Tag Archives: Taxation

Americans Work Almost 4 Months Just to Pay Taxes

Tax Day 2017 has passed for individual taxpayers, but America’s tax bill is still due, and it’s a big one.

Americans will collectively pay close to $1 trillion more on taxes than will be spent on essentials like food, clothing, and housing combined.Taxpayers won’t pay off this year’s local, state, and federal tax burden totaling $5.1 trillion until April 23, or as the Tax Foundation calls it, Tax Freedom Day. That day, calculated annually, represents how long Americans work to pay local, state, and federal taxes for the year.

In 2017, it will take 113 days for taxpayers to pay the country’s tax burden, which includes $1.5 trillion in local and state taxes and $3.5 trillion in federal taxes, equaling 31 percent of America’s income. But that’s not all. If you include federal borrowing, which represents future taxes the government must collect to pay the bills, Tax Freedom Day would occur 14 days later this year on May 7.

To put this year’s total tax burden into perspective, the latest date for Deficit-Inclusive Tax Freedom Day took place during World War II almost three weeks later than this year’s date, occurring on May 25, 1945.

How Expensive is Government?

Americans will collectively pay close to $1 trillion more in taxes than will be spent on essentials like food, clothing, and housing combined.

The federal deficit is expected to shrink by $45 billion to $612 billion in calendar year 2017, but the track record over the past few decades is not comforting. The cost of the federal government has surpassed its tax revenues since 2002, racking up budget deficits exceeding $1 trillion annually from 2009 to 2012.

According to the Tax Foundation’s data, Tax Freedom Day has changed dramatically over the past century. Notice how the date of Tax Freedom Day correlates with significant expansions of government since 1900, especially when considering the deficit-inclusive figures:

Focusing on Deficit-Inclusive Tax Freedom Day, economic liberty in America shifted abruptly in favor of the government while Woodrow Wilson was president. Wilson ushered in the Revenue Act of 1913 which re-imposed the federal income tax after the ratification of the 16th Amendment, followed soon after by the creation of the Federal Reserve in late 1913, and both led the way for deficit financing that enabled U.S. entry into World War I.

After a subsequent reduction in federal tax burdens in the 1920s, the trend began to worsen considerably and hastened in the 1930s. American taxpayers then saw a substantial spike in government spending, deficits, and state power during Franklin Delano Roosevelt’s presidency and World War II.

Taxpayers saw a dramatic improvement in their financial freedom following World War II when overall tax burdens decreased in the 1950s, similar to the trend in the 1920s in the aftermath of World War I. But this new norm in the 1950s meant an additional two months of work to pay the government’s tax burden when compared to just a few decades prior. The overall trend, unfortunately, has been in the direction of Tax Freedom Day occurring later over the past sixty years, and considerably later compared to the trend of the past century, meaning less freedom from onerous taxation for Americans.

Taxes Are Revolting, Why Aren’t You?

Tax burdens vary considerably state by state due to different tax policies and the progressive federal tax system. Each state has its own Tax Freedom Day which factors in local, state, and federal tax burdens for the taxpayers in their respective states.

The federal government claims a right to your earnings and livelihood, offering the ultimatum: your money or your life.States like Connecticut (May 21, #50), New Jersey (May 13, #49), and New York (May 11, #48) have higher taxes and residents earning higher incomes, so they celebrate Tax Freedom Day later than states like Mississippi (April 5, #1), Tennessee (April 7, #2), and South Dakota (April 8, #3), which bear the lowest tax burdens in 2017.

The introduction of the Wilson era federal income tax and the Federal Reserve allowed for expansive government power and deficit financing. This also shifted the primary means of funding the government to income taxes and away from tariffs, as had been the practice.

The federal government claims a right to your earnings and livelihood, essentially offering the ultimatum: your money or your life. Sheldon Richman wrote a book by that very title and argues that the income tax must be abolished altogether.

Reasonable people from various political viewpoints can disagree about how our tax dollars are spent or whether our earnings should be confiscated whatsoever, but Tax Freedom Day helps to put Americans’ overall tax burden into perspective. Furthermore, it highlights the paramount principle regarding the rights of individuals and government power:

If Americans are forced to work nearly one-third of the year just to pay taxes to the government, then how free are we?

Jared Labell

Jared Labell

Jared Labell is the Executive Director of The Libertarian Institute as well as Taxpayers United of America.

Tax Breaks are Expiring as Racehorse Owners Run for Cover

After today, you won’t be able to quickly depreciate your racehorse, your motorcycle-racing track or your movie-production expenses on your tax return. The first $4,000 of your college tuition will no longer be deductible.

Lawmakers swore last year they were burying Congress’s decades-old tradition of constantly rolling over a batch of temporary tax breaks. There was nevertheless skepticism because, well, this is Congress.

But now — with a comprehensive overhaul of the tax code looming as a possibility for 2017, dozens of breaks are set to expire Saturday with surprisingly little controversy.

Here are some of the tax breaks we may never see again:

THE NASCAR BREAK: Businesses are allowed to deduct the cost of their investments, though only over a number of years and according to complicated “depreciation” schedules. They’re always looking to speed up those deductions, and this provision allows NASCAR and others who operate car, motorcycle and truck racing facilities to write off their investments over seven years, which is more than twice as fast as they’d otherwise. This provision has been on the books since 2004, and it’s been mocked nearly as long as little more than an earmark for the Dale Earnhardt Jr. set. This year, it’s projected to cost $20 million. The racing industry has long argued it’s important to local economies. If there’s something to salve their concern over losing the break, it’s that they’d get even better depreciation rules under House Republicans’ tax-reform plans. They want to allow to junk those complicated depreciation schedules altogether, and allow businesses to immediately write off the cost of their investments.

BEWARE FIRST-TIME HOMEBUYERS: As part of its response to the recent housing crisis, lawmakers allowed homeowners to deduce the cost of mortgage-insurance premiums, just like they do with mortgage interest. Created in 2006, it was intended to help prop up the housing market by making it cheaper to buy a home. It’s been renewed ever since, claimed on 4.2 million tax returns in 2014, IRS data shows, with an average savings of $1,400. Home builders, realtors and mortgage bankers had urged lawmakers to extend the break, arguing it’s important to first-time homebuyers who are forced to buy mortgage insurance when they can’t afford a 20 percent downpayment on a home. This year the break is projected to cost $1.3 billion.

THE TAX BREAK FOR HOLLYWOOD: Lawmakers have long offered a special break for movie and television productions, allowing them to immediately deduct the first $15 million in expenses ($20 million if they’re produced in certain low-income areas). Though the break has been criticized as frivolous, Congress expanded it in recent years, at the urging of Sen. Chuck Schumer, to benefit theatrical plays as well (think: Broadway). It’s projected to cost $351 million this year.

MEDICAL EXPENSES: As part of the Affordable Care Act, Democrats made it harder to claim a deduction for big medical expenses. They raised the threshold at which people could begin claiming the break to when those bills amounted to 10 percent of their adjusted gross income, up from what had been 7.5 percent, a move that helped pay for the health care law. But they included a temporary carve out for seniors, granting those at least 65 years old the lower 7.5 percent threshold through 2016. In September, House Republicans voted to repeal the whole thing, so that everyone would be subject to the old 7.5 percent standard. But the bill died in the Senate, and lawmakers did not make a serious effort to extend this expiring provision.

HEY, LOOK SIMPLIFICATION!: The government offers 14 different tax breaks for higher-education expenses, and critics have long complained the provisions are duplicative and confusing. Lawmakers say they want to clean up this corner of the code, though they’ve never quite gotten around to it. But they’ll achieve a small measure of simplification by allowing a temporary $4,000 deduction for tuition expenses to expire. First offered as part of George W. Bush’s 2001 tax cuts, it was originally slated to die at the end of 2005, though it’s been renewed ever since. It’s hardly the biggest education tax break out there — at a cost this year of $400 million, it’s a fraction of the size of President Barack Obama’s signature American Opportunity Tax Credit (projected cost this year: $21 billion). But the tuition deduction was nevertheless claimed on 1.7 million returns in 2014.

THE RACEHORSE SPECIAL: Yet another depreciation tax break, this time for race horse owners. Backed by Senate Majority Leader Mitch McConnell, whose state is home to the Kentucky Derby, it allows them to deduct the cost of the animals over three years, rather than as long as seven years they’d otherwise have to wait. First added to the code in 2008, it’s projected to cost this year $22 million.

Olympic Medalists are about to score another victory?

U.S. Olympic medal winners are on the verge of getting to hurdle the IRS.

Majority Leader Kevin McCarthy (R-Calif.) announced Tuesday that the House would quickly consider a measure after recess that would exempt Olympians from paying taxes on their winnings, following committee approval. The House Ways and Means Committee is expected to take up the measure, introduced by Reps. Bob Dold (R-Ill.) and Blake Farenthold (R-Texas), when Congress returns to Washington in September.

Supporters of the bill, a version of which already passed the Senate, say the tax break is the least the federal government can do to honor athletes who represent the U.S. on the international stage, considering other countries do more to subsidize Olympic training. Americans who won gold at the recent Rio de Janeiro Olympics will receive a $25,000 bonus from the U.S. Olympic Committee, with silver medalists getting $15,000 and bronze medalists $10,000.

“The men and women who represent the United States exemplify the best of the American spirit,” McCarthy said Tuesday. “Removing an unnecessary tax levied on their success is a no-brainer.”

The Olympic tax bill has become a biennial tradition, with lawmakers also introducing versions marking the 2012 Summer Olympics and the 2014 Winter Olympics.

But this year’s version was the first to clear the Senate, pushed through by Sens. John Thune (R-S.D.) and Chuck Schumer (D-N.Y.) in July. The House didn’t consider the legislation in previous years, either.

The proposal could also offer a political boost to Dold, who’s locked in a tough reelection bid outside of Chicago and has sought to distance himself from GOP nominee Donald Trump.

Critics of the tax break for Olympians argue that lawmakers should be finding ways to rid the tax code of special exemptions and incentives, not add new ones. They also note that some of the beneficiaries are already millionaires, like swimmer Michael Phelps and professional basketball stars like Carmelo Anthony and Kevin Durant, and that a tax break only after medaling would do little to help athletes struggling to reach the Olympics.

Puerto Rico “Walmart” Tax Declared Invalid

SAN JUAN, Puerto Rico (AP) — Retail giant Walmart won a legal victory Monday in a fight over taxation by Puerto Rico’s government.

A federal judge in the U.S. island territory ruled that a modified tangible-property tax is invalid. The ruling was issued as Puerto Rico’s government rushes to find new sources of revenue and a debt restructuring mechanism from the U.S. Congress while struggling through a decade-long economic crisis.

Gov. Alejandro Garcia Padilla said his government will appeal the decision.

“The judge just took away $100 million from the people of Puerto Rico and gave it to Walmart,” he said, referring to the revenue the tax would have generated this fiscal year for the U.S. territory. “Now I have to look for that money somewhere else. Of course I’m going to appeal the decision, and immediately.”

Legislators echoed his sentiments, pledging to approve a new bill to obtain a portion of the revenue generated by retail giants across the island.

Walmart is Puerto Rico’s largest private employer, with more than 14,000 workers, and argued in a lawsuit filed in December that the tax was unconstitutional.

Federal Judge Jose Antonio Fuste agreed in his 109-page ruling and said the island’s treasury secretary must immediately stop levying, collecting and enforcing the tax. He noted Puerto Rico legislators had increased the tax by 325 percent in May 2015 during what he called a brisk approval process so they could capture revenues from Walmart.

The 6.5 percent tax would have applied to every piece of inventory Walmart received for its stores even if it wasn’t able to sell it, Fuste said.

He said that if the tax were to remain in effect, it would generate more than $40 million in “unconstitutional taxes … to an insolvent government without any hope that the victimized taxpayers will be reimbursed in the foreseeable future. That is the very definition of an inadequate remedy,” he wrote, adding that $10 million of that revenue would have been from Walmart alone.

The ruling comes as Walmart prepares to close seven stores in Puerto Rico as part of a plan to shutter 269 stores worldwide.

Fuste also reflected on the island’s financial situation and said the government is in urgent need of more transparency.

“The people deserve to know the truth about how we got to where we are, and we can go from here,” he wrote. “The residents of the island most affected by this crisis deserve the very transparency whose absence helped caused the crisis.”

Government officials have warned that the U.S. territory’s government will run out of money in June. Puerto Rico has a $70 billion public debt load that the governor says is unpayable and needs restructuring.

Garcia also said Monday that he will fight to amend legislation before the U.S. Congress that seeks to create a federal fiscal oversight board for Puerto Rico, saying it threatens the territory’s democracy. He made the announcement just days after U.S. House created a draft bill that calls for establishing a board that would audit Puerto Rico’s government and have final say over budget and fiscal issues.

“That board would be a substitute for an elected government,” Garcia said, adding that it could not be held accountable come election time. “That is unacceptable.”

The House Natural Resources Committee is expected to vote on the bill in April.


Danica Coto on Twitter: https://www.twitter.com/danicacoto