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Fighting to end destructive double taxation

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Romney: A Total Failure on Double Taxation

Posted by Dan Mitchell on January 24, 2012

Last night’s GOP debate did nothing to change my sour opinion of Mitt Romney.

During a discussion about tax reform, he attacked Newt Gingrich for the supposed crime of not wanting to double tax capital gains. Here’s how Politico reported the exchange.

Newt Gingrich joked about Romney’s 15 percent tax rate, saying: “I’m prepared to describe my flat tax as the Mitt Romney flat tax.” Romney jumped in to ask: Do you tax capital gains at 15 percent or zero percent? Gingrich’s answer: Zero. “Under that plan, I’d have paid no taxes in the last two years,” Romney said, alluding to the fact that all his income is from investments.

Romney’s remarks are amazingly misguided. Getting rid of the capital gains tax doesn’t result in a tax rate of zero. It simply means that there is no second layer of tax on top of the punitive 35 percent corporate income tax.

I’ve had to correct Warren Buffett when he makes this mistake. One would think, though, that GOP presidential candidates would have a better understanding of taxation.

In addition to being wrong on policy, Romney also is politically tone deaf. By demagoguing against Gingrich’s tax plan, he lends credibility to the dishonest claims that his personal tax rate is “too low.”

In a column for today’s Wall Street Journal, John Berlau and Trey Kovacs of the Competitive Enterprise Institute explain how the GOP candidates should deal with this issue.

The former Bain Capital CEO and Massachusetts governor caused a brouhaha last week when he estimated the tax rate on his investment income at 15%. “How unfair!” pundits exclaimed, noting that the top marginal rate for wage income is more than 30%. The tax rate on investors is unfair, but for the opposite reason. Our tax code layers taxation of dividends and capital gains on top of a top corporate tax rate of 35%—which even President Obama acknowledges is one of the highest in the world. …This double taxation brings the effective tax rate on investment income to as much as 44.75%. In other words, after the combined top tax rates hit $100 of corporate income, $55.25 remains for the investor. And this figure doesn’t even include various state and local taxes, or the death tax. Moreover, like the rest of us, Mr. Romney paid income taxes before investing… Mr. Romney and other presidential candidates should use the opportunity of releasing their tax returns to make an important policy statement. They should include not only their individual returns, but information about the taxes their corporations pay. …In this way the candidates can help explode the myth of the U.S. as a low-tax nation. As Cato Institute tax experts Chris Edwards and Daniel J. Mitchell write in their book, “Global Tax Revolution,” while the U.S.’s “overall tax burden . . . is lower than in many other nations,” the country “imposes more punishing taxes on savings and investment than many advanced economies.” The most popular tax reforms—from the “9-9-9 plan” of former candidate Herman Cain to flat tax proposals—all have in common the reduction or elimination of double taxation on investment. …If the traditional disclosure of tax returns is elevated into a “teachable moment” about the burdens of double taxation, all Americans could be winners.

The authors are very kind to reference the book Chris and I wrote, but I mostly like this article because it does such a good job of explaining double taxation.

I made many of the same points in my video on capital gains taxation.

And keep in mind that the capital gains tax isn’t indexed for inflation, so the rate of double taxation in many cases is far higher than these estimates suggest.

As illustrated by this chart, double taxation is a serious self-inflicted barrier to American growth and competitiveness. Too bad Republicans are too short-sighted to address this issue intelligently.

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Tax Competition Means Bad Consequences if Rates Expires

Posted by Heather Edwards on November 22, 2010

Where will wealthy Americans and their money go come January 2011 if taxes increase?  To countries like Cyprus, Malta, Portugal, Spain, France, Switzerland, and even the UK, which offer attractive tax incentives to live and set up a business such as income tax free holidays, as well as other attractive tax reductions.  Even Sweden has abolished inheritance, wealth and gift taxes.  Europeans apparently understand what American legislators don’t: people will even move overseas if they have to, to avoid paying higher taxes.  See here for more details.

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Explaining Unemployment

Posted by Heather Edwards on November 16, 2010

In a recent Wall Street Journal, Art Laffer asks a question that is sophomorically obvious (but apparently not to the Obama administration and some members of Congress):

“If the government pays people not to work and taxes people who do work, is it really so difficult to see why employment is so low?”

The answer is, of course, that not only is this principle common sense, but it is outlined in the price section of any Econ 101 textbook and has been empirically verified over and over again.

Furthermore, if the total cost of employing a worker including wages, varied taxes, insurance for healthcare, future benefits, etc. exceeds the productivity and benefit of that worker, demand for labor will be low as will workers’ wages.  ObamaCare only exacerbates this problem.

To read the full article and Laffer’s corrective recommendations, click here.

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Exposing Obama’s Imaginary Cuts

Posted by Brian Garst on October 26, 2010

Richard Rahn writes at the Washington Times:

How many times have you heard the president and the congressional Democrats say Americans who make less than $200,000 a year have not had, and will not have, any of their taxes increased? Unfortunately, it is not true, and it is likely to become a whole lot worse.

The 111th Congress has already enacted $352 billion in net tax increases and may, in the upcoming lame-duck session, enact the largest tax increases in history, which will hit every man, woman and child – as well as every business in America.

…The tax increase of $725.7 billion dwarfs the tax cuts of $373 billion, leaving a net tax increase of $352 billion. But it gets worse. Just $107.6 billion of the tax cuts are permanent – the rest are temporary – but all of the $725.7 billion increases are permanent.

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The IRS’s Tax Rate on Google’s Foreign-Source Income Is 2.4 Percentage Points Too High

Posted by Dan Mitchell on October 22, 2010

There’s been considerable attention to the news that the IRS has only managed to grab 2.4 percent of Google’s overseas income. As this Bloomberg article indicates, many statists act as if this is a scandal (including a morally bankrupt quote from a Baruch College professor who thinks a company’s lawful efforts to lower its tax liability is “evil” and akin to robbing citizens).

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Google’s income shifting — involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

…Google, the owner of the world’s most popular search engine, uses a strategy that…takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax.

The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad as the U.S. government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros.

…U.S. Representative Dave Camp of Michigan, the ranking Republican on the House Ways and Means Committee, and other politicians say the 35 percent U.S. statutory rate is too high relative to foreign countries.

…Google is “flying a banner of doing no evil, and then they’re perpetrating evil under our noses,” said Abraham J. Briloff, a professor emeritus of accounting at Baruch College in New York who has examined Google’s tax disclosures. “Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?” Briloff said. “It was paid for by the United States citizenry.”

Congressman Dave Camp, the ranking Republican (and presumably soon-to-be Chairman) of the House tax-writing committee sort of understands the problem. The article mentions that he wants to investigate whether America’s corportate tax rate is too high. The answer is yes, of course, as explained in this video, but the bigger issue is that the IRS should not be taxing economic activity that occurs outside U.S. borders. This is a matter of sovereignty and good tax policy. From a sovereignty persepective, if income is earned in Ireland, the Irish government should decide how and when that income is taxed. The same is true for income in Bermuda and the Netherlands.

From a tax policy perspective, the right approach is “territorial” taxation, which is the common-sense notion of only taxing activity inside national borders. It’s no coincidence that all pro-growth tax reform plans, such as the flat tax and national sales tax, use this approach. Unfortunately, America is one of the world’s few nations to utilize the opposite approach of “worldwide” taxation, which means that U.S. companies face the competitive disadvantage of having two nations tax the same income. Fortunately, the damaging impact of worldwide taxation is mitigated by a policy known as deferral, which allows multinationals to postpone the second layer of tax.

Perversely, the Obama Administration wants to undermine deferral, thus putting American multinationals at an even greater disadvantage when competing in global markets. As this video explains, that would be a major step in the wrong direction. Instead, policy makers should junk America’s misguided worldwide system and replace it with territorial taxation.

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Bureaucrats are Always Concocting New Schemes to Fleece Residents

Posted by Brian Garst on September 17, 2010

This news report demonstrates the lengths to which bureaucrats will go to pick your pocket.  It doesn’t matter if your taxes have already ostensibly paid for government services, many local governments are now double taxing for the use of emergency services, even if they never get out of their vehicle to actually help you.

Cary Feldman was astride his motor scooter, three cars back at a stoplight in Chicago Heights, Ill., last June when a car bumped him from behind. “It was nothing,” the 71-year old said. “I fell off and got right back up. As I was getting up I noticed a fire truck slow, look at me, and pull away. It never stopped and I didn’t think anything of it.”

But five months later, Feldman received a bill for $200, to cover the cost of the fire truck showing up at the scene of his accident. For months, he argued the charge with the fire department while he fought with his and the other driver’s insurance companies to pay it.

He gave up when a collection agency called. “There was no way to fight it. No court to appeal to,” he complained. “It was extortion.”

Feldman paid the bill, but he is still angry. “They are despicable thieves,” he says.

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The Contributions of Eduardo Morgan Jr.

Posted by Andrew Quinlan on August 12, 2010

The fight for financial freedom and limited government is global. The Center for Freedom and Prosperity recognizes Eduardo Morgan Jr., an individual whose work for his native Panama echoes much of our own efforts to defend fiscal sovereignty from the onslaught of anti-growth taxation and regulation.

As Panama’s Ambassador to Washington from 1996 to 1998, Eduardo Morgan Jr. saw his country attacked by US political and economic leaders. Ever since, he has dedicated himself to exposing the hypocrisy of the OECD and its members for attacking other countries that want to compete for investment and capital.

Since the beginning of the year, Eduardo has also contributed factual analysis to the online discussion with his blog, which I highly recommend to our readers. His work on behalf of Panama should serve as an inspiration to all individuals and nations that seek freedom and prosperity.

http://www.eduardomorgan.com

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