ELLSWORTH AIR FORCE BASE, S.D. – Operation Homefront will distribute more than 200 holiday meals to military families Nov. 20 from 4 to 7 p.m. at the Airman and Family Readiness Center on Ellsworth Air Force Base through the national nonprofit’s annual Holiday Meals for Military program.
Each meal will include non-perishables and a gift card redeemable for the rest of the groceries necessary for a full holiday meal.
The Holiday Meals for Military program began Thanksgiving 2009 as the result of a chance encounter in a supermarket in Utica, N.Y., near Fort Drum. A soldier, his wife, and infant had a handful of grocery items they could not afford, so a Beam Inc. employee picked up the $12 cost for the groceries. Since that time, the program has grown from initially providing 500 meal kits to military families in 2009 to providing nearly 7,000 nationally this holiday season.
Washington, D.C. – Senate Finance Committee Ranking Member Sen. Ron Wyden, D-Ore., today gave the following remarks as the Finance Committee began consideration of a new version of the Senate Republicans’ tax bill.
It’s now day three of this tax debate, and this bill seems to get worse by the hour. It started off as a tax hike on nearly 14 million Americans to pay for multi-trillion dollar handouts to multinational corporations and new loopholes for tax cheats.
Then the news broke that these corporate handouts are going to force billions of dollars in cuts to Medicare. And Republican leaders said that entitlements are next after taxes, which means further cuts to Medicare, cuts to Medicaid, and cuts to Social Security.
Let’s cut to early yesterday afternoon. The Republicans couldn’t get through lunch without hatching another plot to go after Americans’ health care. Apparently somewhere between the salad course and the entree, it was decided that permanent corporate tax cuts should be paid for, in part, by kicking 13 million Americans off their health care and raising premiums for millions more. Let’s not kid around, this is not just another garden variety attack on the Affordable Care Act. This is repeal of that law.
That brings us to today, when the American people are learning that individuals are only getting temporary tax cuts out of this Republican bill, but corporations are getting permanent cuts. What a double standard that is. For multinational corporations their handouts are set in stone, written in ink, locked in place with the key thrown away. But not for the middle class.
The Treasury Secretary even said that was where the administration was going to draw its line in the sand — permanent breaks for multinational corporations. But they’re not drawing any lines in the sand when it comes to permanently protecting middle class families.
In fact, for middle-income families, this deal is looking worse and worse. It used to be a promise of a tax cut — cash back in their pockets. Now it’s a roll of the dice. Families are going to have to hope they’re not going to be among the millions whose taxes go up.
So bottom line, my colleagues on the other side have now shown their hand. The corporate handouts are permanent, the family breaks are not. In fact, they don’t even make it a full decade.
To pay for these handouts to multinational corporations, millions of Americans are going to lose their health care, millions will see their premiums skyrocket, and millions will get hit with a tax hike. That’s what’s on offer as of today.
SPEARFISH, S.D. – Valeriah Big Eagle, student success advisor and disabilities liaison at Black Hills State University-Rapid City, was recently accepted to the Native Nations Rebuilder’s 2017-2018 program. With this acceptance, Big Eagle will join a cadre of over 140 tribal citizens who have been trained in the best approaches to nation building.
Big Eagle, a member of the Ihanktonwan Yankton Sioux, is a first generation college student whose passion is to inspire and equip Native American students to attain college degrees.
“I am honored to be chosen,” says Big Eagle. “I was genuine with my story, who I am, and what I wish to become through this program, which is a stronger tribal leader, both in my home community and in Rapid City.”
The Native Nation Rebuilders program was established by the Bush Foundation in 2008. As of 2016, Native Nation Rebuilders is under the direction of the Native Governance Center. Native Nation Rebuilders enrolls members from 23 nations in Minnesota, North Dakota, and South Dakota. The mission of the Native Nation Rebuilders is to strengthen tribal leadership by embedding leaders within public, private and entrepreneurial fields.
“As an emerging leader, I try to always keep learning,” says Big Eagle. “The mentoring and resources offered through Native Nation Rebuilders would be indispensable to my ability to represent tribal communities.”
Big Eagle began realizing her passion for helping Native American students achieve college degrees during her own undergraduate experience. She worked as a mentor for incoming freshman, helping them transition and navigate the college environment and resources. Big Eagle also worked in area middle and high schools, encouraging them to set their sights on college education.
In July of 2016, Big Eagle came to her current position at BHSU-Rapid City where she started the Native American Club He’Sapa Oyate for the large population of Native students on campus.
“I know the importance of feeling a sense of belonging at a campus,” says Big Eagle. “I felt that need for the Native population here at BHSU-Rapid City. The club promotes student success and gives them a sense of cultural belonging.”
She hopes to apply her Native Nation Rebuilders training to her position at BHSU-Rapid City, helping students become leaders in their own communities.
“If I can help them along their journey, that’s what I’m here for,” says Big Eagle. “That’s what I feel my purpose is.”
Big Eagle is currently finishing her master’s degree in student affairs administration and plans to pursue her doctorate in education. She says her drive to continue in personal and professional development comes from her family.
“My own little family and my extended family at home pushed me to go to college and to follow through. They didn’t always know how to support me, but they were there with the right words,” says Big Eagle. “They are why I do what I do—my family and my people.”
BHSU has a legacy of providing educational experiences for American Indians and has the highest proportion of American Indian students of any South Dakota state institution of higher learning. The Center for Indian Studies at BHSU seeks to support and encourage American Indian students while promoting awareness of American Indian cultures, value systems, and social problems among both Indian people themselves and members of the larger society. The Center currently administers four academic programs: the Major in American Indian Studies, leading to the Bachelor of Science degree; a general Minor in American Indian Studies; the Minor in American Indian Studies – Teaching; and an American Indian Studies Minor, Emphasis in Communications. For more information on the program, visit www.BHSU.edu/AIS
WASHINGTON, D.C. – Kimberley Bugg, a librarian dedicated to the users of research services, has been named chief of the Humanities and Social Sciences (HSS) Division at the Library of Congress. Bugg has experience managing and coordinating all aspects of reference work at several academic libraries, including the Robert W. Woodruff Library (2006-2010), Villanova University (2011-2014) and the College of Technology—City University of New York (2014-2017). Bugg’s commitment to creating resource guides and teaching people how to do research, as well as her skill with emerging technologies and outreach, have helped these libraries adapt successfully to today’s rapidly changing information environments.
Among her subject specialties are music, dance, movies, pop culture and visual literacy. Bugg holds a doctorate in managerial leadership from the Simmons College School of Library and Information Science and a Master of Arts degree from Clayton State University. Bugg is also active in the Association of College and Research Libraries and has convened several discussion groups on these topics. The American Library Association named Bugg an emerging leader in 2010.
“Bugg’s collaborative and thoughtful leadership style, strategic planning and project management experience, data-driven abilities, and written and spoken communication talents will be a great asset to the Library,” said Helena Zinkham, director for the Collections and Services Directorate of the Library of Congress.
A prolific scholar, Bugg has written for publications on both librarianship and several HSS subject areas. Her written work includes “Creating the Leadership You Seek,” “Using Black Popular Culture to Engage Students,” “Using Pop Culture to Engage Students in Media Literacy” and “Extreme Makeover Reference Edition.”
The Humanities and Social Sciences Division provides reference service and collection development in the Main Reading Room, the Local History and Genealogy Reference Services and the Microform and Electronic Resources Center at the Library of Congress. HSS regularly sponsors programs in the arts, humanities and social sciences.
The Library of Congress is the world’s largest library, offering access to the creative record of the United States—and extensive materials from around the world—both on-site and online. It is the main research arm of the U.S. Congress and the home of the U.S. Copyright Office. Explore collections, reference services and other programs and plan a visit at loc.gov, access the official site for U.S. federal legislative information at congress.gov, and register creative works of authorship at copyright.gov.
Over the past year, the public discussion on election security and integrity has focused on concerns about foreign meddling in U.S. elections. The evidence is still coming in about which countries did what to influence both the public and the election itself. The American people have been left with a vague sense of disquiet – that something untoward was likely attempted, the results of which are unknown.
I first started studying election security during the lead-up to the 2004 presidential election, when researchers revealed serious security flaws in voting machines – and found out how hard their manufacturer would work to keep the problems secret. Most of the efforts to protect elections have focused on technical cybersecurity to thwart hackers. But as someone who researches technical innovations, it’s clear to me that the 2016 presidential election results were most affected by social and political forces, not technological shortcomings.
These problems with America’s voting system did not materialize out of the blue, and certainly were not orchestrated by foreign powers. Rather, the election results were skewed by two longstanding, systematic, often racially motivated, well-resourced efforts: election district gerrymandering and voter disenfranchisement.
To ensure that all Americans can trust the accuracy and integrity of the 2018 election results, officials and communities nationwide must guard against foreign tampering, to be sure. But more importantly, they must prevent misuse of political power to mute citizens’ voices at the ballot box in anti-democratic ways.
Fixing the elections, district by district
Political campaigns collect more and more digital data about Americans and their communities. They analyze political trends and people’s voting tendencies. Using this knowledge, politicians have systematically drawn voting districts in ways that dilute the power of their opponent’s party.
The result has been custom-designed voting districts dominated by either Democratic or Republican voters. This division ensures that American democracy is far less representative than it could be.
Both parties have engaged in this type of behavior, but current political maps were overwhelmingly drawn by Republicans to benefit their party. When the Associated Press analyzed the 2016 congressional election results, it found that gerrymandering gave Republicans “as many as 22 additional U.S. House seats” more than they would have won in a fairer election system. In fact, the AP concluded, “even if Democrats had turned out in larger numbers, their chances of substantial legislative gains were limited by gerrymandering.”
That’s just not the way a representative democracy should work.
Stopping individuals from voting
Another threat to voting fairness comes from limits on who is even allowed to vote. People’s right to vote differs by state, and many states have chosen to systematically disenfranchise poor, minority and overwhelmingly Democratic-leaning constituencies. Many of today’s voting laws have similar effects as those in the South before the Civil War or in the Jim Crow era.
For example, individuals with a felony conviction on their criminal record, but who have served their time and been released from prison, can vote in some states but not others. The ACLU has found that this hodgepodge of state laws has resulted in 5.85 million Americans being disenfranchised – 2 percent of the U.S. voting population. This barrier disproportionately blocks black men: 13 percent of them can’t vote.
In addition, laws requiring people to present official identification when registering to vote, or when voting, are much more likely to prevent legitimate voters from casting ballots. Voter ID rules are often justified as efforts to prevent election fraud, which study after study has found doesn’t happen in any significant way.
Not only do these strict voter ID laws reduce overall voter turnout, but studies have shown they do so in unfair ways, specifically lowering “African-American turnout and … Democratic vote share.” A study from the University of California, San Diego found:
“Democratic turnout drops by an estimated 7.7 percentage points in general elections when strict photo identification laws are in place. By comparison, the predicted drop for Republicans is only 4.6 points. … The skew for political ideology is even more severe. For strong liberals the estimated drop in turnout in strict photo identification states is an alarming 10.7 percentage points. By contrast, the drop for strong conservatives is estimated to be only 2.8 points”
Other restrictions, such as reducing early voting and preventing people from registering to vote on Election Day, also limit how many people can vote. Again, these rules disproportionately affect lower-income Americans and people of color. And then there are the millions of Americans living in Washington, D.C., Puerto Rico and other U.S. territories who can’t vote for president at all – and have no voting members of Congress.
Averting future disaster
A last line of protection for election integrity is the ability to recount votes. However, as mechanical voting equipment from the 20th century is increasingly replaced by software-driven electronic voting machines, recounts of paper ballots are no longer guaranteed. In my view as a technologist, any modernization of voting equipment should include verifiable paper receipts provided to voters and election officials alike. That way, voters can be sure their votes were cast as they intended, and any concerns or disputes can be easily resolved via an objective, verifiable review process.
Concerns about foreign meddling might be getting more attention than these American-made pitfalls – but ensuring the integrity of national, state and local elections requires paying attention, first and foremost, to the inherent fairness of our democratic processes. Worries about outside tampering shouldn’t be ignored, but rather, they should be kept in perspective. Contemporary election integrity is being undermined far more effectively by domestic threats than by foreign adversaries.
The country stands at a critical crossroads. One path leads toward ever-worsening, data-driven discrimination and disenfranchisement – processes that already affect millions of Americans. The other focuses on ensuring electoral fairness – bolstering the underpinnings of representative democracy and maximally enfranchising a 21st-century body politic.
Sascha Meinrath, Director of X-Lab; Palmer Chair in Telecommunications, Pennsylvania State University
After a man barreled down a New York City bike path on Oct. 31, killing eight, President Donald Trump reacted by calling for an end to the “green card lottery” program that allowed the attacker to enter the country.
The Diversity Immigrant Visa Program, as it is officially known, has been in the sights of the president for a while. In August, Trump publicly backed a GOP bill that would end the program and replace it with a merit-based system.
Trump and his fellow Republicans have long decried illegal immigration, but they have traditionally favored the legal kind, partly because their business donors demand it.
As someone who researches the impact of immigration on workers, I believe their plans to change who can enter the country legally is a big mistake. We would be giving up a program that benefits American workers with very little chance of a gain in safety.
While Trump’s tweets about the lottery program are based on security concerns, the usual argument supporting curbs on immigration is that new arrivals hurt native-born American workers and the economy at large.
I’ll leave analyzing the security concerns to other experts; suffice it to say that the risk, according to experts, is very small. Green card holders have killed just 16 people – including yesterday – in terror attacks on U.S. soil since 1975.
As for the economic impact on U.S.-born workers, the key thing to bear in mind is that the more homogeneous and similar immigrants are to natives, the greater the odds they’ll in fact have a negative effect.
In contrast, immigrants who come from diverse backgrounds with a range of skills – such as the lottery winners and the so-called “Dreamers” – tend to produce greater economic benefits. That may be one reason at least some Republicans and most Americans are in favor of keeping the Deferred Action for Child Arrivals program that protects the Dreamers from deportation, which Trump recently ended.
A new approach
Currently, the U.S. receives a lot of immigrants without a college degree or with imperfect English. About half of immigrants fit either description.
Legislation proposed earlier this summer – the Reforming American Immigration for Strong Employment (RAISE) Act – would exclude most such workers and reduce the total number of green cards awarding permanent legal U.S. residence to just over 500,000 from more than one million today.
It would also end the green card lottery, which awards 50,000 green cards a year to people from countries with low rates of immigration to the U.S.
Importantly, it would also change who gets a leg up when applying for a green card. Currently, family of U.S. citizens and legal permanent residents, including siblings and adult children, are able to apply. The new system would limit that to minor children and spouses.
Instead, the bill would create a point-based system like those used in countries such as the U.K. and Australia that use factors such as English ability, education and job offers to rank applicants. However, it would be stricter than point systems used in those countries, which admit immigrants through other programs as well.
In essence, the plan would make the pool of immigrants more homogeneous and dramatically smaller in number, mirroring the misguided origin-based restrictions from the 1920s.
What economists say
Those who wish to restrict immigration often cite what they naïvely call “supply-and-demand economics” to essentially argue that the economy is a fixed pie that gets divided among a country’s residents. Fewer immigrants means “more pie” for the U.S.-born, as the story goes.
I am an economist, and this is not what my colleagues and I say. The commonplace argument that more immigrants, by themselves, lower wages and take jobs from Americans – an argument which Attorney General Jeff Sessions used to defend ending the “Dreamers” program – has neither empirical nor theoretical support in economics. It is just a myth.
Instead, both theory and empirical research show that immigration, including people with few skills and little English, grows the pie and strengthens the American workforce.
Value in diversity
While all the recently proposed changes to our immigration system will make U.S. workers worse off, the English requirement is likely to be particularly harmful to U.S. workers, especially low-skilled ones.
Indeed, I have found the relative fluency of U.S.-born workers is what keeps them from being harmed from labor market competition from immigrants.
The reason for this is the following. Essentially, immigrants with imperfect English skills tend to specialize in jobs that are less “communication-intensive,” such as manual labor. Americans fluent in the language, on the other hand, tend to take on higher-paying, communication-intensive jobs that are out of reach of those without a strong grasp of English. In other words, these groups aren’t likely to compete for the same jobs, making them more complementary than adversarial.
In contrast, when new immigrants are more fluent in English, something the Trump-backed proposal would encourage, the types of occupations they are qualified for are almost identical to those of American workers. Thus, insisting on strong English skills as a condition of coming to America is likely to increase labor market competition and suppress wages.
Immigration that helps
Immigration that emphasizes diversity, rather than merely merit, tends to attract more people who specialize in occupations uncommon among U.S.-born workers. And, in fact, this is the key source of the well-known economic benefits of immigration.
Studies by economists Giovanni Peri and Chad Sparber, for example, show this tendency toward job specialization is a key reason the large volume of low-skill immigration does not drive down incomes of Americans. Other research by Peri and Gianmarco Ottaviano shows that simply encouraging immigration from diverse origins lifts wages.
Put differently, there is direct evidence that the sort of diversity that the green card lottery encourages makes all Americans better off. It would be a shame to give all of that up because of a tiny risk of terrorism.
This is an updated version of an article originally published on Sept. 15, 2017.
Ethan Lewis, Associate Professor of Economics, Dartmouth College
This article was originally published on The Conversation.
The National Weather Service’s Climate Prediction Center issued the winter outlook today with La Nina potentially emerging for the second year in a row as the biggest wildcard in how this year’s winter will shape up. La Nina has a 55- to 65-percent chance of developing before winter sets in. It calls for a higher probability of colder than normal temperatures across northern South Dakota with equal chances of above, below, and near normal temperatures for the rest of northeastern Wyoming & southwestern South Dakota. The entire Black Hills region has a better chance of above average precipitation, although drought conditions are likely to persist.
“If La Nina conditions develop, we predict it will be weak and potentially short-lived, but it could still shape the character of the upcoming winter,” said Mike Halpert, deputy director of NOAA’s Climate Prediction Center. “Typical La Nina patterns during winter include above average precipitation and colder than average temperatures along the Northern Tier of the U.S. and below normal precipitation and drier conditions across the South.”
Other factors that influence winter weather include the Arctic Oscillation, which influences the number of arctic air masses that penetrate into the South and is difficult to predict more than one to two weeks in advance, and the Madden-Julian Oscillation, which can affect the number of heavy rain events along the West Coast.
The 2017 U.S. Winter Outlook (December through February):
Wetter-than-average conditions are favored across most of the northern United States, extending from the northern Rockies, to the eastern Great Lakes, the Ohio Valley, in Hawaii and in western and northern Alaska.
Drier-than-normal conditions are most likely across the entire southern U.S.
Warmer-than-normal conditions are most likely across the southern two-thirds of the continental U.S., along the East Coast, across Hawaii and in western and northern Alaska.
Below-average temperatures are favored along the Northern Tier of the country from Minnesota to the Pacific Northwest and in southeastern Alaska.
The rest of the country falls into the equal chance category, which means they have an equal chance for above-, near-, or below-normal temperatures and/or precipitation because there is not a strong enough climate signal in these areas to shift the odds.
Despite the outlook favoring above-average precipitation this winter, drought is likely to persist in parts of the northern Plains, although improvement is anticipated farther West.
Elsewhere, drought could develop across scattered areas of the South, mainly in regions that missed the rainfall associated with the active 2017 hurricane season.
NOAA’s seasonal outlooks give the likelihood that temperature and precipitation will be above-, near, or below-average, and also how drought is expected to change, but do not project seasonal snowfall accumulations. While the last two winters featured above-average temperatures over much of the nation, significant snowstorms still impacted different parts of the country. Snow forecasts are generally not predictable more than a week in advance because they depend upon the strength and track of winter storms. The U.S. Winter Outlook will be updated on November 16.
NOAA produces seasonal outlooks to help communities prepare for what’s likely to come in the next few months and minimize weather’s impacts on lives and livelihoods. Empowering people with actionable forecasts and winter weather tips is key to NOAA’s effort to build aWeather-Ready Nation.
The federal government’s national debt recently surpassed $20 trillion. While there is plenty of blame to go around, the majority of this debt can be attributed to the past decade, as our debt was $10.6 trillion at the start of 2009. In other words, in the past eight years, the federal government has accrued as much debt as it accrued throughout the first 230 years of our country’s existence. It’s no wonder military leaders acknowledge it as being a top threat to our national security. Even more frightening, there is no sign of it slowing down.
High debt threatens economic growth by driving up interest rates and discouraging businesses and individuals from investing back into the economy. And it breeds even more debt as the interest on our debt must be paid to those who hold it – leaving fewer resources for other priorities such as roads, research and education.
Our broken tax system also plays a role by limiting our ability to collect revenues. Our current tax rates create a disincentive for companies to do business here in the United States, which then leads to fewer high-paying jobs for American workers, and encourage businesses to keep their profits overseas. Lowering tax rates would incentivize companies to repatriate that money and invest it back into our economy. Earlier this year, I introduced a proposal in the Senate to lower the tax rate in each bracket. It is but one step we can take to overhaul the tax code that will provide direct, immediate relief to hardworking families, jolt our economy and increase federal revenues.
While I do believe tax cuts are an important step to controlling our debt, the biggest driver of our debt is the rapid, unchecked growth of mandatory payments on safety net programs including Medicare, Medicaid and Social Security. If we continue down our current path, in less than ten years 99 percent of all federal revenue will have to be spent on mandatory payments and interest on our sky-high debt. No amount of cuts to defense and other programs such as crop insurance, education, highways and bridges will have a meaningful effect on debt reduction without also controlling the cost of these mandatory payment programs.
Mandatory payments already account for nearly three-fourths of our total federal spending today. This is because Medicare, Medicaid and Social Security have never been properly managed and Congress does not currently appropriately oversee them. They run on auto-pilot. Given that they are our largest federal expenditures every year, it is time for Congress to take an active role in managing their funding levels on a regular basis. This does not necessarily mean making cuts – it simply means giving Congress the authority to review them to make them as efficient as possible and to make sure they are available for individuals who need them, both now and in the future.
Surpassing $20 trillion in debt should be a wake-up call to Washington, which for decades has failed to own up to their responsibility to balance its checkbook. I continue to work with my colleagues in the Senate to shake up the budget process in Congress, and open up the entire budget to congressional review – including mandatory payments. It is the only way to slow down the fiscal train wreck. Simply delaying action and looking the other way is not an option.
Gil B. Manzon Jr., Boston College and Tim Gray, Boston College
The Trump administration wants to change the way the government taxes so-called pass-through entities.
In a nutshell, the Trump proposal would dramatically lower the rates this category of filers pay. This would lead to very creative tax planning at best and outright evasion at worst, while prompting more companies to adopt this type of business structure to gain the huge benefits.
More fundamentally, we argue, this would cause faith in the fairness of the tax system – a cornerstone of our voluntary method of taxation – to falter. The consequences of that could be dire.
Just passing through?
The universe of pass-throughs is very large, including anything from freelancers and corner grocery stores to medical partnerships and hedge funds that file under legal categories like sole proprietorships, partnerships and S corporations.
The name pass-through refers to how income “passes through” to owners. Pass-throughs avoid the double taxation that hits regular C corporations. More of U.S. business income is actually generated by pass-through entities than conventional corporations like Apple and General Electric.
Currently, owners of pass-throughs report both compensation and business income on their personal tax returns and pay the same tax rates on both.
To illustrate how this works, imagine a doctor’s sole proprietorship generates US$1 million of taxable earnings. Let’s say half of that would be considered reasonable compensation for the owner’s work, while the other half would be deemed ordinary business income. On her tax return, the doctor would report an income of $1 million, all of which would be taxed at personal income tax rates, for a federal levy of $396,000 (assuming a flat rate of 39.6 percent).
Under Trump’s proposal, the tax rates on compensation and business income would no longer be the same. A new top rate of 35 percent would apply to compensation, and a proposed rate of 15 percent would apply to business income. Going back to our example, the doctor’s federal tax bill would be reduced to about $250,000, assuming she followed the rules. Not bad.
But she now has a very strong incentive to characterize her compensation as business income. If she reported her compensation as $0 and business income as $1 million, her tax bill would be reduced still further, to $150,000. Put differently, for every dollar of compensation she reports as business income instead of compensation, she saves 20 cents in tax.
Clearly, the potential tax savings are huge. Many owners of pass-throughs are going to be tempted to report reasonable compensation as business income.
And who wouldn’t be? The reward for cheating is just too large. And the likelihood of getting away with cheating is as high as it’s ever been because of the reductions in enforcement in recent years along with how unlikely it is that Trump will reverse that trend.
Defining reasonable compensation
The history of taxation bears this out: If taxpayers are given flexibility in how to report their income, many will do what they can to lower their tax as much as possible.
For example, S corporation owners have long tried to reduce their Social Security and Medicare taxes by calling their compensation business income. Unlike partnership earnings, the earnings of S corporations that are not paid to shareholders as “compensation” are not subject to Social Security and Medicare taxes.
This clearly creates a strong incentive to characterize as much “compensation” as possible as regular business income. The challenge for the Internal Revenue Service has been defining what constitutes “reasonable compensation” for S corporation shareholders.
The issue has been well-litigated over the years, resulting in a 2012 circuit court ruling that was deemed a win for tax evaders. The court’s guidance boiled down to saying each case is unique and offered no ready recipe for the income allocation problem.
What happened in Kansas
The state of Kansas offers a ready example of what happens when you change how pass-throughs are taxed.
In 2012, Kansas eliminated its income tax on pass-through companies, whose owners previously had to report any earnings on their personal state returns. The response to this change, which took effect in 2013, was quick and large.
The center-right Tax Foundation estimated that it caused the number of pass-through companies in the state to double and resulted in $589 million in lost revenue in 2015 alone, based on an analysis of Kansas tax expenditure reports. A recent paper examining the impact of the change concluded it resulted in “overwhelmingly” more tax avoidance.
The reasonable inference from the S corporation history and Kansas’ experiment is what everyone is taught in their first economics class: People are rational and self-interested. They recognize and exploit opportunities to enrich themselves.
And the Trump administration’s proposed changes to pass-through rules would create a huge opportunity and greater incentives to recharacterize income. The Tax Foundation estimates the potential shortfall in federal tax revenue at $1.3 trillion to $1.5 trillion over the next 10 years.
A blow against fairness
Just as worrisome as the significant loss in revenue, however, is that Trump’s proposed change and the potential evasion could undermine the perceived fairness of the tax system.
The effectiveness of the U.S. system depends on voluntary compliance, and voluntary compliance, in part, depends on the belief by taxpayers that they’re not being treated like chumps. That belief is already being strained.
An April CBS News poll found that 56 percent of Americans think the income tax system is “somewhat” or “quite” unfair. And a 2011 Pew survey noted that 57 percent of respondents said their biggest complaint about the system is that the wealthy don’t pay their fair share.
Trump’s tax proposal would likely worsen the problem as more people try to game the system. Research suggests that this would create a growing perception of structural unfairness and lead more taxpayers to collectively challenge the system. If that happens, our tax system’s effectiveness would decline, and the consequences of that could be devastating.
Back in 2016, Trump said “hedge fund guys are getting away with murder” because of their use of the “carried interest loophole,” which allows them to significantly lower the taxes they pay.
Trump’s pass-through proposal amounts to encouraging more companies to do exactly the same thing. In our view, this is the manifestation of unfairness.