NCPA - National Center for Policy Analysis
NCPA - National Center for Policy Analysis
Barry is a Senior Economist with the National Center for Policy Analysis, one of the most influential think tanks in America today.

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. The NCPA's goal is to develop and promote private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. Topics include reforms in health care, taxes, Social Security, welfare, criminal justice, education and environmental regulation.

NCPA Motto - Making Ideas Change the World - reflects the belief that ideas have enormous power to change the course of human events. The NCPA seeks to unleash the power of ideas for positive change by identifying, encouraging, and aggressively marketing the best scholarly research.

Daily Policy Digest

Provided courtesy of: NCPA

Daily Policy Digest

Why the Individual Income Tax Affects Businesses, Not Just People
26 Jan 2015 07:00:58 CDT -

When many people think of "businesses" they think of "corporations," but the majority of businesses in the United States are not traditional corporations: they're sole proprietorships, limited liability companies, partnerships and S corporations -- also known as "pass-through" businesses, because their income "passes through" to their owners and is taxed at the individual level, not the corporate level.

A new report from economist Kyle Pomerleau of the Tax Foundation details how these businesses work. Tax rates on pass-through businesses are the same as on individuals: for single filers, the first $9,075 of income is taxed at 10 percent, rising to a 39.6 percent tax rate on income over $406,750. Additionally, these businesses are subject to other taxes, including self-employment taxes and state and local income taxes.

According to Pomerleau, on average, the top marginal income tax rate on sole proprietorships and partnerships is 47.2 percent, while shareholders of S corporations pay average top rates between 44.5 percent and 48.3 percent. In New York and California, pass-through business tax rates top 50 percent.

Because traditional corporations face two levels of taxation (the entity is taxed on its income, then its shareholders are taxed when profits are distributed as dividends or when they realize capital gains), traditional corporations ultimately face a total tax rate of 56.5 percent, compared to the 47.2 percent partnership tax rate.

Remarkably, 94 percent of all American businesses are pass-through entities, not traditional corporations. They employ 55.2 percent of the private sector workforce and pay wages and salaries of more than $1.6 trillion. This is highly significant, because raising or lowering the individual income tax will have profound consequences for businesses -- it's not just individuals who are paying the individual income tax, but businesses that employ nearly 66 million workers.

Source: Kyle Pomerleau, "An Overview of Pass-through Businesses in the United States," Tax Foundation, January 21, 2015.

For more on Tax and Spending Issues:

Obama's Plan to Raise Taxes on College Savings
26 Jan 2015 07:00:57 CDT -

How does President Obama plan to make college more affordable? By ending tax breaks on college savings plans.

College savings plans, known as 529 plans, allow parents to deposit money into savings accounts that grow in value over time. When those dollars are withdrawn to pay for higher education expenses, the earnings aren't taxed (though if they're withdrawn for non-education expenses, they are subject to tax).

Kara Brandeisky at reports that the president wants to end that tax advantage in order to use the additional revenue to pay for an education tax credit for lower-income families. He's raising taxes on families saving for college in order to reduce taxes on less wealthy families.

Are 529 plans only for upper-income households? Not at all. In fact, Americans for Tax Reform cites numbers from the College Savings Foundation concluding that 70 percent of families with 529 plans have incomes below $150,000 and notes that the average 529 account has a balance of less than $21,000.

Moreover, according to Brandeisky, there are a couple of reasons that low-income households aren't using the accounts as much. First, she says households with relatively higher incomes tend to use the savings accounts more than low-income households simply because they're subject to higher taxes. Lower income families, she says, aren't paying as much in taxes, so they're not as likely to be lured by the tax incentives of a 529.

Additionally, many families simply aren't aware of the accounts: According to a report from student loan corporation Sallie Mae, 49 percent of parents who plan to send their children to college do not know what a 529 plan is.

Source: Kara Brandeisky, "Why Obama Wants to Tax College Savings,", January 22, 2015.

For more on Education Issues:

What Is a Rich Person's "Fair Share?"
26 Jan 2015 07:00:56 CDT -

That the rich should "pay their fair share" is a constant refrain in American politics, but what exactly does that mean? Wealthy Americans are already paying disproportionate amounts of taxes. National Tax Limitation Foundation Chairman Lewis Uhler and Senior Fellow Peter Ferrara detail exactly who is paying federal taxes - and how much:

  • The top 20 percent of income earners earn just 50 percent of pretax income, yet they pay 70 percent of all federal taxes.

  • The top 20 percent of earners pay 93 percent of all federal income taxes.

  • The top 1 percent earn 14.6 percent of pretax income, yet they pay 24 percent of federal taxes.

Contrast these figures with the taxes paid by those on the middle and lower ends of the income scale:

  • The middle 20 percent of earners earn 14.1 percent of pretax income, yet they pay just 8.9 percent of federal taxes.

  • The bottom 20 percent of earners earn 5.3 percent of pretax income, yet they pay just 0.6 percent of federal income taxes.

In fact, looking specifically at federal income taxes, Uhler and Ferrara cite Congressional Budget Office figures showing that the bottom 20 percent of earners actually pay a negative federal income tax of 7.5 percent, and the next 20 percent of earners have a negative tax rate of 1.3 percent -- both groups are net takers when it comes to federal income taxes. The middle 20 percent of earners (those earning 14 percent of pretax income) pay a 2.4 percent income tax rate.

While the president insists the rich aren't paying their fair share, the numbers are pretty stark, say Uhler and Ferrara: the top 1 percent in 2012 paid 28 percent more in federal income taxes than did the bottom 90 percent of earners who, despite earning 52 percent of income, paid less than 30 percent of federal income taxes.

Source: Lewis Uhler and Peter Ferrara, "The rich pay more than their fair share," Washington Times, January 20, 2015.

For more on Tax and Spending Issues:

The Benefits of School Choice: Higher Achievement, Higher Incomes, Higher GDP
26 Jan 2015 07:00:55 CDT -

The Texas legislature is currently considering a school choice program known as the Taxpayers Savings Grant Program (TSGP). Under the TSGP, public school students would qualify to receive a grant equal to the tuition at a private school of a student's choice or 60 percent of the state's average spending per student, whichever is less.

Anew study by economist Arthur Laffer estimates that the TSGP would save the state of Texas billions (because the state pays just 60 percent of its previous costs for the students who exercise school choice), while at the same time improving education performance for all students -- those who remain in public schools, as well as those who exercise school choice. The Texas Education Agency projects that over a five-year period, the TSGP could save taxpayers $1.76 billion.

Laffer estimates that Texas' GDP would increase by 17 percent to 30 percent over the next 25 years with the TSGP, adding a whopping $260 billion to $460 billion to the economy annually -- the equivalent of adding the economies of Vermont, Wyoming, Montana, South Dakota, North Dakota, Rhode Island, Maine, Alaska and Idaho to Texas.

Why the economic growth? The school choice program would reduce dropout rates and improve academic performance, translating into jobs and higher incomes. And studies not only show that school choice benefits the students who choose their schools, but it also improves public schools by creating competition -- public schools who lose students to choice programs are forced to improve their performance in order to win back enrollment. This is not just a theory: public school systems across the country have attempted to compete in response to school choice.

Broad, universal school choice like the TGSP, would:

  • Close the educational achievement gap between races, between students from lower and higher income families and between the United States and other countries.

  • Slash the number of dropouts statewide from 130,000 to less than 65,000 (in half). The rise in the high school graduation rate would mean $800 million in additional earnings for these graduates, which ultimately translates into higher GDP growth.

When parents have choices about where to send their children for school, schools pay more attention to student needs because families can pull their children out and send them to better schools. A decentralized market in education allows students to choose schools that best meet their needs and preferences.  For more information on introducing private school choice to Texas, see this NCPA report.

Source: Arthur Laffer, "The Texas Economy and School Choice," Texas Public Policy Foundation, January 7, 2015. 

For more on Education Issues:

New Lending Standards May Spark Another Financial Crisis
26 Jan 2015 07:00:54 CDT -

What caused the 2008 financial crisis? It wasn't greed or deregulation, says Michael Barone at National Review: it was government policy that promoted lax lending standards.

What happened?

  • The federal government encouraged banks to give mortgages to aspiring homebuyers with poor credit.

  • At the same time, it required that a certain portion of mortgages (30 percent) purchased by Fannie Mae and Freddie Mac be those risky mortgages. That requirement was eventually raised to 56 percent.

  • Fannie and Freddie -- which previously had only purchased mortgages when buyers made down payments of 10 percent to 20 percent -- began purchasing mortgages with just 3 percent down payments, and sometimes zero down payments, in order to meet those requirements.   

The result? A ton of "subprime" mortgages. In 2008, over half of all U.S. mortgages were subprime. Moreover, three-quarters of those mortgages had been purchased by Fannie and Freddie or government agencies.

Barone explains that the low down payment requirements led housing prices to rise, because buyers could afford larger homes without putting down more money. Eventually, the bubble burst, and when housing prices fell, the mortgage-backed securities market did too.

These policies were instituted in the name of improving homeownership for low-income households. While the homeownership rate increased, government policies distorted the market and led to a financial panic.

Have we learned our lesson? Barone is not so sure: Fannie and Freddie announced in December that they will again purchase mortgages with just 3 percent down payments.

Source: Michael Barone, "Could the Financial Crisis Repeat Itself?" National Review, January 20, 2015.

For more on Education Issues:

"Middle Class Economics" or Redistribution of Income?
23 Jan 2015 07:00:53 CDT -

Despite labor force participation being at its lowest rate since the 1970s, the president offered a rosy view of the economy during his State of the Union address on Tuesday. Writing at the Federalist, NCPA Senior Fellow Pam Villarreal offers her take on the speech, calling it "more about paying people's bills with other people's money and less about fostering job creation and income growth."

  • The president's plan to raise the capital gains tax rate to 28 percent would not result in a flood of government revenue, because it would lead investors to retain their assets rather than sell them.
  • Obama wants to give two-earner households a $500 credit to cover child care and transportation expenses, but the credit would do nothing to address the real problem in the tax code: second earners face high marginal tax rates -- a problem not faced by unmarried couples who live together. Villarreal suggests changing the tax code to get rid of the punishment on married couples.
  • The president's plan to give "free" community college would cost taxpayers $60 billion over a decade. At the same time, he proposed removing the tax advantages of 529 college savings accounts. These accounts help families save for college expenses.
  • Obama proposed mandatory paid sick leave for workers, which would only reduce those workers' wages or other perks. Villarreal says firms should be free to design their own benefit packages, including allowing workers to exchange paid sick days for monetary bonuses.

The president had nothing to say about corporate tax reform, the falling labor force participation rate, the growing numbers of Americans receiving disability benefits or the national debt. Says Villarreal, "Obama's State of the Union foresees a state of more dependence on government and less economic opportunity and growth."

Source: Pamela Villarreal, "SOTU Score: Wealth Redistribution 1; Economic Growth 0," Federalist, January 22, 2015. 

For more on Economic Issues:

Health Policy Digest

Provided courtesy of: NCPA

Consumer Driven Health Care

Health Care Reform Tax Will Hurt Franchisees
04 Oct 2011 12:43:58 GMT - When the employer mandates go into effect in 2014, many franchised businesses will be motivated to reduce the number of locations and move workers from full-time to part-time status...


Saving Jobs from Health Reform's Harmful Regulations
04 Oct 2011 12:43:58 GMT - If the rate of health care cost growth had not exceeded general inflation, a typical family would have had $545 more per month in spendable income instead of $95 -- a difference of $5,400 per year...


Does Health Insurance and Seeing the Doctor Keep You Out of the Hospital?
04 Oct 2011 12:43:58 GMT - Gaining health insurance and using more primary care services leads to more hospitalizations as a result of physicians' discretionary decisions regarding aggressive and intensive treatment...


The Case for Competition in Medicare
04 Oct 2011 12:43:58 GMT - A well-functioning marketplace would set in motion the forces needed to transform American medical care into a model of efficient patient-centered care...


Potential Effect of Health Care Reform on Emergency Department Utilization Not Clear
04 Oct 2011 12:43:58 GMT - In 2010, 71 percent of emergency physicians said that they expected emergency department visits to increase due to the implementation of the Affordable Care Act...


Related Information:
NCPA - National Center for Policy Analysis Web Site

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