought Romney’s response about corrupt Solyndra-type preferences was quite strong.

Here’s what Tim wrote about corporate jets.

…there’s no big giveaway to corporate jets. Instead, some jets are depreciated over five years and others are depreciated over seven years. I explained it last year. When it comes to actual corporate welfare for corporate jets, the Obama administration wants to ramp it up — his Export-Import Bank chief has explicitly stated he wants to subsidize more corporate-jet sales.

By the way, depreciation is a penalty against companies, not a preference, since it means they can’t fully deduct costs in the year they are incurred.

On another matter, kudos to Tim for mentioning corrupt Export-Import Bank subsidies. Too bad Romney, like Obama, isn’t on the right side of that issue.

And here’s what Tim wrote about “shipping jobs overseas.”

Obama rolled out the canard about tax breaks for “companies that ship jobs overseas.” Romney was right to fire back that this tax break doesn’t exist. Instead, all ordinary business expenses are deductible — that is, you are only taxed on profits, which are revenues minus expenses.

Tim’s actually too generous in his analysis of this issue, which deals with Obama’s proposal to end “deferral.” I explain in this post how the President’s policy would undermine the ability of American companies to earn market share when competing abroad - and how this would harm American exports and reduce American jobs.

To close on a broader point, I’ve written before about the principles of tax reform and explained that it’s important to have a low tax rate.

But I’ve also noted that it’s equally important to have a non-distortionary tax code so that taxpayers aren’t lured into making economically inefficient choices solely for tax reasons.

That’s why there shouldn’t be double taxation of income that is saved and invested, and it’s also why there shouldn’t be loopholes that favor some forms of economic activity.

Too bad the folks in government have such a hard time even measuring what’s a loophole and what isn’t.

France’s Fiscal Suicide

I try to be self aware, so I realize that I have the fiscal version of Tourette’s. Regardless of the question that is asked, I’m tempted to blurt out that the answer is to reduce the burden of government spending.

But sometimes that’s exactly the right prescription, particularly for an economy weighed down by a bloated public sector. And, as you can see from this chart, the French welfare state is enormous.

Only Denmark has a bigger burden of government spending, but at least the Danes are astute enough to compensate with hyper-free market policies in other areas.

So is France also trying to offset the damage of excessive spending with good policy in other areas? Au contraire, President Hollande is compounding the damage with huge class-warfare tax hikes.

Here’s what the Wall Street Journal says about Hollande’s fiscal proposal—including the key revelation that spending will go up rather than  down.

Remember all that euro-babble before the French election about fiscal “austerity” harming growth? Well, meet the new austerity, same as the old austerity, which means higher taxes on the private economy and token discipline for the state. Growth is an afterthought. That’s the lesson of French President François Hollande’s new “fighting” budget, which is supposed to reduce the deficit to 3% of GDP from 4.5% and represent the country’s toughest belt-tightening in three decades. …More telling is that two-thirds of the €30 billion in so-called savings is new tax revenue, and one-third comes from slowing spending growth. Total public expenditure—already the second most lavish in Europe—will increase by €6 billion to 56.3% of GDP.

The spending cuts are fictional, but the tax increases are very, very real.

The real austerity will be imposed on taxpayers, and not only on the rich. Income above €150,000 will now be taxed at 45%, up from the current 41%. Mr. Hollande’s 75% tax rate on income over €1 million comes into effect for two years, reaping expected (and predictably paltry) revenue of €200 million. That’s dwarfed by the €1 billion from reducing the threshold for the “solidarity” tax on wealth to €800,000 from €1.3 million. The French Socialists will also now tax investment income at the same high rates as regular income. The rates have been 19% for capital gains, 21% for dividends and 24% for interest income. If Mr. Hollande’s goal is to send capital out of France, that should help.

Anybody want to take bets, by the way, on whether the “temporary” two-year 75 percent tax rate still exists three years from now?

I say yes, in large part because the tax almost surely will lose revenue because of Laffer Curve effects. But rather than learn the right lesson and repeal the tax, Hollande will argue it needs to be maintained because revenues are “unexpectedly” sluggish.

It’s also remarkable that Hollande wants to dramatically increase tax rates on capital gains, dividends, and interest. These are all examples of double taxation.

And when you factor in the taxes at both the personal and business level, these charts show that France already has the highest tax on dividends in the developed world and the third-highest tax on capital. And Hollande wants to make a terrible system even worse. Amazing.

I’ve already predicted that France will be the next major economy to suffer a fiscal crisis. I was too clever to give a date, but Hollande’s policies are accelerating the day of reckoning.

P.S. The WSJ also takes some well-deserved potshots at the latest fiscal plan in Spain. Since I endorsed Hollande in hopes that he would engage in suicidal fiscal policy, this post is focused on the French fiscal plan. But Spain also is a disaster.