Double Taxed

Fighting to end destructive double taxation

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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.

Posted in Uncategorized | Comments Off on Tax Competition Means Bad Consequences if Rates Expires

What to Expect from Expiring Tax Cuts

Posted by Heather Edwards on November 17, 2010

There’s a lot of talk about getting rid of tax breaks for the wealthy.  But the reality is that on January 1st, when the Bush era tax cuts expire, the “wealthy” – business owners, investors and executives – are not the only ones who will be affected.

For a clear and concise explanation of what will happen when the tax cuts expire in a few weeks, see here.

Posted in Capital Gains Tax, Death Tax, Dividends Tax | Comments Off on What to Expect from Expiring Tax Cuts

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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Tighten Your Belt, Times are Not Going to Get Easier Soon

Posted by Heather Edwards on November 11, 2010

Obama insists that tax increases are necessary to reduce the deficit.  But even in the best of economic times, tax hikes have not historically raised significant revenues.  Peter Farrara makes the point that every time the capital gains tax rate has increased over the past 20 years, capital gains revenues have declined.  The same is true in reverse: when capital gains rates have been cut, revenue has increased.

For example: $40.6 billion in year-2000 revenues were raised in 1968 with a 25% capital gains tax rate.  In 1975, after the rate increased to 35%, revenues only totaled $19.6 billion; and, three years later, the same rate generated only $29.9 billion.  However, when rates were lowered over a period of four years down to 20%, 1986 revenues totaled $92.9 billion, about three times the 1978 rate!  When the rate was raised to 28% the next year, revenues again fell, to $56.2 billion, continuing to an even lower $34.6 billion in revenues for 1991.  Predictably, when Congress again cut capital gains rates back down to 20% in 1997, revenues rose, from $62 billion in 1996 to $109 billion in 1999.  Between 2003 and 2005, after Congress had further cut the rate, revenues doubled.

Doing away with tax hikes are only the first, but necessary step to restoring growth and prosperity.  Art Laffer ominously predicts that if taxes are increased on January 1st, “…the train’s coming to come off the tracks…”  “The tax boundary that will occur on January 1, 2011 tells me that GDP growth in 2010 will be some 6% to 8% higher than GDP growth in 2011.  A year on year decline from trend of some 6% to 8% in GDP growth would represent a larger collapse than occurred in 2008 and early 2009.”

Will Obama finally abandon his outmoded Keynesian Economics plan?  Tighten your belts, for if he doesn’t, the economy is certainly not going to get better anytime soon.

Posted in Capital Gains Tax, Government Revenue | Comments Off on Tighten Your Belt, Times are Not Going to Get Easier Soon

It’s Who Produces, Not Who Spends, That Matters

Posted by Heather Edwards on November 1, 2010

Economists Alex Brill and Chad Hill illustrate in a recent Forbes article that looming tax increases, if allowed to go into effect January 1st, will essentially “bite the hand that feeds long-run economic growth” by disparaging savings, investment and the taxpayers that account for the majority of that investment.

The current administration is promoting the troubling implication that the rich will not miss what they are taxed on because they are less likely to spend that money; therefore giving them a tax break would do very little to boost the economy.  Brill and Hill correctly argue that this logic presupposes that ever-increasing spending of borrowed funds is the answer to the country’s economic woes, and simultaneously neglects the importance of saving by encouraging families to spend, spend, spend because the social safety net will rescue them.

Because “future living standards depend in large part on the willingness of the current generation to save for the future,” when Washington de-emphasizes the importance of saving by taxing returns to savings – or promotes policy that disadvantages investment, hiring workers and growing business – long-term growth will not follow.  Our collective savings are the funds used to allow business to access the capital needed to grow.  Slapping higher taxes on the top percentage of earners will deter savings and further slow growth, as much of the savings available for economic growth comes from that top sector of earners (IRS data for 2007 reveals that households that earn above $200,000 receive 47% of taxable interest income, 60% of dividends and 84% of net capital gains).

Ultimately, increased taxing of top earners is not good policy, economically or otherwise.

Posted in Economic Growth, Legislation | Comments Off on It’s Who Produces, Not Who Spends, That Matters

The High Cost of Tax Hikes

Posted by Heather Edwards on October 25, 2010

A recent Heritage Foundation report highlights the impending effects of an Obama Tax hike through an economic model created by the Center for Data Analysis, which estimates the potential economic and fiscal effects of a tax increase on the American economy from 2011 through 2020. This prototype estimates that inflation-adjusted GDP will fall by a total of 1.1 trillion over the projected period; and slower economic growth will result in less job creation, with an increasing number of jobs lost each year (in 2016 alone job losses would top 876,000). The model also predicts that business investment and personal savings will fall considerably each subsequent year, and that significant amounts of lost disposable income and reduced consumer spending will not result in increased government revenue.

The belief that only higher income earners will be affected is badly mistaken. In fact, higher income earners have greater control over creatively reducing their levels of taxable income. Nearly everyone will pay one way or another, whether through lower income or a rise in product costs. Around half of those subject to the tax increase will be small businesses, which in turn will directly and adversely affect job creation. These results are consistent with basic economics: where tax increases raise the price of capital and labor, economic activity will slow down.

Ultimately, a tax increase is misdirected policy, for the fundamental problem does not lie with revenue intake amounts, but rather with Congressional over-spending. As this paper argues, “Congress must come to terms with the need to find a new fiscal balance point through lower spending and fundamental entitlement reform that also supports strong economic growth.”

See here for the full report.

Posted in Economic Growth, Legislation | Comments Off on The High Cost of Tax Hikes

Growth is the Key to Success

Posted by Heather Edwards on October 17, 2010

Dan Henninger was right when he wrote in his recent Wall Street Journal article that there is only one economic policy that has not been tried yet in an effort to pull the American economy out of its tailspin: economic growth.  With impending tax increases about to tighten the lid on pessimistic projections for the near future, he also correctly acknowledged the importance of strong economic growth for a nation, in contrast to the current mediocre growth in the US today, is indisputable among economists, and that it is vital for a nation to “do whatever it takes to get it:”

With it, we win, without it, we lose.  Economist Paul Romer, in an article on economic growth, bluntly explained why:  ‘For a nation, the choices that determine whether income doubles with every generation, or instead with every other generation, dwarf all other economic policy concerns.’

I agree with Henninger: Americans are best at competing, working and innovating.  If they are supported by tax policies that enable them to freely do so, strong growth will again rebound.

Posted in Economic Growth | Comments Off on Growth is the Key to Success

Eastern Europe Tax Lesson

Posted by Heather Edwards on October 9, 2010

In case there is any question left in your mind as to how the American economy will be affected by higher taxes, take a look at how Eastern Europeans are responding to the same in their neck of the woods:

Thousands of Romanian companies are moving their business to neighboring Bulgaria, the Bulgarian National Radio, BNR, informs Saturday.

The reasons cited are the spending cuts and austerity measures imposed in Romania, lower taxes and better conditions for the business in Bulgaria.

In Bulgaria revenue and profit taxes are 10% compared to 16% in Romania. The Value Added Tax (VAT) is also lower…

In addition, it is much easier to establish a company in Bulgaria where one needs less than a week and BGN 2 as initial capital.

It is estimated that nearly 2,500 Romanian companies have already moved to Bulgaria. The Bulgarian Danube city of Ruse sees 2 registrations of Romanian businesses per day.

Cultures are undoubtedly different, but human nature and behavior towards one’s interests is virtually the same around the world.

Posted in Economic Growth | Tagged: | Comments Off on Eastern Europe Tax Lesson

Higher Taxes Will Not Increase Revenue Flow

Posted by Heather Edwards on October 6, 2010

Donald Trump, in a conversation with John Stossel about how the rich will respond to higher tax on their income, frankly acknowledged that they will simply leave the country to avoid paying out more of their earnings.

“I know these people.  They’re international people.  Whether they live here or live in a place like Switzerland doesn’t really matter to them.”  He continued, “I haven’t left yet…Look, the rich people are going to leave.   And other people are going to leave.   You’re going to end up with lots of people that don’t produce.  And then that’s the spiral.  That’s the end.”

Stossel argues that it’s already happening in places like Maryland and New York, where high earners have left the state, and Governor David Patterson confirmed that increased income taxes have resulted in far less than the projected $4 billion it was supposed to bring in.  The bottom line: higher taxes do not typically yield increased revenue.

Art Laffer, famous for the Laffer Curve, is not surprised:

“It’s just economics,” [Laffer] says.  “People don’t work to pay taxes.  People work to get what they can after tax.  They’ll change where they earn their income.  They’ll change how they earn their income.  They’ll change how much they earn, when they receive the income.  They’ll change all of those things, to minimize taxes.”

Posted in Government Revenue | Tagged: | Comments Off on Higher Taxes Will Not Increase Revenue Flow

Death Tax Misconceptions

Posted by Heather Edwards on September 30, 2010

Fox Business reports on the misconception that only the super-rich will be hit by higher estate taxes.  Many farms, family businesses and entire communities will be negatively impacted if the tax goes back into effect.

Watch the video here.

Posted in Death Tax | Comments Off on Death Tax Misconceptions