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In Wake Of Federal Tax Reform, Blue States Scramble To Hide High Taxes

By Kyle Samminthe Federalist

Since the Tax Cuts and Jobs Act became law in 2017, government officials in high-tax states have been frantically trying to find a way to overturn the provision that limits taxpayers’ deduction for state and local taxes to $10,000. That limit makes taxpayers in high-tax jurisdictions feel the impact of their local governments’ tax-and-spend policies more keenly, and those governments will do anything (short of actually cutting taxes) to prevent that from happening.

First they resorted to weird workarounds that will surely be ignored by the Internal Revenue Service and struck down by the courts as the ruses that they are. Then they sued in federal court to stop Congress from changing the tax law. The lawsuit is without merit—it’s so bad, even California declined to join it.

Now at least one state, Connecticut, is considering radically reordering its tax system in a way that will be objectively worse for its citizens, all to spite the federal government. Sooner or later, these tricks will be used up and the high-taxing states will have to face reality.

Like It Or Not, The Government Can Tax All Income

Any analysis of the federal income-taxing power must begin with the Sixteenth Amendment to the Constitution, which is brief but sweeping: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” While Article I always gave Congress the power to impose direct taxes, the Sixteenth Amendment removed the constitutional restrictions on that power that made its exercise practically impossible.

That power, with the pre-1916 restrictions removed, is as broad as it gets. If you have income, the federal government can tax it. From the beginning, courts have recognized the sweeping nature of the Sixteenth Amendment and, in 1955, clarified further just how broad the amendment is in the landmark case of Commissioner v. Glenshaw Glass Co. In that case, the upheld the Internal Revenue Code’s definition of income as being truly “all-inclusive.”

To admit this does not require an endorsement of high taxes, or indeed of any taxes at all. To say that the government can tax all income does not mean you think they shouldtax all income. It is only to admit a fact that, until recently, Democrats were especially fond of acknowledging: the government has the power to tax your income.

Admitting that also does not mean that the government must tax all income. We have never had a truly flat tax. The 1916 Revenue Act, for example, allowed a deduction for foreign taxes as well as state and local taxes (commonly abbreviated as SALT). It also contained deductions for depreciation, depletion, and interest that are similar to those still in the code.

But none of these deductions were a matter of right; they were legislative choices, undertaken to reduce the burden of taxation in ways that Congress thought made the income tax fairer. That’s a fine idea, but it does not create an inalienable right to that tax deduction.

State-Level Tax Evasion

Connecticut’s plan to beat the system is clever—too clever, really. Jared Walczak of the Tax Foundation explained the details in a recent article: “the state’s graduated-rate income tax would be largely replaced by a 5 percent payroll tax, plus an additional 2 percent tax on income above $200,000, which would raise more money than the current income tax. The state’s Earned Income Tax Credit (EITC) would be increased to offset the higher tax liability for low-income earners, and because the payroll tax is a deductible expense for businesses, taxpayers subject to the $10,000 [SALT] deduction cap would get a federal tax cut even as the state generates more money.”

Walczak’s article points out the main problems with the complicated proposed tax structure. Getting the thing to work at all without creating bizarre incentives is a problem. For example, a payroll tax with multiple brackets will inevitably require massive end-of-year adjustments for anyone working multiple jobs. It also results in a different tax structure for wage workers and independent contractors, as well as people who live off investments.

Does the Nutmeg State really want to shift the tax burden away from one group of people based purely on the terms of their employment? If so, regular jobs are going to shift to other states and freelancers are going to move in, creating a hole in the state budget. The idle rich will come out ahead, too, as their non-wage income becomes non-taxed.

That’s a strange thing for a supposedly liberal state to do, but ordinary concerns fly out the window when the overriding goal of thwarting the president enters the equation. Democrats have made a cottage industry out of saying richer people need to pay more taxes. When that becomes slightly true because of a Republican initiative, however, all of the well-heeled blue staters want to use corporations to hide income from the federal government.

Eroding Federalism For a Century Comes Back To Bite 

The pending case of New York v. Mnuchin, to which Connecticut is also a party, makes even less sense. The attorneys general of these four high-tax states suggest that the federal taxing power was never intended to interfere with the states’ taxing power. There is no citation for this point, which tells you about all you need to know: the claim is invented out of thin air.

The idea that the reduced SALT deduction impairs the states’ taxing power is also nonsensical; the states retain the power to tax, they just can’t use a federal deduction to hide how high their taxes are. As Joseph Bishop-Henchman wrote for the Tax Foundation, “Tax deductions and carve-outs are a matter of legislative grace.”

Even the idea that federal taxation must exempt all state taxes is unsupported by history. Bishop-Henchman cites several instances when the deduction was limited, including in 1964, 1969, 1986, and 1993. And from the start, federal tax never completely excluded state and local taxes: it was a deduction, not a credit. While taxpayers did not pay taxes on the portion of their income that they paid to their state, they did not get a full credit for that amount, either. The deduction only saves the marginal rate on the income devoted to state taxes—the fraction of the fraction.

The complainants say that “at ratification, it was widely understood that the federalism principles enshrined in the Constitution would serve as a check on the federal government’s tax power.” That’s true, but not in the way they think it is.

Federalism did result in informal limits on federal power, but only because the states, represented in the Senate, kept the federal government from fully exercising its powers at their expense. If those limits have been eroded in the past century, it is because progressives went out of their way to erode them, first by requiring the direct election of senators and later by appointing judges who allowed them to ignore all limits on federal power, written and unwritten.

These same progressives now want you to believe that one of those unwritten, informal restrictions must override the law. The change of heart is cynical, if predictable. Rich people in high-tax states are paying more federal tax, not because the federal tax rate has gone up, but because Congress decided to stop helping the states hide the effect of their unsustainable tax-and-spend policies. Those who destroyed the norms of federalism now wish the courts to re-erect them—but only insofar as it helps their friends.

It’s Not Fair!

All of these lawsuits and legal hedges are rooted in the same complaint: the rich blue states want to keep imposing high taxes on their people and want the federal government to help them obscure the consequences.Their argument here is that imposing the same rule on all taxpayers is unfair.

“By decreasing state tax revenue and making state taxes more expensive,” they write in the complaint, “the new cap on the SALT deduction will ultimately force the Plaintiff States to choose between maintaining or cutting their public investments and level of services, and the taxes supporting them. As such, the new cap on the SALT deduction directly and unfairly interferes with the Plaintiff States’ sovereignty, by depriving them of their authority to determine their own taxation and fiscal policies without federal interference.”

Their argument here is that imposing the same rule on all taxpayers is unfair. That’s a definition of “unfair” that only a small child could love. What it really means is, “I didn’t get what I want.” What they want, as the complaint plainly acknowledges, is to avoid making hard choices to balance their budgets. Every other state has had to make hard choices, but these four states don’t want to. Unfair!

Even if it were true that the law is unfair, this would be a political argument, not a legal one. Politicians on the far left want the courts to impose rules that the people and their legislators have rejected. Even their own statements confuse to whom exactly the law is unfair.

New York Gov. Andrew Cuomo attacked the tax law as one “that benefits the 1% at the expense of middle-class families.” But the loss of the deduction hits only those families who pay more than $10,000 in state and local taxes—hardly the average Joes Cuomo awkwardly attempts to evoke.

That’s Not How Any of This Works

This lawsuit will fail, and Connecticut’s too-clever workaround probably will, too. What happened in the Tax Cuts and Jobs Act of 2017 was a result that politicians from these four states found distasteful. It will force them to make the kind of hard choices that they were elected to make. It will make their previous bad decisions more obvious to their voters and put pressure on them to fix them. It will, in short, force them to govern.Twenty-first-century politicians will do nearly anything to avoid governing.

Twenty-first-century politicians will do nearly anything to avoid governing. The arguments are flimsy at best, and the remedy is uncertain. Asking the courts to strike down the partial limitation of a tax deduction is novel enough, but what comes in its place? Do they want the courts to impose taxes directly, an act that is at the core of a legislature’s functions?

They know this lawsuit is a damp squib, a feeble attempt to show the folks back home (and especially their rich donors) that they’re “doing something” to stop taxes on the rich from going up. Connecticut’s radical reform is somewhat better thought-out, but will certainly inflict unintended consequences on that state’s already struggling economy, even if the IRS doesn’t decide to ignore the whole shell game they are playing.

Like a child throwing a tantrum, they will flail and kick for as long as they can before finally having to do what they were elected to do: set a level of taxing and spending that their people can afford.


Elon Musk’s Transparency Issues Continue

By George LandrithRedState

Last month, I wrote a column highlighting how Elon Musk’s lack of transparency with issues surrounding Tesla and SpaceX would likely lead to more fatalities and security concerns in the years to come.

At the time, front and center in the news was Elon Musk’s short-circuiting of a National Transportation Safety Board (NTSB) investigation into a fatality-causing Tesla Model X crash, as well as the ostensible three-year cover-up of the reasons for a massive SpaceX explosion. As any regulatory policy analyst will tell you, there are always reasons for fearing sunlight, and they are generally never good ones.

As the breaking news of the day from this week has shown, the case of Elon Musk is of no exception.

Reports from last night indicate that on Tuesday night, two teenagers were killed in Fort Lauderdale due to their Tesla Model S bursting into flames. This incident marks the third Tesla fatality in months.

The NTSB is again investigating the situation. This time, it would be best for Elon Musk to cooperate with their wishes, refraining from hanging the phone up on them or posting non-NTSB vetted crash information on his website. The billionaire can continue posting information that leads readers to think the fault lies with the drivers, not Tesla itself, but with each passing incident, his story will have fewer and fewer believers. There seem to be clear quality control issues on the corporate side. The sooner Musk allows regulators to do their job uninterrupted, the sooner these fatalities will likely come to an end.

The ostensible consequences that come with Musk self-investigating his problems on the Tesla side are bad enough, but things do not get any better when analyzing the recent news surrounding SpaceX’s possible transparency problems.

While Musk’s internal review found a supplier-provided strut, not personal imprecision, was to blame for one of his many rocket explosions, a NASA report that came out three years later contradicts Musk’s reasoning. It seems to blame SpaceX for using a lower-grade part without adequate screening and testing.

Even worse, a Washington Post report from this week demonstrates how Congress and NASA safety advisers fear that a tragedy of equal or worse magnitude will occur with astronauts on board – a milestone that SpaceX still plans on achieving by the end of the year.

SpaceX has been adamant about getting more propellant for its buck by shrinking the fuel in cold temperatures so more can be loaded in tanks, but according to experts, the company may do so at the expense of human lives. For Musk’s plan to work, SpaceX will need to load the propellant just before launch time while astronauts are on board – a huge problem when considering the reasonable possibility of it sparking and exploding. As a result, A NASA advisory group cautioned that Musk’s “load-and-go” strategy is “contrary to booster safety criteria that has been in place for over 50 years.” Another expert stated that NASA “never could get comfortable with the safety risks” because “when you’re loading densified propellants, it is not an inherently stable situation.” Yet Musk is still carrying on as if nothing happened, just as he is with Tesla despite the egregious concerns that come with it. Just how different would the unsettling events in Musk’s orbit be if the NTSB and NASA managed to conduct investigations promptly and without political pressure? We may never know, but the state of play would almost certainly be better than it currently is.

With each passing week, more and more lives continue to become jeopardized by Musk’s companies. Policymakers and auditors must begin addressing the problems at hand with a greater sense of urgency before yet another tragedy occurs. What’s done is done, but that does not mean these problems cannot be rectified now before the start of darker, gloomier chapters. The American people deserve better.


Revisit plans to break up the 9th Circuit

Las Vegas Review-Journal

Donald Trump has already left his mark on the federal judiciary through numerous selections for the bench. But he also has the opportunity to agitate for another lasting judicial reform: the breakup of the 9th U.S. Circuit Court of Appeals.

The 9th Circuit, which includes Nevada, is by far the largest of the 13 federal appellate courts, covering nine Western states and two Pacific island territories. It has 29 active judges and 20 senior jurists, dwarfing any other appeals court.

Writing in the Wall Street Journal last week, Arizona Attorney General Mark Brnovich and Ilya Shapiro of the Cato Institute note, “The 9th Circuit has an astonishing backlog, accounting for nearly a third of all pending federal appeals. It takes an average of 13 months to decide a case, the longest of any circuit and almost five months more than the national average.”

Common sense would dictate that court be split into two or more manageable districts. But politics dominates the issue. The 9th Circuit is the nation’s most liberal appellate court, and Democrats are wary of deconsolidation. But it makes little sense to defend the status quo on political grounds if the result is a delay in the administration of justice for those involved in litigation.

Early last year, Arizona’s U.S. senators, John McCain and Jeff Flake, both Republicans, offered a proposal to spin off a new court to include Arizona, Nevada, Idaho, Montana, Washington and Alaska. The legislation was similar to a 2004 measure that passed the House but died in the upper chamber.

Congress should again review the McCain-Flake proposal. The only issue at hand should be whether the current configuration of the 9th Circuit promotes efficiency and timely justice for the residents of the Western states. The answer seems abundantly clear.


Florida Governor Signs Bill Requiring Actual Criminal Charges Before Seizing Property

Important reform to reduce asset forfeiture abuse

by Scott Shackford     •     Reason.com

Some great news in asset forfeiture reform is coming out of Florida. S.B. 1044, approved by the legislature earlier in the month, was signed into law today by Gov. Rick Scott.

The big deal with this particular reform is that, in most cases, Florida police will actually have to arrest and charge a person with a crime before attempting to seize and keep their money and property under the state’s asset forfeiture laws. One of the major ways asset forfeiture gets abused is that it is frequently a “civil”, not criminal, process where police and prosecutors are able to take property without even charging somebody with a crime, let alone convicting them. This is how police are, for example, able to snatch cash from cars they’ve pulled over and claim they suspect the money was going to be used for drug trafficking without actually finding any drugs. Continue reading


Lost emails from Clinton server discovered

by Julian Hattem     •     The Hill

Hillary Clinton 1Conservative legal watchdogs have discovered new emails from Hillary Clinton’s private email server dating back to the first days of her tenure as secretary of State.

The previously undisclosed February 2009 emails between Clinton from her then-chief of staff, Cheryl Mills, raise new questions about the scope of emails from Clinton’s early days in office that were not handed over to the State Department for recordkeeping and may have been lost entirely.

Clinton’s presidential campaign has previously claimed that the former top diplomat did not use her personal “clintonemail.com” account before March 2009, weeks after she was sworn in as secretary of State. Continue reading


Clinton’s Email Jeopardy

Aides shouldn’t take the fall for her self-serving actions.

by Wall Street Journal

Hillary clinton 5Hillary Clinton’s Super Tuesday victory gives her a clear path to the Democratic presidential nomination, but Bernie Sanders has never been her biggest obstacle to the White House. Her real liability is an email scandal that has put her in legal jeopardy.

Camp Clinton is arguing that the State Department’s Monday release of the final batch of emails ends the controversy over her private server. Yet that release is merely the end of one judicially mandated exercise overseen by a bureaucracy friendly to the former Secretary of State. The real action is in the courts, the FBI and Justice Department.

But even the friendly State Department review has been damaging. Of 30,000 emails Mrs. Clinton turned over to State, we now know that 2,093 were classified as “confidential” or “secret.” Another 22 were classified “top secret”—and State withheld their contents from public release. Mrs. Clinton keeps claiming these were “retroactively” classified, but that’s been vigorously disputed by intelligence community members, who note that at least some of the top-secret emails refer to intelligence projects classified from the beginning. Continue reading


Why Hillary’s EmailGate Matters

In casually disregarding basic security, Secretary Clinton harmed our country and helped our adversaries

By John R. Schindler     •     Observer

Hillary Clinton 2Every few days, another bombshell appears in the media illustrating just how poorly Hillary Clinton, during her tenure as our nation’s foreign policy boss, handled communications security. By now, we have a complex portrait of someone whose mishandling of our nation’s secrets, by herself and her staff, beggars belief for anyone versed in such matters. EmailGate isn’t going away, no matter how much Ms. Clinton’s supporters want it to.

The number of “unclassified” emails that turn out to be classified, some of which transited Ms. Clinton’s unencrypted server of bathroom fame, now surpasses 1,300 and may go higher still. A couple weeks ago I explained how Ms. Clinton’s emails included highly classified information from the National Security Agency, based on signals intelligence about Sudan at the Top Secret Codeword level (see this for an explanation of such classifications). How they got there has yet to be explained. Continue reading


Hillary Clinton Continues to Lie About Emails During Democratic Debates

by Glenn Kessler     •     Washington Post

“It was not prohibited. It was not in any way disallowed. And as I have said and as now has come out, my predecessors did the same thing and many other people in the government.”
— Hillary Clinton

Hillary clinton 5This is language that had previously earned Clinton Three Pinocchios. Clinton is relying on the fact that the legal requirement to immediately preserve emails from nongovernment email accounts was not made mandatory until nearly two years after she stepped down as secretary of state.

But that does not mean that when Clinton was secretary of state, there were not already in place State Department rules on how to handle emails and whether to use a personal email account. While Clinton says that “my predecessors did the same thing,” none had set up an exclusive and private email server for all of their departmental communications. (In fact, only Colin L. Powell has ever said he sent emails from a personal account, so Clinton’s use of plural is misleading.) Continue reading


Hillary Clinton’s claim that ‘everything I did [on e-mails] was permitted’

by Glenn Kessler     •     Washington Post

Hillary Clinton Speaks At Event At Center For American Progress“Everything I did was permitted. There was no law. There was no regulation. There was nothing that did not give me the full authority to decide how I was going to communicate. Previous secretaries of state have said they did the same thing…. Everything I did was permitted by law and regulation. I had one device. When I mailed anybody in the government, it would go into the government system.”
— Former secretary of state Hillary Rodham Clinton, interview with CNN, July 7, 2015

It’s been a while since we looked deeply at the controversy surrounding Clinton’s e-mails while she was secretary of state, but her recent statements to CNN provide a new opportunity.

In some ways, her remarks, when questioned on her “e-mail practices,” remind The Fact Checker of then-Vice President Al Gore’s statement in 1997 that there was “no controlling legal authority” concerning his phone calls from the White House seeking Democratic campaign contributions.

Here, Clinton claims that “everything I did was permitted” because “there was no law … there was no regulation.” So is that really the case? Continue reading


Let’s Count Hillary Clinton’s Email Scandal Lies

by Guy Benson     •    Townhall

March 10th was the one-year anniversary of Hillary Clinton’s mendacious United Nations press conference, at which she issued a string of assertions that have subsequently been proven false. Conservative group America Rising has released a damning compilation of her lies, spliced together with news reports systematically refuting each one. Watch:

Continue reading


Hillary’s lame excuses for her e-mail misconduct are crumbling

By New York Post Editorial Board

Hillary clinton 5The State Department just knocked a gaping hole in Hillary Clinton’s happy e-mail fable.

State, the Associated Press reports, won’t release 22 of Clinton’s messages to the public because they contain too much most-secret information.

OK: Clinton’s only promised that none of her e-mails were labeled “classified” — so she’s technically not a blatant liar.

But US intelligence agencies have determined these message contain enough sensitive information that even blacking out whole passages isn’t enough to make them safe for public view.

These e-mails are part of a trove of 7,000 pages — the last from Hillary’s private server the State Department was poring through — that were to be released this month. Continue reading


Hillary’s E-mail Scandal Is Criminal; When Will She Get Her Handcuffs?

by Deroy Murdock

Hillary Clinton 2Imagine that you own a large department store called Foggy Bottom. Your most frequent customer is a superbly connected globetrotter with some one million miles on her passport. She never uses a standard shopping basket like everyone else. Instead, she strolls in with her own gigantic, custom-made, black-leather handbag.

Quite often when this 68-year-old grandmother visits Foggy Bottom, you catch her shoplifting. Indeed, you have pried 1,340 pilfered items that magically tumbled into her black bag.

How does she get away with it? Whenever you call the police, she gives them the same excuse:

“I did not take anything marked with a price tag.”

You keep wondering, “Why don’t the cops arrest her already?”

The authorities seem to accept her unprecedented justification. But everyone believes she knows better: Just because a sweater lacks a price tag doesn’t make it free of charge. Continue reading


A Felon By Any Other Name

by Derek Hunter      •     Townhall

Hillary clinton 5President Barack Obama’s friend William Ayers famously said he was “guilty as sin, free as a bird” after his acquittal on charges related to the Weather Underground, the domestic terrorism group he co-founded. The unrepentant Ayers and Hillary Clinton have that veneer of Teflon in common.

Were her last name anything other than Clinton, Hillary would be indicted today. Actually, she would have been indicted long ago and sitting in prison today. But her last name is Clinton. As such, she’s on the verge of becoming the nominee of the Democratic Party for president.

“What a country, America,” to finish quoting Ayers.

What a country indeed. And what a disgrace.

The Clintons always have been about one thing – the Clintons. Continue reading


The IRS Is Up to No Good

The IRS is abusing its authority once again by employing the help of a private law firm in its case against Microsoft.

By Peter Roff     •     USNews

If there is one federal agency that has clearly run amok during the Obama administration, it’s the United States Internal Revenue Service. From the harassment of tea party groups applying for nonprofit status to the defiance of congressional subpoenas, it’s an agency badly in need of a thorough housecleaning.

IRS Commissioner John Koskinen is already under threat of impeachment by the U.S. House of Representatives. That might be a good start, but removing him won’t fix the problems any more than the ouster of his predecessor did. The problems run too deep. Congress needs to act, not just by stepping up oversight of the tax collectors but by jerking their chain and narrowing their authority.

From top to bottom the agency is engaged in a wholesale abuse of its authority – and is defying attempts to investigate what it has been doing. Groups on the right are still reportedly having their applications for tax-exempt status slow-walked through the process. Confidential data is still leaking out and the auditing process is out of control. Continue reading


FBI Has Enough Evidence to Prosecute Hillary Clinton for Public Corruption

by John Sexton     •     Breitbart

Hillary Rodham ClintonAn investigation into possible mishandling of classified information on Hillary Clinton’s private email server has expanded to consider whether Clinton’s work as Secretary overlapped with her work for the Clinton Foundation run by her family.

Fox News‘ Catherine Herridge published the report, citing unnamed FBI sources, Monday morning. The report indicates the initial security referral looking into whether or not classified information was mishandled has expanded to look at possible public corruption involving the Clinton Foundation.

The report paints a picture of an internal struggle within the FBI over whether or not to prosecute Clinton. Herridge quotes an unnamed FBI source saying, “many previous public corruption cases have been made and successfully prosecuted with much less evidence than what is emerging in this investigation.” Continue reading


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