27.49 Percent of Everyone's Tax Bill Is Spent on Health Care

    Every year since 2011, the White House has used tax time to post a "Federal Taxpayer Receipt" showing taxpayers how their federal tax dollars are being spent. President Obama introduced the concept in his 2011 State of the Union address, and Wednesday the White House posted the fifth installment so taxpayers can see how "tax dollars are being spent on priorities like education, veterans benefits, and health care."
    While users can punch in their own tax liability and see dollar amounts assigned to each category, the figures are based on percentages from the prior fiscal year budget. Comparing those percentages from year to year, taxpayers can see that from 2012 to 2014, the percentage of their taxes going towards federal healthcare expenses has jumped 22 percent.
    In 2010, the year the Obamacare passed and was signed into law, the healthcare percentage was 24.10. The following year, 2011, it dropped to 23.7 percent, and in 2012 dropped still further to 22.45 percent. After this, however, the trend sharply reversed. In 2013 the healthcare share jumped to 25.19 percent, and the latest numbers posted this week for 2014 show the highest proportion yet at 27.49 percent, a full 22 percent increase over 2012. This means that for every dollar a taxpayer pays in 2014, an additional nickel is going to pay for healthcare that had been spent elsewhere in 2012. Presently, over 27 cents on every dollar is spent by the federal government on healthcare, primarily Medicaid and Medicare.
     One area impacted is national defense. For the five years of the National Taxpayer Receipt, the share for national defense was highest in 2010 at 26.3 percent. By 2014, this figure had fallen to 23.91 percent, a decrease of nine percent. Other budget areas have changed to varying degrees, such as veterans benefits which increased from 4.1 percent in 2010  to 5.93 percent in 2014, a 45 percent increase.
    Although the White House characterizes the Federal Taxpayer Receipts as a promise kept by President Obama to let taxpayers easily know where their tax dollars are going, the administration also used the opportunity to take a dig at Republicans, providing a link to "See how two starkly different tax plans would impact you" where viewers can read about the president's "tax cuts for the middle class" and the Republicans' "giveaways for the wealthy few." In the end, the White House doesn't just want taxpayers to know where their money is going, but where everyone else's is going, too.

Note: A version of this post first appeared at The Weekly Standard.

IRS: Obamacare Raised Taxes for Some Children

    When the Affordable Care Act was passed in 2010, one provision was a new 3.8% Net Investment Tax effective in 2013.  Although the tax will generally hit high-end taxpayers (threshold is $250,000 for married and $200,000 for single,) because of the way many parents choose to report their children's investment income, the tax will hit those children as well.
    While the basic application of this tax has been known since passage, the specific effects have become more apparent recently as the IRS issued its final rules, forms, and instructions.  Last Friday, the IRS published a tip on its website entitled "Tax Rules for Children with Investment Income." Included is this note regarding the Net Investment Tax [emphasis added]:

Starting in 2013, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax. NIIT is a 3.8% tax on the lesser of either net investment income or the excess of the child's modified adjusted gross income that is over a threshold amount...

    The new tax paid on children's income will be part of a so-called "kiddie tax" that stems from 1980s tax reform when Congress sought to recover taxes that were being lost on income from assets transferred from parents to children ("child" is defined as under age 19, or under age 24 if a full-time student.)  Investment income over $2,000 is taxed at the parents' highest rate instead of the rate used for regular income for the child.  And if the parents' income exceeds the NIIT threshold, the child's investment income is also subject to the additional 3.8% tax.
    The above scenario represents the simplest application of the regulations; individual situations can be more complex and will vary from person to person.  But according to a tax accountant interviewed by THE WEEKLY STANDARD for this story, "The bottom line: you will get a lot of upper-middle-class taxpayers paying an additional NIIT if they have shifted enough income-producing assets to their children via gift."  So while the tax was aimed at high-income taxpayers, it turns out Obamacare will hit some low age taxpayers as well.


Note: A version of this post first appeared at The Weekly Standard.

IRS Commissioner Warns of 'Extensive Wait Times' for Phone Assistance

    New IRS Commissioner John Koskinen is beginning his tenure with some blunt words: If you need IRS help on the telephone, be prepared to wait - a long time.  The IRS posted a Youtube video of the commissioner's message to taxpayers as the pace of the 2014 filing season picks up.  The commissioner says the long wait times are due to the "very limited resources" available to the IRS.  "I want to be up front with you, and call it like it is," he says before warning of "extensive wait times":

“We want to provide you with the assistance you need to get your taxes filed accurately and on time,” Koskinen added. “And we will work hard to issue refunds quickly while increasing our efforts to stop tax fraud and identity thieves.” 

Koskinen also cautioned taxpayers that phone lines will be busy this year. “Given our very limited resources, our phone lines are going to be extremely busy this year – and there will frequently be extensive wait times,” Koskinen said. “We are working to limit these waiting times as much as possible, and I apologize that we can’t do more in that regard this year.”

     Koskinen suggests eFile, the IRS website, IRS phone apps, YouTube videos, as well as several IRS social media platforms as sources for quicker alternatives to telephone support.


Note: A version of this post first appeared at The Weekly Standard.

Half of Tax Returns Prepared by IRS Volunteers in Audit Test Completed Incorrectly

    A report issued in September and released this week by the IRS's Treasury Inspector General for Tax Administration (TIGTA) found continuing problems with the agency's Volunteer Program, which provides free tax preparation and electronic filing for "low- and moderate-income, elderly, disabled, and limited-English-proficient taxpayers."  The report, with the unwieldily title "Inconsistent Adherence to Quality Requirements Continues to Affect the Accuracy of Some Tax Returns Prepared at Volunteer Sites," found errors in 19 of 39 returns prepared by volunteers.  In each case, a TIGTA staffer anonymous approached a member of the Volunteer Program for assistance with one of three test scenarios developed by TIGTA for the review.  The errors were the result of "incorrect application of the tax law, insufficient requests for information during the intake/interview process, or lack of adherence to quality review requirements."
    The Inspector General has been tracking the performance of the IRS Volunteer Program since at least 2004.  The accuracy rate steadily improved over the years, peaking at 90% in 2010, but then plummeted in 2011 and has not yet recovered, as indicated by an accuracy chart included in the report:

    The TIGTA report noted that due to the small size of the test (39 returns,) the 51% accuracy rating could not be statistically applied to the entire Volunteer Program, a fact also cited by an IRS spokesperson in response to an inquiry from Accounting Today:

“The IRS greatly appreciates the community service that volunteers provide to underserved segments of the taxpaying public and appreciates TIGTA’s acknowledgement of these contributions,” said the IRS statement. “Results from TIGTA’s audit visits were based on three pre-determined scenarios and only 39 returns prepared during these reviews, which is not statistically valid. While we are concerned with any level of error and will address the issues raised in the report, any attempt to extrapolate the findings from 39 visits of this type to the typical tax return prepared by VITA / TCE volunteers would unfairly characterize the tax assistance provided by our volunteers. By comparison, our quality review showed a 91 percent accuracy rate on the more than 3.3 million federal and state returns prepared by our nearly 91,000 volunteers. The IRS remains committed to continually improving the volunteer program, and have agreed with TIGTA’s suggestions.”

    The IRS began granting matching funds to volunteer organizations in 2009.  In 2013, a total of 206 organizations received $12.1 million dollars for electronic filing and for training.  There were a total of 13,081 Volunteer  Program sites in 2013 helping to prepare almost three million tax returns.


Note: A version of this article first appeared at The Weekly Standard.

Latest Sequestration Victim: Corporate Tax Credits

    Sequestration has been blamed for everything from cancelled White House tours to military cutbacks that threaten national security to government worker furloughs.  The latest victim of sequestration might have a more difficult time garnering sympathy, however: corporate tax credits.  The Internal Revenue Service has just announced that for corporate tax returns filed or amended on or after August 13, 2013, the "refundable portion of the credit for prior year minimum tax liability" will be cut by 38%. The announcement was made on the IRS website under the heading "Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations":

The Balanced Budget and Emergency Deficit Reduction Act of 1985, as amended, requires certain spending cuts during Fiscal Year 2013 due to the sequester triggered earlier this year. These required cuts reduce the refundable portion of the credit for prior year minimum tax liability made to corporations, which will be effective for original or amended tax returns beginning August 13, 2013.  As a result, the refundable portion of these credits will be reduced by 38 percent.  The sequestration reduction rate will be applied until the end of fiscal year (September 30, 2013) at which time the sequestration rate is subject to change depending on congressional action. 

A corporation that can claim an additional first-year depreciation deduction under section 168(k) can choose instead to accelerate the use of its prior year minimum tax credits, treating the accelerated credits as refundable credits.  Corporations making this section 168(k)(4) election and claiming a refund of prior year minimum tax credits should complete Form 8827.  These corporations will be notified that a portion of their requested refund was subject to the sequester reduction. 

Corporations making the section 168(k)(4) election but not claiming a refund of prior year minimum tax credits are not subject to this reduction. 

Note: A version of this article first appeared at The Weekly Standard. 

HHS: Small Business May Keep Current Health Plans in 2014, But Will Lose Tax Credit [TWS]

    When the Affordable Care Act passed in 2010, one provision that kicked in immediately was a Small Business Health Care Tax Credit.  The IRS explains how the fairly generous credit works:

For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities...

Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15 percent credit, you save … $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000...

    The IRS notes that a change is coming in 2014:

An enhanced version of the credit will be effective beginning Jan. 1, 2014. Additional information about the enhanced version will be added to IRS.gov as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively...

     While the "additional information about the enhanced version" of the tax credit is not yet available on the IRS website, the Health and Human Services (HHS) Healthcare.gov website does provide some new information, and it may prove an unpleasant surprise to those businesses and employees who were counting on President Obama's promise that if you like your plan, you can keep it (a promise he often paired with the guarantee about keeping your doctor.)  The tax credit will continue to be available and is even increasing, as the IRS website notes, but only for those businesses who purchase coverage through the government's Small Business Health Options Program (SHOP).  In bold print, the website says that: "The credit is available only if you get coverage through the SHOP Marketplace."  The following also appears under a section for further questions:

    And businesses who like their current plans?  They will be welcome to keep them... but not to keep the tax credit for which they have been eligible for the past four years.

    There is no indication on the HHS website that insurance companies will be required to offer plans to businesses on SHOP that are identical to plans businesses currently offer employees.  As the answer to the question above indicates, business must "take this into account" as they make "coverage plans for 2014."
    The president was asked about this "you can keep your plan" pledge back in 2009 in an ABC News interview with Diane Sawyer.  While the president said he lacked absolute power to force businesses to never change plans, he said no one would be "forced" to change plans [emphasis added]:

Continued the president, "So, those choices are being made by employers constantly, right?  I can't pass a law that says, 'I'm sorry, employers, you can never make changes to the health care plans that you provide your employees.' What I can say is that the government is not going to force you to, your employer or you to join a government plan, for example.  If you're happy with it, and your employer's happy with it, keep it."

    While the new rule regarding SHOP does not technically "force" companies to change plans, the loss of a tax credit potentially worth tens of thousands of dollars might be too big a pill for many small businesses and charities to swallow.  Consequently, the president's "guarantee" might ring a little more hollow than it already does.


Note: A version of this article appeared first at The Weekly Standard.

IRS's National Taxpayer Advocate: Exempt Organizations Division May Have Violated the Law

    In a mid-year report to Congress, National Taxpayer Advocate Nina E. Olson weighed in on the controversy surrounding the IRS's review of exempt organization (EO) applications.  The Taxpayer Advocate Service (TAS) "is an independent organization within the IRS and helps taxpayers resolve problems with the IRS and recommend changes that will prevent the problems."  Although Olson noted that "the Advocate’s office does not have investigative authority and did not seek to duplicate other ongoing investigations," the IRS came under harsh criticism for its vague policies and lack of transparency, and even possible violation of the law.

The EO Function Did Not Post Its Procedures on the Internet, Potentially Violating the Law and Contributing to the Problem. The IRS is required to post on its website all “instructions to staff that affect a member of the public,” unless an exemption applies.  Even if an exemption applies, IRS functions should clear most guidance internally with affected program owners and “specialized reviewers” such as TAS.  EO did not clear with TAS or post on the Internet, even in redacted form, relevant training materials, form letters used to request additional information, the screening checksheet used by EO employees in the determinations process, and other key documents.  EO’s failure to clear its procedures with TAS and other stakeholders bypassed an important safeguard of taxpayer rights.

Had these documents been vetted by TAS, TAS would have had an opportunity to raise concerns before implementation. Had these documents been posted on the Internet, members of the public would have had access to them, providing greater transparency and enabling them to raise concerns about improper practices. Key EO documents still are not posted to the Internet, and TAS has not been able to locate them on the IRS intranet. The Tax Exempt and Government Entities Division (TE/GE), of which EO is a part, has agreed to share its guidance with TAS. The Advocate recommends that the IRS adopt more expansive disclosure policies both in TE/GE and throughout the IRS.

    Among the other problems cited by the report:

• The IRS’s Processing of Section 501(c)(4) Applications Violated Fundamental Taxpayer Rights. 
• Applicants for Exempt Status (and Other Taxpayers) Have No Easily Available Remedy for the Violation of Their Rights. 
• Congress No Longer Holds Joint Annual Oversight Hearings to Review IRS Challenges and Performance.
• EO Management Did Not Maintain an Adequate Inventory Management System.  
• EO Management Did Not Ensure that Requests for Guidance Received a Timely Response.
• EO Executives Resisted TAS’s Authority to Order Expedited Processing of Tax-Exemption Applications, and Thereby Isolated EO from TAS.
• EO Employees Did Not Refer Over-Aged Cases to TAS.
• EO Employees Did Not Report the Systemic Delays in EO Processing to TAS.  

Note: A version of this article first appeared at The Weekly Standard.

House to Consider Tax on New Flu Vaccines [Update: Bill Passed House and Senate]

    The House of Representatives is scheduled Tuesday to consider a bipartisan bill to add new seasonal flu vaccines to the IRS definition of taxable vaccines.  The Senate has already reached an agreement to vote on its version of the bill without further debate if the House passes an identical version.  If passed into law, all new seasonal flu vaccines would become subject to the 75¢ per dose vaccine tax, and also become eligible to be included in the Vaccine Injury Compensation Program (VICP).  A summary of the bill provided by the House Republican Conference explains:

The VICP is a federal program designed as a no-fault alternative to traditional tort law for resolving vaccine injury claims arising from covered vaccines.  The program is funded through a 75¢ excise tax on each dose of specified vaccines.  However, current law only covers “trivalent” (three-strain) vaccines against influenza.  Recently, many manufacturers have begun producing more effective “quadrivalent” (four-strain) vaccines, but have held off on bringing the vaccines to market until the statute is updated.  H.R. 475 amends the statute to cover all seasonal influenza vaccines under the VICP, ensuring that new, more effective vaccines are made available to the greater public.

    The balance in the VICP fund as of November 2012 was more than $3.5 billion. The fund has paid out only $2.5 billion since it was established in 1988 for cases involving all vaccines. At that rate, the balance in the fund could last another 25 years with no new revenue.  However, in response to initial reports on the legislation in April, Julia Lawless, the press secretary of U.S. Senate Finance Committee issued the following statement:

First off, the Joint Committee on Taxation is clear this bill is not a tax increase.  Secondly, the legislation is about ensuring vaccine manufacturers produce vaccines for the next flu season – not past flu seasons.  Thirdly, the threat of litigation has been so severe against these manufacturers that this compensation fund had to be created or they would not have produced these vaccines.  That threat of litigation still exists and so does the need for vaccines.  We need to be careful how that fund is financed, because having it run a deficit could be dangerous when our goal is to ensure the production of safe vaccines.

     A representative of the Biotech Industry Organization emailed The Weekly Standard to weigh in as well, and largely echoed the response of Ms. Lawless, concluding with:

This is an extremely important public health matter. 

The issue before Congress is whether the newest seasonal influenza vaccine will be covered by the VICP in time for the 2013-14 flu season. 

The other issue raised by the article about the balance in the fund is an entirely separate matter that would require in-depth analysis by experts in the field[.]

     The documentation accompanying the proposed legislation does not indicate whether or not any such analysis of the fund has been conducted.  The tax on flu vaccines raises about $100 million each year.  The "trust fund" is invested in Treasury Bills, helping to finance the national debt.



UPDATE: The bill passes the House, the Hill reports:

The House on Tuesday afternoon approved legislation meant to ensure an ample supply of the latest flu vaccine is available by the next flu season.
By voice vote, members approved H.R. 475, which would include a flu vaccine that attacks a new strain of flu on a list of taxable vaccines.

UPDATE 2: The Senate has also passed the bill, the Hill also reports.  The legislation now heads to the White House for the president's signature.



Note: This article first appeared at The Weekly Standard.

Obama Signs Fundraising Email for 'Non-Partisan' Organizing for Action

    Today, President Obama personally became re-involved in his former campaign organization's new incarnation Organizing for Action.  On the same day he is scheduled to appear at two DCCC fundraisers in Chicago, the president of the United States sent the following email to OFA's mailing list, signed "Barack":

Friend --
This is an experiment.
Organizing for Action isn't like any other organization. It's based in Chicago, not Washington, and its task is to help restore the balance of power in government.
We've seen that a bottom-up movement of passionate people can still win an election in the era of big campaign spending. That's not what this is about.
Organizing for Action is about discovering whether ordinary people can reclaim the process of legislating from special-interest groups and lobbyists, and help give your friends and neighbors the voice they deserve in Washington.
This project needs your support -- I'm counting on you to be there for the fights ahead.
Say you're in today:
http://my.barackobama.com/Are-You-In 

Let's finish what we started.
Thanks,
Barack

    The link takes recipients to an email sign up page, after which visitors are invited to donate up to $1,000 to Organizing for Action. OFA, a 504(c)(4) non-profit, has cast itself as a non-partisan advocacy group.

    Although the president and first lady were both heavily involved in OFA's re-launch shortly after President Obama's inauguration in January, more recently OFA has downplayed the president's role in the continuing mission of the group's effort to support his agenda.  Nevertheless, OFA has retained the barackoabam.com website address and @BarackObama Twitter account with its 32 million followers.  OFA's new Twitter account, @OFA, has been rather less successful signing up followers.  It currently stands at 288,000.


Note: This article first appeared at The Weekly Standard.

Inspector General Finds 5% Compliance Rate With Regulations on Certain IRS Contracts

    The Internal Revenue Service has come under heavy criticism of both Republicans and Democrats in recent days after a Treasury Inspector General's report detailing "inappropriate criteria" used to identify certain applications of mainly conservative organizations for special review resulting in long delays in processing and invasive inquiries.  The acting commissioner of the IRS himself admitted to "horrible customer service" and "foolish mistakes."  While the harshest criticism came from the GOP, even Democratic members of Congress found the IRS practices completely unacceptable.  But another report issued by the Treasury Inspector General just two weeks earlier found that the vetting process for tax-exempt organizations was not the only flawed aspect of the agency's practices.
    The report was issued on April 30, 2013, and was titled "Cost-Reimbursement Contracts  
Did Not Fully Comply With Federal Acquisition Regulation [FAR] Revisions."  The findings make the title seem like an understatement:

The IRS did not comply with the majority of  the new FAR requirements for 46 of the 49 cost-reimbursement contracts entered into between March 17, 2011, and June 30, 2012, totaling nearly $47 million. 

    None of the three contracts that complied with some of the Acquisition Planning Requirements were in full compliance.  With a list of 10 criteria and 49 contracts, there are a possible 490 pass/fail marks.  As the chart below shows, there were only 13 passing marks out of 490 for a compliance rate under 3%.

    When the two other areas audited are also included (Contracting Officer Responsibilities and Adequacy of Contractor Accounting System Requirements, see Figure 2 and Figure 3 in report,) there were 46 passing marks out of 882 for a compliance rate of about 5%.

    The Background section of the report explains what cost-reimbursements contracts are and why they require special handling [emphasis added]:

Certain contract types, such as cost-reimbursement contracts, pose risks of inefficiency and waste to the Federal Government because they provide no direct incentive for contractors to control costs.  Under cost-reimbursement contracts, contractors are paid based on the incurrence of allowable costs, as opposed to the delivery of a completed product or service.  

    The IG report found that although Congress had passed legislation in 2008 to address high-risk contract awards, the IRS did not follow the act or the related Federal Acquisition Regulations (FAR.)  In fact, the IRS simply ignored the new regulations:

The IRS did not issue internal procurement policy guidance to implement the FAR revisions that were required by the Act.  Although the revised FAR became effective on March 17, 2011, the IRS has not issued any procurement policies and procedures to implement recent FAR changes for cost-reimbursement contracts.  Instead, the IRS has used the prior FAR and its existing internal procurement policies and procedures[.] [B]ecause no guidance had been provided, the COs who we interviewed were not aware of revisions to the FAR required by the Act as they related to documentation requirements in the contract file.  One CO stated there was no communication from the Office of Procurement regarding any FAR revisions on the subject of cost-reimbursement contract documentation requirements.  

     The IRS concurred with the findings in the report and has begun to develop and circulate procedures to address the shortcomings.  But along with testimony from IRS administrators this week blaming at least some of the problems at the IRS on overwork and understaffing, this report adds legitimacy to the concern about adding the requirements of enforcing the Affordable Care Act (ACA) beginning in 2014.  The agency will likely still be getting its house in order for its current responsibilities while taking on the additional ACA workload.  The Inspector General seems likely to have his work cut out for him for years to come.


Note: This article first appeared at The Weekly Standard.

Congress Prepares Flu Vaccine Tax [Clarification added]

    Congress is preparing to take action on a bipartisan proposal to raise taxes on flu vaccines. This is not a tax on the wealthy, but rather on a broad swath of Americans, or at least those who choose to be immunized against the flu.
    In February, identical bills were introduced in the House and Senate to add seasonal flu vaccines to the IRS code as taxable.  The legislation would exact a 75¢ per dose tax on any "vaccine against seasonal influenza."  Given that the Centers for Disease Control projects that 135 million doses of flu vaccine will be used this year, the government's take on flu vaccines alone is over $100,000,000 per year.
    Along with taxes on other vaccines, this tax would fund the Vaccine Injury Compensation Trust Fund.  The fund is a "no-fault alternative to the traditional tort system for resolving vaccine injury claims that provides compensation to people found to be injured by certain vaccines."  However, the fund is by no means in the same kind of trouble that other government "trust funds" are.
    The balance in the fund (as of November 2012) was more than $3.5 billion.  Since the program's inception in 1988, the fund has paid out only $2.5 billion in 25 years for cases involving all vaccines, not just the flu vaccine.  This means the balance in the fund could conceivably last another 25 years with no further tax revenue.
     The House bill (H.R. 475) was submitted on February 4th by Republican Jim Gerlach with Democrat Richard Neal co-sponsoring, and the Senate version (S. 391) was submitted by Democrat Max Baucus and co-sponsor Republican Orrin Hatch.  The same legislation had been introduced in the 112th Congress just months ago.  The House version died in committee, but the Senate version actually passed by unanimous consent the day it was introduced.
    Now, a posting on the Senate website reports that the Senate has reached an agreement on the current legislation. Although this flu season is winding down now, the tax could easily be in place by next winter if the House follows suit and the president signs it:

The Senate reached an agreement that if the Senate receives H.R.475 from the House of Representatives and the bill is identical to the text of which is at the desk, then the bill be read three times and the Senate proceed to a vote, at a time to be determined by the Majority Leader in consultation with the Minority Leader, with no intervening action or debate. H.R.475, a bill to amend the internal Revenue Code of 1986 to include vaccines against seasonal influenza within the definition of taxable vaccines.

    As is the case with all government "trust funds," there is no cash set aside to pay out claims.  According to the November 2012 report on the vaccine trust, the $3.5 billion balance is invested in "US Treasury Securities."  In other words, financing a portion of the $16.5 trillion national debt.


Note: This article first appeared at The Weekly Standard.



Clarification:
The current IRS code definition of a “taxable vaccine” already includes “Any trivalent vaccine against influenza.”  The new law reads that “Subparagraph (N) of section 4132(a)(1) of the Internal Revenue Code of 1986 is amended by inserting 'or any other vaccine against seasonal influenza' before the period.”  This is to make sure that all future flu vaccines are taxable in addition to the current ones.  Some interpreted my original article to mean that no flu vaccines were previously taxable, and now they would be.  The discovery that previous flu vaccines have ben taxable all along is not likely to assuage the anger many have expressed, especially in light of the $3.5 billion balance in the "trust fund."

Obama Group Runs Afoul of IRS Rules, Its Own Promise [Updated]

    Obama for America continued its metamorphosis this week into Organizing for Action, an independent organization that will advocate for various "progressive" causes, including immigration reform and gun control.  The BarackObama.com website, home of the presidential campaign of Barack Obama, has been changing as well, but the transition has not been without its missteps.

    The latest problem involves a local event (actually a series of events) posted on the site as a Day of Action to collect signatures for Democrat Terry McAuliffe to get the former chairman of the DNC on the ballot for governor of Virginia:

    At the bottom of the page is the new footer which has replaced the "Paid for by Obama for America"  that used to mark each page on the website:

    However, under the rules governing 501(c)(4) "social welfare" organizations, which is what Organizing for Action is according to its "About" page, such activity on behalf of a candidate or political campaign is prohibited. IRS rules state:

The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.

    As noted above in the event listing, the host for the event is John Heflin.  According to Heflin's Linked-in profile, he is currently an intern for the Terry McAuliffe for Governor campaign, and previously worked for the Presidential Inaugural Committee and the Wisconsin branch of the Obama for America campaign.

    Even if Organizing for Action does not have a pre-screening process for the listing of such events, this posting has been on the site for more than two days without being caught.  If Organizing for Action is to avoid future trouble with the IRS, more discretion will be needed in the activities it promotes.

    This is not the first time Organizing for Action has run afoul of 501(c)(4) IRS regulations.  Two weeks ago, before OFA suspended its donations page, at least two emails when out, one from the president himself and one from Vice President Biden.  Both emails were labeled as "Paid for by Organizing for Action," and yet the links in the email took recipients to the BarackObama.com website where donations were still be accepted for the Obama Victory Fund to pay off campaign debt. (As of 12/31/12, the Obama campaign was still reporting debt of almost $6 million.)  While the president was not a "candidate" at the point the donations were being solicited, at least the spirit of the IRS rules were being violated if not the letter.

    Ironically, Politico ran a story today entitled "New Obama group Organizing for Action says it’s non-partisan" [emphasis added]:

President Barack Obama’s new nonprofit Organizing for Action insists that promoting the White House’s legislative agenda can’t be counted as “partisan political activity.”The organization on Wednesday quietly posted new guidelines on its website formally declaring its intention to stay out of campaign politics.“Neither OFA nor its chapters will be involved in any way in elections or partisan political activity,” OFA wrote. “Its exclusive purpose is public policy advocacy and development, and in particular, both enactment of President Obama’s legislative agenda and the identification and advancement of other goals for progressive change at the state and local level.

     In view of the Terry McAuliffe campaign event scheduled on OFA's website, "partisan political activity" by any definition, it appears OFA's public statements do not yet match its actions.

UPDATE: Friday afternoon, OFA removed the event from its site.  The Google cache is still available here.

Note: This article first appeared at The Weekly Standard on February 8, 2013.

Bill to Tax Flu Vaccine Reintroduced in House; Already Passed Senate

    On January 6th, I reported that legislation to add seasonal flu vaccines to the definition of taxable vaccines had been introduced in both houses of Congress.  The House version was introduced in December, so it died in committee when the 112th Congress adjourned.  However, an identical bill was introduced in the Sentate by Max Baucus in early January and passed by unanimous consent with no discussion.  Now the bill has been reintroduced in the House (H.R. 475) by Republican Jim Gerlach, the same representative who sponsored the original bill.

    The purpose of this legislation is to make sure seasonal flu vaccines are subject to a 75¢ per dose tax imposed already on many vaccines by Section 4131 of the IRS code.  The tax funds the National Vaccine Injury Compensation Program.  Here is what I noted about that fund in early January:

    Although the taxes raised by the vaccine tax go into a "trust fund," this trust fund, like most government trust funds, is on paper only.  According to the most recent report on the fund, November 2012, the balance in the fund is nearly $3.5 billion.  (Since the program's inception in 1988, the fund has paid out only $2.5 billion in 25 years for cases involving all vaccines, not just the flu vaccine.  The balance in the fund could conceivably last another 25 years with no further tax revenue.)   The $3.5 billion balance, of course, is "invested" in "US Treasury Securities."  In other words, financing a portion of the $16.5 trillion national debt.

     Also from my January post:

Due to the lack of explanation accompanying the bill, I am only speculating.  But as drug companies struggle to keep up with new and mutating strains of the influenza virus, this bill widens the definition of "taxable vaccine" to make certain that any and all attempts to fight present and future iterations of the flu are subject to the 75¢ per dose tax.  Given that the Centers for Disease Control projects that 135 million doses of flu vaccine will be used this year, Congress is protecting the government's $100,000,000+ take on flu vaccines alone.

     As I mentioned above, this legislation flew through the Senate in a day without any debate.  Its future in the House it uncertain, but the Senate's response gives no reason to suspect there is much controversy about it. I will continue to monitor the bill's progress.

Taxing the Flu [Updated]

    While the nation's attention was focused on the approaching holidays and the (indulge my use of the word one more time) looming fiscal cliff, some in Congress seized upon the distractions to try to make sure when it came to money being spent to battle the growing flu epidemic, Uncle Sam got his fair share.  In the past few weeks, bills were introduced in both houses of Congress to make sure seasonal flu vaccines are subject to a 75¢ per dose tax imposed by Section 4131 of the IRS code. [See update below: the tax funds the National Vaccine Injury Compensation Program.]

    The bill (H.R. 6687) was introduced in the House of Representatives by Republican Jim Gerlach with Democrat Richard Neal co-sponsoring.  The purpose of the amendment is stated in its rather unwieldy title: "To amend the Internal Revenue Code of 1986 to include vaccines against seasonal influenza within the definition of taxable vaccines." According to govtrack.us, the bill died in committee when the 112th Congress came to a close at the end of the year.

    However, an identical bill (S. 3716) was introduced in the current session of the Senate on January 2, 2013 by Democrat Max Baucus and co-sponsor Republican Orrin Hatch.  The bill was passed immediately by unanimous consent and passed on to the House.  Presumably the dead House bill 6687 will now be resurrected in the 113th Congress for action, though this has not yet occurred.

    The text of the bill is quite short and technical and provides no explanation of the underlying reason for the change [see UPDATE below.] The relevant portion of the proposed legislation simply states:

SECTION 1. ADDITION OF VACCINES AGAINST SEASONAL INFLUENZA TO LIST OF TAXABLE VACCINES. 

(a) In General- Subparagraph (N) of section 4132(a)(1) of the Internal Revenue Code of 1986 is amended by inserting `or any other vaccine against seasonal influenza' before the period. 

    Section (b) of the bill relates only to the effective date of the legislation.  Section 4132(a)(1)(N) as revised would read in full: "(N) Any trivalent vaccine against influenza or any other vaccine against seasonal influenza."  But Section 4132 deals only with the definitions of the vaccines that are subject to the provisions in Section 4131.  This section reads as follows:

§ 4131. Imposition of tax
(a) General rule
There is hereby imposed a tax on any taxable vaccine sold by the manufacturer, producer, or importer thereof.
(b) Amount of tax

(1) In general
The amount of the tax imposed by subsection (a) shall be 75 cents per dose of any taxable vaccine.

    The last two words are the key to the proposed change: "taxable vaccine."  Due to the lack of explanation accompanying the bill, I am only speculating.  But as drug companies struggle to keep up with new and mutating strains of the influenza virus, this bill widens the definition of "taxable vaccine" to make certain that any and all attempts to fight present and future iterations of the flu are subject to the 75¢ per dose tax.  Given that the Centers for Disease Control projects that 135 million doses of flu vaccine will be used this year, Congress is protecting the government's $100,000,000+ take on flu vaccines alone.

    ABC News is reporting that the flu has reached epidemic proportions in 18 states already this year, and the flu season is still young.  The American public may despise the gridlock in Washington, but if this bill is an example of how bipartisanship works, gridlock might gain popularity.  This bill may simply be an attempt to provide uniformity in the IRS code, but the timing of this "flu tax" is certain to provoke charges that Congress is exploiting a national health crisis, charges that an unpopular Congress may find difficult to refute.

UPDATE: Upon further research, I found that that 75¢ tax per dose is intended to fund the Vaccine Injury Compensation Trust Fund.  The fund is explained at the Health Resources and Services Administration website:

On October 1, 1988, the National Childhood Vaccine Injury Act of 1986 (Public Law 99-660) created the National Vaccine Injury Compensation Program (VICP). The VICP was established to ensure an adequate supply of vaccines, stabilize vaccine costs, and establish and maintain an accessible and efficient forum for individuals found to be injured by certain vaccines. The VICP is a no-fault alternative to the traditional tort system for resolving vaccine injury claims that provides compensation to people found to be injured by certain vaccines. The U. S. Court of Federal Claims decides who will be paid. Three Federal government offices have a role in the VICP:
the U.S. Department of Health and Human Services (HHS);
the U.S. Department of Justice (DOJ); and
the U.S. Court of Federal Claims (the Court).
The VICP is located in the HHS, Health Resources and Services Administration, Healthcare Systems Bureau, Division of Vaccine Injury Compensation.

    Although the taxes raised by the vaccine tax go into a "trust fund," this trust fund, like most government trust funds, is on paper only.  According to the most recent report on the fund, November 2012, the balance in the fund is nearly $3.5 billion.  (Since the program's inception in 1988, the fund has paid out only $2.5 billion in 25 years for cases involving all vaccines, not just the flu vaccine.  The balance in the fund could conceivably last another 25 years with no further tax revenue.)   The $3.5 billion balance, of course, is "invested" in "US Treasury Securities."  In other words, financing a portion of the $16.5 trillion national debt.

The Blame Game

    The following exchange took place at Friday's Press Briefing with Jay Carney at the White House:

Q    Jay, the Speaker is in Ohio this weekend.  The President has plans himself to go on holiday a week from today.  The deadline draws closer.  Is it the White House’s calculus that if the nation does in fact go off the fiscal cliff, the blame -- the burden of the blame will fall on the Republican side?  Secretary Geithner said not that long ago that absolutely, that there would be willingness to go off the cliff if there was no acceptable deal.
MR. CARNEY:  The President is not interested in apportioning blame.  He’s interested in reaching a deal...

    Apparently Jim Messina, writing at BarackObama.com on Wednesday, didn't get the memo:

If your taxes go up, there's only one reason why 

By Jim Messina on December 12, 2012 

This week, thousands of Americans picked up the phone to help the President prevent a tax hike on middle-class families. 

We can't stop now. Republican leadership in the House of Representatives is still refusing to allow a vote on a bill that would prevent 98 percent of American families from paying higher taxes next year. 

If your taxes go up by more than $2,000 in a couple weeks, there's only one reason: because a few dozen Republican representatives refuse to ask the wealthiest 2 percent of Americans to pay their fair share.

    I love this new tone in Washington.

President Obama's "New Revenue" Math [Updated]

    As the fiscal cliff looms, some of the details are getting lost in its shadow.  For at least a month now, President Obama has been talking about $1.6 trillion in new revenue that must be part of his "balanced" approach to deficit reduction.  In the middle of November and again last week, the Treasury Department tweeted a graphic that provides the only breakdown I can find on this $1.6 trillion:

    One of the most remarkable features of this graphic appears under the heading "Revenue Proposals in the President's Budget."  Given that the vast majority of these proposals consist of increased taxes to be extracted from the American people, the characterization of this as "10 Year Savings" is extraordinary.  Rush Limbaugh often says that the government considers all money its own, and tax rates just determine how much of its money we citizens will get to keep.  By referring to tax increases as "savings," the Obama administration is saying exactly that.  Current tax law has cost the government so much, so these increases represent a "savings" to Uncle Sam.

    A closer look at the details, however, reveals a more striking fact.  The amount of new taxes detailed here is not $1.6 trillion, but is rather closer to $2 trillion.  Here's a closer look at that portion of the graphic:

    Note the first line under Total Tax Reforms and Savings: "Tax cuts for families, individuals, and businesses (negative savings)".  I addressed the Orwellian term "negative savings" in an earlier post.  But what are these "tax cuts" totaling $359 billion?  Is the president proposing some new tax cut heretofore unrevealed?  None that I have heard of, so I can only assume this $359 billion represents the extension of the Bush tax rates for those the president doesn't consider "wealthy."  But this is not a "cut" in taxes - those taxpayers will simply continue to pay what they pay now.  Therefore, the continuation of the tax cuts for the lower 98% of taxpayers is a non-factor when calculating "new revenue." The true tax increases ("savings" in the president's vernacular) total $1.92 trillion, not $1.6 trillion.

    The Treasury Department's explanation as to why the $359 billion in "negative savings" lowers the revenue total is most likely related to the phrase "10 Year Savings Against FY2013 OMB Adjusted Baseline." [emphasis mine]  But whatever the comparison, the reality is that there are no new tax cuts that will cost the government anything, but the tax increases are all real.  So rather than dipping into American's pockets for $1.6 trillion, the president has his eye on $1.92 trillion.  Oh, and that doesn't count the payroll tax holiday expiration, mysteriously missing from the chart above.  And that's $120 billion in 2013 alone.  By my calculations, that puts the 10-year "savings" above $3 trillion.  The president doubled the government's take without breaking a sweat.  At least until taxpayers get their first paychecks in January.

UPDATE: A commenter below wrote "I think the tax cut number is something else (though what I do not know). The dollar value of the tax cuts in the lower two brackets far exceeds the 849 you get from reinstating the top two brackets - I've seen figures showing it as 3X to 4X more."  This certainly makes sense, but it highlights the lack of clarity.  What is this new tax cut, and why isn't the White House trumpeting it?  And why isn't the end of the payroll tax holiday part of the calculation?  The $120 billion "cost" of the payroll tax holiday is an annual amount and as the Social Security Administration notes on page 15 of its 2013 budget, "The general funds reimburse the trust funds for this loss in tax revenue."  In other words, this is about $1.2 trillion for which the general fund will not have to reimburse the Social Security Trust fund over the next 10 years.  So while this will "save" the general fund $1.2 trillion, it does so at a cost of $1.2 trillion in resumed full payroll taxes over the next 10 years. Any way you look at it, the Obama administration has its eye on way more than $1.6 trillion, and not just from the "wealthy."

The Ultimate in GovernmentSpeak: Keeping Tax Rates the Same Equals "Negative Savings"

    This morning, the Treasury tweeted a link to a graphic illustrating "how the President’s plan raises $1.6T in revenue."  Part of the graphic is a detailed listing of how the $1.6 trillion breaks down:

    There are several aspects of this chart worth noting.

    First, these "savings" are "10 year" savings, which comes to $160 billion per year.  For those keeping score at home, the last four years have seen deficits of $1 trillion or more per year, so these "savings" barely amount to addressing 15% of the annual budget deficit.

    Second, the term "savings" itself is dubious - almost all of the items listed here are tax increases.  Under what perverse reasoning could these be considered "savings"?

    The third and final item I want to highlight is the first item on the list which actually lists a negative $359 billion: "Tax cuts for families, individuals, and businesses." Notice the parenthetical after that: "(negative savings)".  George Orwell has got to be kicking himself over that one.  Does this make a tax increase a "positive savings"?  And what is next?  An increase in spending will be a "negative spending cut"?

    By the way, these "tax cuts for families, individuals, and businesses"?  These are nothing new, simply an extension of the "cuts" that have been in effect since 2001 and 2003 during the Bush administration.  And one final by the way... this $1.6 trillion is only concerned with federal income tax revenues.  Since payroll taxes (Social Security and Medi-care) fall outside of this definition, the "positive savings" (read "tax increase") that the Obama administration has planned by allowing the payroll tax holiday to expire doesn't need to be included in the above chart.  Surprise!

The Obama Administration's Tax Plan Scam

    President Obama and Vice President Joe Biden can hardly make it through a speech these days without mentioning Mitt Romney's "$5 Trillion Tax Cut."  They've continued the full court press on this issue despite the debunking of the claim by Politifact ("half true" rating) and other fact checkers the Obama campaign has been quick to cite in the past for support on other issues.  (I guess they've decided that their campaign won't be dictated to by fact-checkers.)  But what about the President's tax plan?  Is all the bluster about Romney's $5 Trillion a case of deliberate misdirection?  A closer inspection of at least one of the claims of the president's tax plan would suggest the answer is yes.

    One of the most prominent claims of the Obama campaign on the tax issue appears in bold type on the website:

    Indeed, using the handy tax-calculator on the same page produces these results:

    The White House website repeats the $3,600 savings on its list of 11 Facts in the Tax Debate:

Over the past 4 years, a typical family making $50,000 a year has received tax cuts totaling $3,600—more if they are putting a child through college.

    Since the $3,600 figure keeps popping up, it must be well documented, right?  Clicking on the "Learn More" link brings up the following fact box:

    And there it is, the first bullet point.  The $3,600 saved during the president's first term comes from $1,600 from the Making Work Pay Credit and $2,000 from the payroll tax cut.  But now, before we get to reconciling how a savings of $3,600 over Obama's first four years translates into a "continued tax savings of $2,200 [$2,168 rounded up]" in 2013, how about that payroll tax cut?  I guess this means the Obama administration is seeking to extend that 2% cut for another year?  Not so fast.  The last official word I can find from the administration on the payroll tax holiday was in September from Jay Carney:

MR. CARNEY:  The payroll tax cut originally and through its extension was a temporary measure.  And as you know, when it comes to the middle-class tax cuts, the President believes we should make them permanent -- on the so-called -- the tax cuts under President Bush for the middle class, for the 98 percent.
The payroll tax cut was a temporary measure, and we’ll evaluate the question of whether we need to extend it at the end of the year when we’re looking at a whole range of issues, obviously, that will need to be worked on to ensure that we continue the progress that we’ve made.

    In other words, the payroll tax holiday is NOT included in the "continued tax savings of $2,200" in 2013, because the Obama campaign has been using these figures for months.  So if our typical family making $50,000/year is facing a $1,000* increase (2%) when the payroll tax holiday expires, how in the world does the Obama team come up with $2,200 in savings, which, figuring in the $1,000 payroll tax increase, means a $3,200 savings in other taxes?

    The Obama campaign has some serious explaining to do.  On its face, the claim is ludicrous.  President Obama has saved the average family $3,600 in his first four years, but in 2013 the same family will reap a windfall of $3,200 in non-payroll tax savings?  In the spirit of "Romnesia," I submit that the calculations for the president's tax plan must have been done using "Obamathematics." (Also in the spirit of "Romnesia", "Obamathematics" is not original with me, either.) The president and his campaign must be held accountable for this farfetched claim aimed at hoodwinking the middle class.

* * * * * * *

*In a scamlet within the larger scam, when the Obama administration was pushing for the payroll tax holiday to be extended in 2011, they were making the claim that "President Obama's payroll tax cut... puts $1,500 in the pockets of the typical middle-class family." But the New York Times in an article just a few weeks ago confirmed that "the typical American family had $1,000 in additional income from the lower tax."  Obamathematics!

We Are The 99.9%!

   The Obama campaign has recently been harping on Mitt Romney's "$5 trillion tax cut," and when he won't sign off on the Obama campaign's characterization of his tax plan, Romney is accusing of lying or faking or running away from his proposals.  If the situation were reversed, the Obama campaign would have to acknowledge the existence of "death panels" in ObamaCare or else be guilty of lying.  But in an odd but telling tweet, the Obama TruthTeam2012, in order to make a point, decide to stipulate to Romney's insistence that his tax pay is fully paid for and will not unleash the torrent of horribles that the Obama administration has been screeching about.  Here's the point the TruthTeam wanted to make:

    Get it?  Even if Romney's plan doesn't add one penny to the deficit, those filthy rich people at the top of the top will STILL get to keep more of their own money!  The class warfare battle cry has become We Are The 99.9% now.  If the president's team wanted to confirm what many conservatives have been saying, i.e., that the president cares more about "fairness" than about balancing the budget, this tweet was a good a way as any to accomplish that.

Jay Carney, Above the Fray

    Jake Tapper peppered Jay Carney today with questions about last month's terror attack on the US Consulate in Benghazi, Libya.  Tapper was trying to pin down Carney on why the attack was  mischaracterized for so long as a spontaneous demonstration gone violent, when, as the government now admits, it was neither spontaneous or a demonstration.  Carney tried to put things in perspective [emphasis mine]:

Again, this is a moving picture, and people who on the night of an attack or the day after claim they know all the facts without making clear that what we know is based on preliminary information aren’t being straight, and they’re in some cases trying to politicize a situation that should not be politicized. I think that’s what the president was getting at. And I think many other people felt the same way.

After some further back and forth, Tapper's questions concluded with this [again, emphasis mine]:

TAPPER: ...Democrats have talked about budgets being cut for embassy security. And I’m wondering if that’s something that the White House believes was a problem as well, that there was — there had something to do with money being withheld by House Republicans or whomever. 

CARNEY: ...What is simply a matter of fact is that this president has fought for and put forward funding that he believes is necessary for our diplomatic personnel and diplomatic security around the world. And others have sought to reduce that funding over these past several years because of a — of an approach to our budget priorities that prioritizes tax cuts for millionaires and billionaires. That’s just a fact...

Regarding politicization, Carney was channeling Groucho Marx: "Those are my principles, and if you don't like them... well, I have others."