Fire Hydrant of Freedom
Politics, Religion, Science, Culture and Humanities => Politics & Religion => Topic started by: Crafty_Dog on January 13, 2009, 07:39:06 AM
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WSJ
Mark it down as the first tax increase of the new Democratic era. The Journal reported yesterday that President-elect Obama and Congressional leaders intend to maintain the estate tax rather than let it expire on schedule in 2010.
They will do so even though their economic stimulus plan is supposed to be about creating millions of new jobs in a hurry. The death tax strikes most heavily at small- and medium-sized family-owned businesses that generate the majority of new American jobs. So hitting these family businesses with a multimillion dollar tax bill when the owner dies won't help job creation.
Republicans are partly to blame here for making this easy for Democrats, thanks to their mistakes in the 2001 tax bill. Rather than repeal the tax immediately, Republicans got bamboozled into agreeing to a 10-year phase-out that eliminates the tax only for a single year. Then the rate goes all the way back in 2011 to the confiscatory 55% rate of the Clinton era, with a mere $1 million exclusion. Republicans never did fix the tax revenue estimating process on Capitol Hill, and this is one price for that failure.
Mr. Obama wants to make the current death tax rate of 45% permanent, along with an exclusion of $3.5 million ($7 million for couples). One issue to watch is whether this exclusion is indexed for inflation, or else over time it will hit more and more average earners who build up a small nest egg over a lifetime. Think Alternative Minimum Tax.
The death tax is supposed to be an easy way to extract revenue from the likes of Warren Buffett and Bill Gates, who support the tax. It won't. The super wealthy have foundations and other tax dodges to shield themselves from much of the tax. A 2006 Joint Economic Committee (JEC) study found that death tax "liabilities depend on the skill of the estate planner, rather than on capacity to pay." So much for tax fairness.
By contrast, "family-run firms and farms particularly feel the pinch of the estate tax, because they are less likely to have the liquid resources needed to meet their estate tax liabilities." The latest JEC estimate is that the death tax has reduced the stock of capital in the economy by about $847 billion. So let's get this straight: We are said to need an economic stimulus plan that will borrow and spend roughly the same amount of money to replace the capital stock that the estate tax has wiped out. Go figure.
This lost capital reinvestment translates into fewer workers on business payrolls. Douglas Holtz-Eakin, the former Congressional Budget Office director, estimates in a new study that the economy would create roughly 1.3 million more small business jobs with no death tax rather than with a 45% rate. Foreign governments understand this relationship, which is why they have been slashing their estate taxes in recent years. According to the American Council for Capital Formation, the U.S. has the third highest estate tax in the developed world -- 49% if you add the federal rate and average state rate, just below 50% in Japan and South Korea.
Republicans alone won't have much chance to stop this Obama estate-tax plan, so its fate will hang on Senate Democrats. For years many of those Democrats -- especially in swing states like Arkansas and Montana -- campaigned on the promise to lower or eliminate the estate tax. We'll now find out if they meant it.
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One question we wish someone had asked President Obama at last night's press conference is this: Why doesn't his economic stimulus bill include his own campaign proposal to eliminate the capital-gains tax for small businesses? The House bill omits it entirely, and the Senate version offers a rate reduction to 7% from the current 14%, but only on investments made in the next two years. That lower rate would apply to less than 2% of all capital gains.
Mr. Obama's original promise to cancel the capital gains tax for small enterprises was highlighted on his campaign Web site under "Small Business Emergency Rescue Plan." A few weeks before the election, advisers Austan Goolsbee and Jason Furman touted their boss's pro-growth credentials by noting in this newspaper that "he is proposing additional tax cuts" that included "the elimination of capital gains taxes for small businesses and start-ups."
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The revenue loss would be minimal, especially as compared to the rest of the $800 billion spend-a-thon, because any untaxed gains would only be realized well into the future. We'd prefer an across-the-board capital gains cut rather than a targeted reduction. But the proposal would at least signal some Democratic interest in encouraging businesses to take risks again -- the only way the economy is going to recover.
So what happened? We're told the obstacle is House Democrats, who oppose any cut in capital gains tax rates. The objection seems to be wholly ideological, a concern that such a cut -- even for start-ups, rather than for current capital holdings -- would validate Republican tax-cutters. The White House decided not to fight Democrats to add the President's own pro-growth idea to a bill whose supposed purpose is to promote growth. This looks like an early example of Mr. Obama repeating a mistake that President Bush made too often -- refusing to challenge a Congress run by his own party.
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"If lawmakers really want to trigger a recovery, they'll shelve their massive 'stimulus' bill -- a trillion-dollar debt plan that would actually weaken the economy. They'd do much better to take a simple but powerful step: reduce the corporate income tax rate to zero. Our nation's convoluted tax code (so confusing that even a high percentage of President Barack Obama's nominees apparently can't understand it) keeps a small army of accountants and tax lawyers employed. A simplified code might put them out of work. But that would be a small price to pay for a fairer system, one that helps create many more jobs for ordinary Americans. And creating jobs is what a federal stimulus is supposed to be all about. Lawmakers should think carefully before they borrow hundreds of billions of dollars, digging a deeper debt hole and expanding the size and scope of government. Far better to eliminate corporate taxes -- and unleash the job-creation power of our nation's entrepreneurs." --Heritage Foundation President Edwin Feulner, free enterprise economist
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This is part of the reason we have will have autos required to have the means to track our miles. so we can be taxed. Folks this is the most outrageous crap I have heard so far.
By JOAN LOWY
Associated Press Writer
12:54 PM EST, February 20, 2009
WASHINGTON (AP) — Transportation Secretary Ray LaHood says he wants to consider taxing motorists based on how many miles they drive rather than how much gasoline they burn — an idea that has angered drivers in some states where it has been proposed.
Gasoline taxes that for nearly half a century have paid for the federal share of highway and bridge construction can no longer be counted on to raise enough money to keep the nation's transportation system moving, LaHood said in an interview with The Associated Press.
"We should look at the vehicular miles program where people are actually clocked on the number of miles that they traveled," the former Illinois Republican lawmaker said.
Most transportation experts see a vehicle miles traveled tax as a long-term solution, but Congress is being urged to move in that direction now by funding pilot projects.
The idea also is gaining ground in several states. Governors in Idaho and Rhode Island are talking about such programs, and a North Carolina panel suggested in December the state start charging motorists a quarter-cent for every mile as a substitute for the gas tax.
A tentative plan in Massachusetts to use GPS chips in vehicles to charge motorists by the mile has drawn complaints from drivers who say it's an Orwellian intrusion by government into the lives of citizens. Other motorists say it eliminates an incentive to drive more fuel-efficient cars since gas guzzlers will be taxed at the same rate as fuel sippers.
Besides a VMT tax, more tolls for highways and bridges and more government partnerships with business to finance transportation projects are other funding options, LaHood, one of two Republicans in President Barack Obama's Cabinet, said in the interview Thursday.
"What I see this administration doing is this — thinking outside the box on how we fund our infrastructure in America," he said.
LaHood said he firmly opposes raising the federal gasoline tax in the current recession.
The program that funds the federal share of highway projects is part of a surface transportation law that expires Sept. 30. Last fall, Congress made an emergency infusion of $8 billion to make up for a shortfall between gas tax revenues and the amount of money promised to states for their projects. The gap between money raised by the gas tax and the cost of maintaining the nation's highway system and expanding it to accommodate population growth is forecast to continue to widen.
Among the reasons for the gap is a switch to more fuel-efficient cars and a decrease in driving that many transportation experts believe is related to the economic downturn. Electric cars and alternative-fuel vehicles that don't use gasoline are expected to start penetrating the market in greater numbers.
"One of the things I think everyone agrees with around reauthorization of the highway bill is that the highway trust fund is an antiquated system for funding our highways," LaHood said. "It did work to build the interstate system and it was very effective, there's no question about that. But the big question now is, We're into the 21st century and how are we going to take care of our infrastructure needs ... with a highway trust fund that had to be plussed up by $8 billion by Congress last year?"
A blue-ribbon national transportation commission is expected to release a report next week recommending a VMT.
The system would require all cars and trucks be equipped with global satellite positioning technology, a transponder, a clock and other equipment to record how many miles a vehicle was driven, whether it was driven on highways or secondary roads, and even whether it was driven during peak traffic periods or off-peak hours.
The device would tally how much tax motorists owed depending upon their road use. Motorists would pay the amount owed when it was downloaded, probably at gas stations at first, but an alternative eventually would be needed.
Rob Atkinson, chairman of the National Surface Transportation Infrastructure Financing Commission, the agency that is developing future transportation funding options, said moving to a national VMT would take about a decade.
Privacy concerns are based more on perception than any actual risk, Atkinson said. The satellite information would be beamed one way to the car and driving information would be contained within the device on the car, with the amount of the tax due the only information that's downloaded, he said.
The devices also could be programmed to charge higher rates to vehicles that are heavier, like trucks that put more stress on roadways, Atkinson
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By JONATHAN CLEMENTS
Like Bernie Madoff, I've got the government coming after my money. Unlike Madoff, I didn't do anything wrong.
The House of Representatives, alas, thinks otherwise. Last Thursday, 328 members voted for a bill that would slap a 90% surtax on my bonus, with Ways and Means Committee Chairman Charles Rangel dismissing the payout I received in January as "repugnant to everything that decent people believe in." The Senate is considering a similar bill.
All of this might come as a surprise to those of you who recognize my byline. Until a year ago, I was The Wall Street Journal's personal-finance columnist -- and widely considered to be a friend of the ordinary investor.
But that was then. In April 2008, I left to join a new Citi venture. (What follows are my views -- not those of Citigroup Inc.) For the past year, I thought I was involved in building a wonderful, customer-friendly business that minimizes conflicts of interest, favors index funds, and helps everyday Americans with their entire financial lives.
It seems that I was sadly mistaken. If the rebuke from Washington is any guide, I have apparently played an integral part in the collapse of the global economy and the financial markets -- and I must be punished.
Should the House bill become law, my bonus will be taxed at up to 90% once my adjusted gross income hits $250,000. The tax will apply to employees of those companies, like Citi, that have received more than $5 billion from the government's financial rescue program. As you might imagine, this is a tad perplexing, given that I've never been involved in lending to subprime mortgage borrowers and, as far as I know, nor have any of the folks I now work with.
In fact, many of the Wall Street executives responsible for today's mess have long since moved on -- and, unless they receive a bonus in 2009, will escape the 90% surtax. Unfair? Indeed, it is. The House bill is akin to, say, penalizing the earnings of today's politicians because their predecessors failed to save us from the current economic debacle.
I realize readers won't be shedding tears -- $250,000 is a decent chunk of change (though, trust me, it doesn't buy that great a lifestyle in New York). Still, the bill could cause financial headaches. Some of my colleagues have already spent their bonus or put a big chunk into their 401(k) plan, so finding the money to pay the 90% tax will be a struggle. Some have total incomes that don't come close to $250,000 -- but they breach that level once their spouse's salary and their investment income are included. The bill could also hurt the economy, encouraging banks to cut back on lending, so they can return their bailout money and protect employees from the surtax.
Not buying the hardship angle? Not persuaded that this tax is unfair? Consider this truly searing indictment: A 90% tax is downright stupid, creating bizarre disincentives. Exhibit A? That would be me. Once my total income hits $250,000 for the current calendar year, I will have no incentive to work a single day more in 2009. After all, for every extra dollar of income I earn above $250,000, I will lose 90 cents of the bonus I received earlier this year.
Being somewhat knowledgeable about personal finance, I'm trying to figure out how to finagle this. By minimizing my investment income in 2009 and pushing other income into 2010, I reckon I can delay the day of tax reckoning. But even with that finagling, by mid-October, I will hit $250,000 in total income -- and have no incentive to earn any more income in 2009.
At that point, I plan to ask Citi for an unpaid sabbatical. Forget earning more income. There's no point. Instead, you will find me hunkered down at home, desperately trying not to spend money. This will make entire financial sense for the Clements household. What about the struggling economy? Not so much.
Mr. Clements is director of financial guidance for myFi, a unit of Citi, and the author of "The Little Book of Main Street Money," out in May by Wiley.
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One of President Obama's applause lines is that his climate tax policies will create new green jobs "that can't be outsourced." But if that's true, why is his main energy adviser floating a new carbon tariff on imports? Welcome to the coming cap and trade war.
APEnergy Secretary Steven Chu made the protectionist point during an underreported House hearing this month, when he said tariffs and other trade barriers could be used as a "weapon" to force countries like China and India into cutting their own CO2 emissions. "If other countries don't impose a cost on carbon, then we will be at a disadvantage," he said. So a cap-and-trade policy won't be cost-free after all. Apparently Mr. Chu did not get the White House memo about obfuscating the impact of the Administration's anticarbon policies.
The Chinese certainly heard Mr. Chu, with Xie Zhenhua, a top economic minister, immediately responding that such a policy would be a "disaster" and "an excuse to impose trade restrictions." Beijing's reaction shows that as a means of coercing international cooperation, climate tariffs are worse than pointless. China and India are never going to endanger their own economic growth -- and the chance to lift hundreds of millions out of poverty -- merely to placate the climate neuroses of affluent Americans in Silicon Valley or Cambridge, Massachusetts. And they certainly won't do it under the threat of a tariff ultimatum.
But give Mr. Chu credit for candor. He had previously told the New York Times that "The concern about cap and trade in today's economic climate is that a lot of money might flow to developing countries in a way that might not be completely politically sellable." He is admitting that one byproduct of cap and trade is "leakage," by which investment and jobs are driven to nations that have looser or nonexistent climate regimes and therefore lower costs. At greatest risk are carbon-heavy industries such as steel, aluminum, paper, cement and chemicals that are sensitive to trade and where business is won and lost on the basis of pennies per unit of product. But the damage could strike almost any industry when energy prices "necessarily skyrocket," as Mr. Obama put it last year.
So in addition to all the other economic harm, a cap-and-trade tax will make foreign companies more competitive while eroding market share for U.S. businesses. The most harm will accrue to the very U.S. manufacturing and heavy-industry jobs that Democrats and unions claim to want to keep inside the U.S. A cap-and-tax plan would be the greatest outsourcing boon in history. And it may even increase CO2 emissions overall, because the developing nations where businesses are likely to relocate -- if they don't simply close -- tend to use energy less efficiently than does the U.S.
Meanwhile, carbon trade barriers would almost certainly violate U.S. obligations in the World Trade Organization. Since carbon energy cuts across so many industries, a tariff would presumably have to hit tens of thousands of products. Any restriction the U.S. imposes on imports can also just as easily be turned around and imposed on U.S. exports, whatever their carbon content.
Run-of-the-mill protectionism is already adopting a deeper shade of green. In January, the president of the European Commission said he may slap tariffs on goods from the U.S. and other non-Kyoto Protocol nations to protect European business. After Mr. Chu's comments, the U.S. steel lobby began calling for sanctions against Chinese steelmakers if Beijing doesn't commit to its own carbon limits, knowing full well that it won't. Look for more businesses to claim green virtue to justify special-interest pleading, a la the 54-cent U.S. tariff on foreign ethanol.
Democrats are already careless about trade -- i.e., the Mexican trucking spat, the "Buy America" provisions in the stimulus, and blocking the Colombia and South Korea free-trade pacts. Now cap and nontrade may lead to a retreat from the open global markets that have done so much to boost economic growth and innovation. The closer we get to the cap-and-trade dreams of Mr. Obama and Congress, the more dangerous they look.
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Lawrence Summers, President Obama's chief economic adviser, declared recently that "Let's be very clear: There are no, no tax increases this year. There are no, no tax increases next year." Oh yes, yes, there are. The President's budget calls for the largest increase in the death tax in U.S. history in 2010.
The announcement of this tax increase is buried in footnote 1 on page 127 of the President's budget. That note reads: "The estate tax is maintained at its 2009 parameters." This means the death tax won't fall to zero next year as scheduled under current law, but estates will be taxed instead at up to 45%, with an exemption level of $3.5 million (or $7 million for a couple). Better not plan on dying next year after all.
This controversy dates back to George W. Bush's first tax cut in 2001 that phased down the estate tax from 55% to 45% this year and then to zero next year. Although that 10-year tax law was to expire in 2011, meaning that the death tax rate would go all the way back to 55%, the political expectation was that once the estate tax was gone for even one year, it would never return.
And that is no doubt why the Obama Administration wants to make sure it never hits zero. It doesn't seem to matter that the vast majority of the money in an estate was already taxed when the money was earned. Liberals counter that the estate tax is "fair" because it is only paid by the richest 2% of American families. This ignores that much of the long-term saving and small business investment in America is motivated by the ability to pass on wealth to the next generation.
The importance of intergenerational wealth transfers was first measured in a National Bureau of Economic Research study in 1980. That study looked at wealth and savings over the first three-quarters of the 20th century and found that "intergenerational transfers account for the vast majority of aggregate U.S. capital formation." The co-author of that study was . . . Lawrence Summers.
Many economists had previously believed in "the life-cycle theory" of savings, which postulates that workers are motivated to save with a goal of spending it down to zero in retirement. Mr. Summers and coauthor Laurence Kotlikoff showed that patterns of savings don't validate that model; they found that between 41% and 66% of capital stock was transferred either by bequests at death or through trusts and lifetime gifts. A major motivation for saving and building businesses is to pass assets on so children and grandchildren have a better life.
What all this means is that the higher the estate tax, the lower the incentive to reinvest in family businesses. Former Congressional Budget Office director Douglas Holtz-Eakin recently used the Summers study as a springboard to compare the economic cost of a 45% estate tax versus a zero rate. He finds that the long-term impact of eliminating the death tax would be to increase small business capital investment by $1.6 trillion. This additional investment would create 1.5 million new jobs.
In other words, by raising the estate tax in the name of fairness, Mr. Obama won't merely bring back from the dead one of the most despised of all federal taxes, and not merely splinter many family-owned enterprises. He will also forfeit half the jobs he hopes to gain from his $787 billion stimulus bill. Maybe that's why the news of this unwise tax increase was hidden in a footnote
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By ARTHUR B. LAFFER
In most cases, people who inherit wealth are lucky by an accident of birth and really don't "deserve" their inheritance any more than people who don't inherit wealth. After all, few of us get to choose our parents. It's also arguable that inherited wealth sometimes induces slothfulness and overindulgence. But the facts that beneficiaries of inheritances are just lucky and that the actual inheritance may make beneficiaries less productive don't justify having an estate tax.
Chad CroweThese same observations about serendipitous birth can be made for intelligence, education, attractiveness, health, size, gender, disposition, race, etc. And yet no one would suggest that the government should remove any portion of these attributes from people simply because they came from their parents. Surely we have not moved into Kurt Vonnegut's world of Harrison Bergeron.
President Barack Obama has proposed prolonging the federal estate tax rather than ending it in 2010, as is scheduled under current law. The president's plan would extend this year's $3.5 million exemption level and the 45% top rate. But will this really help America recover from recession and reduce our growing deficits? In order to assess the pros and cons of the estate tax, we should focus on its impact on those who bequeath wealth, not on those who receive wealth.
Advocates of the estate tax argue that such a tax will reduce the concentrations of wealth in a few families, but there is little evidence to suggest that the estate tax has much, if any, impact on the distribution of wealth. To see the silliness of using the estate tax as a tool to redistribute wealth, realize that those who die and leave estates would be taxed just as much if they bequeathed their money to poor people as they would if they left their money to rich people. If the objective were to redistribute, surely, an inheritance tax (a tax on the recipients) would make far more sense than an estate tax.
Indeed, from a societal standpoint, inheritance is an unmitigated good. Passing on to successive generations greater health, wealth and wisdom is what society in general, and America specifically, is all about. Imagine what America would look like today if our forefathers had been selfish and had left us nothing. We have all benefited greatly from a history of intergenerational American generosity. But just being an American is as much an accident of birth as being the child of wealthy parents. If you are an American, it's likely because ancestors of yours chose to become Americans and also chose to have children.
In its most basic form, it's about as silly an idea as can be imagined that America in the aggregate can increase the standards of living of future generations by taxing individual Americans for passing on higher standards of living to future generations of Americans of their choice. Clearly, taxing estates at death will induce people who wish to leave estates to future generations to leave smaller estates and to find ways to avoid estate taxes. On a conceptual level, it makes no sense to tax estates at death.
Study after study finds that the estate tax significantly reduces the size of estates and, as an added consequence, reduces the nation's capital stock and income. This common sense finding is documented ad nauseam in the 2006 U.S. Joint Economic Committee Report on the Costs and Consequences of the Federal Estate Tax. The Joint Economic Committee estimates that the estate tax has reduced the capital stock by approximately $850 billion because it reduces incentives to save and invest, has excessively high compliance costs, and results in significant economic inefficiencies.
Today in America you can take your after-tax income and go to Las Vegas and carouse, gamble, drink and smoke, and as far as our government is concerned that's just fine. But if you take that same after-tax income and leave it to your children and grandchildren, the government will tax that after-tax income one additional time at rates up to 55%. I especially like an oft-quoted line from Joseph Stiglitz and David L. Bevan, who wrote in the Greek Economic Review, "Of course, prohibitively high inheritance tax rates generate no revenue; they simply force the individual to consume his income during his lifetime." Hurray for Vegas.
If you're rich enough, however, you can hire professionals who can, for a price, show you how to avoid estate taxes. Many of the very largest estates are so tax-sheltered that the inheritances go to their beneficiaries having paid little or no taxes at all. And all the costs associated with these tax shelters and tax avoidance schemes are pure wastes for the country as a whole and exist solely to circumvent the estate tax. The estate tax in and of itself causes people to waste resources.
Again, a number of studies suggest that the costs of sheltering estates from the tax man actually are about as high as the total tax revenues collected from the estate tax. And these estimates don't even take into account lost output, employment and production resulting from perverse incentives. This makes the estate tax one of the least efficient taxes. And yet for all the hardship and expense associated with the estate tax, the total monies collected in any one year account for only about 1% of federal tax receipts.
It is important to realize that less than half of the estates that must go through the burden of complying with the paperwork and reporting requirements of the tax actually pay even a nickel of the tax. And the largest estates that actually do pay taxes generally pay lower marginal tax rates than smaller estates because of tax shelters. The inmates really are running the asylum.
In 1982, Californians overwhelmingly voted to eliminate the state's estate tax. It seems that even in the highest taxed state in the nation there are some taxes voters cannot abide. It shouldn't surprise anyone that ultra-wealthy liberal Sen. Howard Metzenbaum, supporter of the estate tax and lifetime resident of Ohio, where there is a state estate tax, chose to die as a resident of Florida, where there is no state estate tax. Differential state estate-tax rates incentivize people to move from state to state. Global estate tax rates do the same thing, only the moves are from country to country. In 2005 the U.S., at a 47% marginal tax rate, had the third highest estate tax rate of the 50 countries covered in a 2005 report by Price Waterhouse Coopers, LLP. A full 26 countries had no "Inheritance/Death" tax rate at all.
In the summary of its 2006 report, the Joint Economic Committee wrote, "The detrimental effects of the estate tax are grossly disproportionate to the modest amount federal revenues it raises (if it raises any net revenue at all)." Even economists in favor of the estate tax concede that its current structure does not work. Henry Aaron and Alicia Munnell concluded, "In short, the estate and gift taxes in the United States have failed to achieve their intended purposes. They raise little revenue. They impose large excess burdens. They are unfair."
For all of these reasons, the estate tax needs to go, along with the step-up basis at death of capital gains (which values an asset not at the purchase price but at the price at the buyer's death). On purely a static basis, the Joint Tax Committee estimates that over the period 2011 through 2015, the static revenue losses from eliminating the estate tax would be $281 billion, while the additional capital gains tax receipts from repeal of the step-up basis would be $293 billion.
To counter the fact that economists such as I obsess about the deleterious effects of the estate tax, advocates of the estate tax note with some pride that 98% of Americans will never pay this tax. Let's make it 100%, and I'll get off my soapbox.
Mr. Laffer is the chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen" (Threshold, 2008).
Printed in The Wall Street Journal, page A19
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Laffer makes a good point that the estate tax is one of the least efficient. Two other problems: death tax double taxation on after tax assets is designed to discourage the creation of wealth by those who are best at it. That presumes a false, zero-sum game, i.e. that the wealth they would have created will now go to someone else. It's just not true.
The worst aspect though is to buy into the idea that it is okay for a majority to think of taxes to pass that will only apply to others. There is something important missing there (consent of the governed).
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From the New England Journal of Medicine (a liberal rag) which frankly is more liberal then Newsweek. Since it is genreated from the ivory towers of the Boston Medical establishment is loaded with flaming liberals. This issue has an article which makes the case for tax on sugar. Note the quotation from Adam Smith which of course is there to silence conservatives on the issue right from the start. More intrusion into our freedoms is on the way folks:
****Published at www.nejm.org April 8, 2009 (10.1056/NEJMp0902392)
Ounces of Prevention — The Public Policy Case for Taxes on Sugared Beverages
Kelly D. Brownell, Ph.D., and Thomas R. Frieden, M.D., M.P.H.
Sugar, rum, and tobacco are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.
— Adam Smith, The Wealth of Nations, 1776
The obesity epidemic has inspired calls for public health measures to prevent diet-related diseases. One controversial idea is now the subject of public debate: food taxes.
Forty states already have small taxes on sugared beverages and snack foods, but in the past year, Maine and New York have proposed large taxes on sugared beverages, and similar discussions have begun in other states. The size of the taxes, their potential for generating revenue and reducing consumption, and vigorous opposition by the beverage industry have resulted in substantial controversy. Because excess consumption of unhealthful foods underlies many leading causes of death, food taxes at local, state, and national levels are likely to remain part of political and public health discourse.
Sugar-sweetened beverages (soda sweetened with sugar, corn syrup, or other caloric sweeteners and other carbonated and uncarbonated drinks, such as sports and energy drinks) may be the single largest driver of the obesity epidemic. A recent meta-analysis found that the intake of sugared beverages is associated with increased body weight, poor nutrition, and displacement of more healthful beverages; increasing consumption increases risk for obesity and diabetes; the strongest effects are seen in studies with the best methods (e.g., longitudinal and interventional vs. correlational studies); and interventional studies show that reduced intake of soft drinks improves health.1 Studies that do not support a relationship between consumption of sugared beverages and health outcomes tend to be conducted by authors supported by the beverage industry.2
Sugared beverages are marketed extensively to children and adolescents, and in the mid-1990s, children's intake of sugared beverages surpassed that of milk. In the past decade, per capita intake of calories from sugar-sweetened beverages has increased by nearly 30% (see bar graph)3; beverages now account for 10 to 15% of the calories consumed by children and adolescents. For each extra can or glass of sugared beverage consumed per day, the likelihood of a child's becoming obese increases by 60%.4
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Daily Caloric Intake from Sugar-Sweetened Drinks in the United States.
Data are from Nielsen and Popkin.3
Taxes on tobacco products have been highly effective in reducing consumption, and data indicate that higher prices also reduce soda consumption. A review conducted by Yale University's Rudd Center for Food Policy and Obesity suggested that for every 10% increase in price, consumption decreases by 7.8%. An industry trade publication reported even larger reductions: as prices of carbonated soft drinks increased by 6.8%, sales dropped by 7.8%, and as Coca-Cola prices increased by 12%, sales dropped by 14.6%.5 Such studies — and the economic principles that support their findings — suggest that a tax on sugared beverages would encourage consumers to switch to more healthful beverages, which would lead to reduced caloric intake and less weight gain.
The increasing affordability of soda — and the decreasing affordability of fresh fruits and vegetables (see line graph) — probably contributes to the rise in obesity in the United States. In 2008, a group of child and health care advocates in New York proposed a one-penny-per-ounce excise tax on sugared beverages, which would be expected to reduce consumption by 13% — about two servings per week per person. Even if one quarter of the calories consumed from sugared beverages are replaced by other food, the decrease in consumption would lead to an estimated reduction of 8000 calories per person per year — slightly more than 2 lb each year for the average person. Such a reduction in calorie consumption would be expected to substantially reduce the risk of obesity and diabetes and may also reduce the risk of heart disease and other conditions.
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Relative Price Changes for Fresh Fruits and Vegetables, Sugars and Sweets, and Carbonated Drinks, 1978–2009.
Data are from the Bureau of Labor Statistics and represent the U.S. city averages for all urban consumers in January of each year.
Some argue that government should not interfere in the market and that products and prices will change as consumers demand more healthful food, but several considerations support government action. The first is externality — costs to parties not directly involved in a transaction. The contribution of unhealthful diets to health care costs is already high and is increasing — an estimated $79 billion is spent annually for overweight and obesity alone — and approximately half of these costs are paid by Medicare and Medicaid, at taxpayers' expense. Diet-related diseases also cost society in terms of decreased work productivity, increased absenteeism, poorer school performance, and reduced fitness on the part of military recruits, among other negative effects.
The second consideration is information asymmetry between the parties to a transaction. In the case of sugared beverages, marketers commonly make health claims (e.g., that such beverages provide energy or vitamins) and use techniques that exploit the cognitive vulnerabilities of young children, who often cannot distinguish a television program from an advertisement.
A third consideration is revenue generation, which can further increase the societal benefits of a tax on soft drinks. A penny-per-ounce excise tax would raise an estimated $1.2 billion in New York State alone. In times of economic hardship, taxes that both generate this much revenue and promote health are better options than revenue initiatives that may have adverse effects.
Objections have certainly been raised: that such a tax would be regressive, that food taxes are not comparable to tobacco or alcohol taxes because people must eat to survive, that it is unfair to single out one type of food for taxation, and that the tax will not solve the obesity problem. But the poor are disproportionately affected by diet-related diseases and would derive the greatest benefit from reduced consumption; sugared beverages are not necessary for survival; Americans consume about 250 to 300 more calories daily today than they did several decades ago, and nearly half this increase is accounted for by consumption of sugared beverages; and though no single intervention will solve the obesity problem, that is hardly a reason to take no action.
The full impact of public policies becomes apparent only after they take effect. We can estimate changes in sugared-drink consumption that would be prompted by a tax, but accompanying changes in the consumption of other foods or beverages are more difficult to predict. One question is whether the proportions of calories consumed in liquid and solid foods would change. And shifts among beverages would have different effects depending on whether consumers substituted water, milk, diet drinks, or equivalent generic brands of sugared drinks.
Effects will also vary depending on whether the tax is designed to reduce consumption, generate revenue, or both; the size of the tax; whether the revenue is earmarked for programs related to nutrition and health; and where in the production and distribution chain the tax is applied. Given the heavy consumption of sugared beverages, even small taxes will generate substantial revenue, but only heftier taxes will significantly reduce consumption.
Sales taxes are the most common form of food tax, but because they are levied as a percentage of the retail price, they encourage the purchase of less-expensive brands or larger containers. Excise taxes structured as a fixed cost per ounce provide an incentive to buy less and hence would be much more effective in reducing consumption and improving health. In addition, manufacturers generally pass the cost of an excise tax along to their customers, including it in the price consumers see when they are making their selection, whereas sales taxes are seen only at the cash register.
Although a tax on sugared beverages would have health benefits regardless of how the revenue was used, the popularity of such a proposal increases greatly if revenues are used for programs to prevent childhood obesity, such as media campaigns, facilities and programs for physical activity, and healthier food in schools. Poll results show that support of a tax on sugared beverages ranges from 37 to 72%; a poll of New York residents found that 52% supported a "soda tax," but the number rose to 72% when respondents were told that the revenue would be used for obesity prevention. Perhaps the most defensible approach is to use revenue to subsidize the purchase of healthful foods. The public would then see a relationship between tax and benefit, and any regressive effects would be counteracted by the reduced costs of healthful food.
A penny-per-ounce excise tax could reduce consumption of sugared beverages by more than 10%. It is difficult to imagine producing behavior change of this magnitude through education alone, even if government devoted massive resources to the task. In contrast, a sales tax on sugared drinks would generate considerable revenue, and as with the tax on tobacco, it could become a key tool in efforts to improve health.
No potential conflict of interest relevant to this article was reported.
Dr. Brownell is a professor and director of the Rudd Center for Food Policy and Obesity, Yale University, New Haven, CT. Dr. Frieden is the health commissioner for the City of New York.
This article (10.1056/NEJMp0902392) was published at NEJM.org on April 8, 2009. It will appear in the April 30 issue of the Journal.
References
Vartanian LR, Schwartz MB, Brownell KD. Effects of soft drink consumption on nutrition and health: a systematic review and meta-analysis. Am J Public Health 2007;97:667-675. [Free Full Text]
Forshee RA, Anderson PA, Storey ML. Sugar-sweetened beverages and body mass index in children and adolescents: a meta-analysis. Am J Clin Nutr 2008:87:1662-71.
Nielsen SJ, Popkin BM. Changes in beverage intake between 1977 and 2001. Am J Prev Med 2004;27:205-210. [Erratum, Am J Prev Med 2005;28:413.] [CrossRef][ISI][Medline]
Ludwig DS, Peterson KE, Gortmaker SL. Relation between consumption of sugar-sweetened drinks and childhood obesity: a prospective, observational analysis. Lancet 2001;357:505-508. [CrossRef][ISI][Medline]
Elasticity: big price increases cause Coke volume to plummet. Beverage Digest. November 21, 2008:3-4.****
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Like the old competition to have the world's tallest building, New York can't resist having the nation's highest taxes. So after California raised its top income tax rate to 10.55% last month, Albany's politicians leapt into action to reclaim high-tax honors. Maybe C-Span can make this tax competition a new reality TV series; Carla Bruni, the first lady of France, could host.
Getty ImagesThey can invite politicians from the at least 10 other states that are also considering major tax hikes, including Oregon, Illinois, Wisconsin, Washington, Arizona and New Jersey. One explicit argument for the $787 billion "stimulus" bill was to help states avoid these tax increases that even Keynesians understand are contractionary. Instead, the state politicians are pocketing the federal cash to maintain spending, and raising taxes anyway. Just another spend-and-tax bait and switch.
In New York, Assembly Speaker (and de facto Governor) Sheldon Silver and other Democrats will impose a two percentage point "millionaire tax" on New Yorkers who earn more than $200,000 a year ($300,000 for couples). This will lift the top state tax rate to 8.97% and the New York City rate to 12.62%. Since capital gains and dividends are taxed as ordinary income, New York will impose the nation's highest taxes on investment income -- at a time when Wall Street is in jeopardy of losing its status as the world's financial capital.
But who and where are all these millionaires to pluck? More than any other state, New York has been hurt by the financial meltdown, and its $132 billion budget is now $17.7 billion in deficit. The days of high-roller Wall Street bonuses that finance 20% of the New York budget are long gone. The richest 1% of New Yorkers already pay almost 40% of the income tax, and the top 0.5% pay 30%.
Mr. Silver thinks he can squeeze more from these folks without any economic harm, arguing that recent income tax hikes didn't hurt New Jersey. (Yes, the pols in New York actually hold up New Jersey, whose economy and budget are also in shambles, as their role model.) The tax hike lobby in Albany points to a paper by Princeton researchers reporting that the number of "half-millionaires," those with incomes above $500,000, increased by 60% from 2003-2006 after New Jersey taxes rose (the top rate is now 8.98%). But this was a boom time for the national economy, especially in the financial industry where many New Jerseyites work, or at least used to work.
The better comparison is how New Jersey compared to the rest of the nation. According to the study's own data, over the same period the U.S. saw an increase of 76% in half-millionaire households. E.J. McMahon, a budget expert at the Manhattan Institute, calculates that New Jersey lost more than 4,000 high-income taxpayers after the tax increase.
Mr. Silver says of the coming tax hikes: "We've done it before. There hasn't been a catastrophe." Oh, really? According to Census Bureau data, over the past decade 1.97 million New Yorkers left the state for greener pastures -- the biggest exodus of any state. New York City has lost more than 75,000 jobs since last August, and many industrial areas upstate are as rundown as Detroit. The American Legislative Exchange Council recently said New York had the worst economic outlook of all 50 states, including Michigan. And that analysis was done before these $4 billion in new taxes. How does Mr. Silver define "catastrophe"?
Oh, and it isn't just high earners who get smacked. The new budget raises another $2 billion or so on top of the $4 billion in income taxes with some 100 new taxes, fees, fines, surcharges and penalties to be paid by all New York residents. There are new charges for cell phone usage, fishing permits, health insurance (the "sick tax"), electric bills, and on bottled water, cigars, beer and wine. A New York Post analysis found that a typical family of four with an income below $100,000 would pay more than $800 a year in higher taxes and fees.
This is advertised as a plan of "shared sacrifice," but the group that is most responsible for New York's budget woes, the all-powerful public employee unions, somehow walk out of this with a 3% pay increase. The state is receiving an estimated $10 billion in federal stimulus money, and Democrats are spending every cent while raising the state budget by 9%. Then they insist with a straight face that taxes are the only way to close the budget deficit.
And so Albany is about to make a gigantic gamble on New York's economic future. The gamble is that the state with the highest cost of doing business can raise taxes on everyone who lives, works, breathes, eats or drinks in the state and not pay a heavy price for it. If they're wrong, New York will enhance its reputation as the Empire in Decline State.
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second post of the morning
Has your 401(k) lost half its value? Have you kissed goodbye to the bonus you were hoping to use to pay junior's college tuition? Do you lie awake at night, worrying there's a pink slip with your name on it?
Cheer up. Even in these hard economic times, Democrats across the nation are working on plans that will turn some of you into instant millionaires.
There's only one catch. You're not actually going to be bringing in a million-dollar income. But the tax man is going to treat you just as though you did.
That's the message coming out of Albany, N.Y., where a newly ascendant Democratic majority led by Assembly Speaker Sheldon Silver forced a deal with the Democratic governor to impose a new "millionaires' tax." The beauty is that to pay this tax, you won't have to make anywhere near a million dollars. If you make even $300,000 a year, the cash-strapped Empire State will consider you a millionaire.
E.J. McMahon of the Albany-based Empire Center for New York State Policy explains the politics. "You get people picturing some greedy Wall Street fat cat whose pockets are stuffed with TARP money, but you end up hitting the guy who owns the local hardware store whose income is also his working capital. By the time everyone realizes what just happened, it's too late to make adjustments without creating an even bigger budget hole -- which, of course, can always be solved with a bigger tax."
It's important to distinguish what New York is doing from the more traditional Democratic approaches to taxing millionaires. In California in 2004, for example, a Democratic assemblyman championed a successful ballot initiative that imposed a 1% surcharge on personal incomes over a million dollars, to pay for mental health programs. This year, another Democratic assemblyman has introduced a bill that would impose another 1% tax on million-dollar incomes, this time to help state colleges from having to raise their tuition and fees.
In a similar way, the Democratic governor of Maryland last year successfully established a new 6.25% tax bracket for million-dollar incomes. Likewise, Connecticut Democrats have just released a plan that would jack up taxes on millionaires by 60%. Say what you will about the merits of these millionaire taxes, they at least have the virtue of applying to people who in fact earn a million dollars a year.
Today such an approach seems positively démodé. The new fashion is to take advantage of hard times to target a class of people that few politicians are willing to defend -- and then expand that class. Like so many doubtful experiments in public finance, this one was pioneered by the People's Republic of New Jersey.
In 2004, then Gov. Jim McGreevey became the first Democrat to get through a millionaires' tax whose reach extended to nonmillionaires. The McGreevey "millionaires' tax" kicked in at $500,000. He justified it, moreover, by saying that any money collected would go toward funding property tax relief for the state's beleaguered homeowners.
Five years later, we can see how that's turning out. Not only is Democratic Gov. Jon Corzine targeting property tax relief for many Garden State citizens, he wants to impose a "temporary" surcharge on the existing McGreevey millionaires' tax. The result is a three-way race between New Jersey, New York and Connecticut to see which of these metropolitan states can impose the highest income taxes on its residents.
Other Democrats are taking note of the new progressivism. In the state of Washington, which has no income tax, Democratic state Sen. Lisa Brown raised the idea in her blog. "The New York Legislature is considering what I think is a fair and stable way of addressing their revenue challenges. Should we do something similar in Washington?" she asked. Not long after, one of her Democratic colleagues introduced a bill proposing a millionaires' tax that would kick in at $500,000.
For the moment, the effort to make new millionaires out of people making a great deal less has been confined to Democratic governors and Democratic state legislators. There appears, however, to be a sense that a much larger change they can believe in is now within grasp. In a recent article for an AOL business and finance Web site, Joseph Lazzaro put it this way:
"In the same way Gov. Al Smith's reform policies in New York State in the 1920s provided a blueprint for FDR's New Deal," he wrote, "hopefully New York State's example will serve as impetus for the U.S. Congress to make a similar tough decision after the economic recovery is in place and raise upper-income federal taxes, as well."
And why not? So long as Democrats are willing to rewrite the tax code, almost anyone can wake up one day to find himself a millionaire.
Write to MainStreet@wsj.com
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April 29, 2009
The Economic Impact of the Proposed Capital Gains Tax Increase
by Curtis S. Dubay
WebMemo #2418
President Obama's recently released "Budget Blueprint" proposes raising the tax rate on capital gains from 15 percent to 20 percent.[1] In real terms (that is, adjusted for inflation), the tax rate on capital gains already far exceeds 20 percent.
Inflation Drives up Real Capital Gains Tax Rate
The price of assets such as stocks, real estate, and collectibles must increase to keep up with inflation and maintain their value. The simple analogy is to wage gains. If inflation is 4 percent, then an individual's real wages--i.e., wages after inflation--must increase by at least 4 percent, or else he takes a pay cut.
The tax on capital gains, however, does not recognize that such gains are illusory in that they do not increase the asset holder's real wealth. As a result, the tax applies to both real gains and gains resulting from inflation; thus, the effective capital gains tax rate is much higher than the statutory rate (the 15 percent rate specified in law). The real effective tax rate in this case is the rate paid by an investor after accounting for the effects of inflation.
The real effective tax rate, unlike the statutory tax rate, fully accounts for the effects of inflation and therefore reflects the true disincentive effects of the tax. The effective tax rate is calculated by dividing the tax paid on the capital gain, unadjusted for inflation, by the real capital gain after adjusting for inflation.
For example, suppose a stock is purchased for $10 and held for a period during which the stock price increases $11 and sold at $21. During that same period, however, inflation doubles. Under current law, the capital gains tax falls on the entire $11 increase in price, even though $10 of the increase only maintains the stock's value compared to current prices. The capital gains tax paid is $1.65 ($11 multiplied by the current statutory 15 percent capital gains tax rate). However, the real gain after adjusting for the doubling of the price level is $1. The real effective tax rate is then 165 percent (the $1.65 tax paid, divided by the $1 real capital gain). Because it ignores the effects of inflation, the capital gains tax in this case imposes an effective rate of over 100 percent.
(http://www.heritage.org/Research/Taxes/images/wm2418_table1.JPG)
As Table 1 shows, the effective tax rate is higher than the 15 percent statutory rate in every year there is a capital gain. For example, the effective tax rate on a stock purchased in 1995 and sold in 2009 is 23 percent--eight percentage points higher than the statutory 15 percent rate. Thus, under current law, a taxpayer pays $71 on his gain, but if inflation were not taxed, he would pay only $47, a 34 percent savings.
While the Federal Reserve has better controlled inflation since the early 1980s, the impact of inflation is still a substantial influence on the effective tax rate and an important factor diminishing the real gains of investors. In fact, the effective tax rate for the stock shown in Table 1 is still consistently higher than the statutory 15 percent tax rate even when it is purchased well after inflation was under control. If the stock is purchased in 1990, a time when inflation was tame compared to 1980 and earlier, the effective tax rate still exceeds the statutory rate by eight percentage points.
The impact of inflation heightens the damaging effect of a statutory rate increase. As explained above, the effective tax rate for a stock purchased in 1995 and sold in 2009 is 23 percent. However, if the statutory rate increases to 20 percent, as proposed in Obama's Budget Blueprint, the effective tax rate increases to 30 percent, or double today's statutory rate.
The proposed tax hike would fall on both real and inflationary portions of the capital gain. In fact, a statutory rate cut to 13.3 percent would be necessary for the effective tax rate paid on the capital gain from the sale of this stock to be 20 percent.
The Congressional Budget Office projects inflation to average 1.2 percent over the next 10 years. Suppose this figure is correct and the rate of return on investment equals the average real annualized return for the S&P 500 over the last 20 years (a little over 5 percent), and investors hold assets on average for 10 years. To keep the effective tax rate equal to 15 percent, the statutory rate would have to be cut to 10 percent. To get an effective rate equal to 20 percent, the statutory rate would have to be cut to 13 percent.
The Inflationary Capital Gains Tax
Higher real effective capital gains tax rates discourage investment in new plants and equipment and in new technologies. Lower returns decrease the incentive of investors to invest, and less investment lowers long-term economic growth. A higher effective tax rate also enhances what economists call the "lock-in" effect: the tendency of investors to hold on to assets to avoid paying the capital gains tax. This results in capital not being efficiently allocated to the most deserving projects, which also lowers economic growth.
Congress should not create a further impediment to economic growth by increasing the capital gains tax rate to 20 percent as proposed in Obama's Budget Blueprint. Instead, it should index capital gains for inflation to reduce its damaging economic impacts, similar to the current indexation of individual income tax brackets to avoid raising taxes on wage gains due to inflation. An even better solution would be to index capital gains for inflation and cut the rate from its current 15 percent level. This would further increase the incentives to invest and spur economic growth at a time it is badly needed.
Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
[1]U.S. Office of Management and Budget, A New Era of Responsibility: Renewing America's Promise (Washington, D.C.: U.S. Government Printing Office, 2009), p. 123, Table S-6, at http://www.whitehouse.gov/omb/
assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdf (April 3, 2009).
http://www.heritage.org/Research/Taxes/wm2418.cfm
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Great post, thank you Guinness!
"President Obama's ...proposes raising the tax rate on capital gains from 15 percent to 20 percent.[1] In real terms (that is, adjusted for inflation), the tax rate on capital gains already far exceeds 20 percent."
The feds and even the good analysts always refer to the capital gains as if they are only taxed once - add another 9.5% if you live in our state. All states with income tax as far as I know tax capital gains as ordinary income, even though they are just taxing inflation and punishing you for being invested with too much for too long; you will often be in the top tax bracket the year you sell your asset no matter how poor you are, and certain asset types can't be split into pieces to stay in lower brackets.
No problem, just use income averaging, you might say. Sorry, that program was dropped a couple decades ago as a 'loophole'.
So is it a 'gain' or is it inflation? Maybe if you guessed right on a company and now you own shares in a bigger and better company - so it is partly gain - but they issued more shares during that time also so you own a smaller share of a bigger company. My (remaining) investments are all trapped in real estate. In each case, it's still the same damn building on the same damn lot. I don't own something more than I bought except how someone else values it at a different point in time - it's all inflation from my point of view. If anything, each house or property is just that much older and closer to its eventual teardown.
Real estate hedges inflation real nicely, except that you can NEVER sell and keep the money.
I actually think 19-20% would be a reasonable tax - for everyone - on real income or 'real' gains.
Instead the real tax is probably over 50%, so instead I hold the property that I don't want and the Treasury collects zero.
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http://www.washingtonexaminer.com/politics/Obama-Govt-is-hiring-nearly-800-new-IRS-agents-to-enforce-tax-code-44305177.html
Obama: Govt. is hiring nearly 800 new IRS agents to enforce tax code
The Associated Press
05/04/09 12:20 PM
US President Barack Obama and US Treasury Secretary Timothy Geithner (L) deliver remarks on US tax reform in the Grand Foyer of the White House in Washington, DC, May 4, 2009. AFP PHOTO/Jim WATSON/Getty Images)
President Barack Obama vowed Monday to "detect and pursue" American tax evaders and go after their offshore tax shelters.
In announcing a series of steps aimed at overhauling the U.S. tax code, Obama complained that existing law makes it possible to "pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York. "
The president said he wants to prevent U.S. companies from deferring tax payments by keeping profits in foreign countries rather than recording them at home and called for more transparency in bank accounts that Americans hold in notorious tax havens like the Cayman Islands.
"If financial institutions won't cooperate with us, we will assume that they are sheltering money in tax havens and act accordingly," Obama said.
The president, who hammered on this issue during his long campaign for the White House, said at a White House event that his plan would generate $210 billion in new taxes over 10 years and "make it easier" for companies to create jobs at home. Over a decade, $210 billion would make a modest dent in a federal deficit expected to swell to $1.2 trillion in 2010.
Under the plan, companies would not be able to write off domestic expenses for generating profits abroad. The goal is to reduce the incentive for U.S. companies to base all or part of their operations in other countries.
He said the government also is hiring nearly 800 new IRS agents to enforce the U.S. tax code.
Congress is expected to resist significant portions of Obama's plan.
The administration is not seeking to repeal all overseas tax benefits. Obama called his proposal "a downpayment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations."
"Nobody likes paying taxes, particularly in times of economic stress," Obama said. "But most Americans meet their responsibilities because they understand that it's an obligation of citizenship, necessary to pay the costs of our common defense and our mutual well-being."
The current tax code, he said, makes it too easy for "a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all."
Obama said he was willing to make permanent a research tax credit that was to expire at the end of the year and is popular with businesses. Officials estimate that making the tax credits permanent would cost taxpayers $74.5 billion over the next decade.
But administration aides said 75 percent of those tax credits cover the cost of workers' wages.
Under existing laws, companies with operations overseas pay U.S. taxes only if they bring the profits back to the United States. If they keep the profits offshore, they can defer paying taxes indefinitely. Obama's plan, which would take effect in 2011, would change that.
Obama officials also said they would close a Clinton-era provision that would cost $87 billion over the next decade by letting U.S. companies "check the box" and treat international subsidiaries as mere branch offices. Officials said it was meant as a paperwork shortcut that is now a widely used and perfectly legal way to avoid paying billions in taxes on international operations.
Treasury Secretary Timothy Geithner joined Obama for the announcement. He said the proposals would end "indefensible tax breaks and loopholes which allow some companies and some well-off citizens to evade the rules that the rest of America lives by."
Geithner called them "common-sense changes designed to restore balance to our tax code."
The White House said that in 2004, multinational corporations enjoyed an effective tax rate of 2.3 percent in the United States because of such allowances. Aides said that was the most recent year available for analysis.
They said the situation was indefensible.
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President Obama revealed Monday that he's half a supply-sider. If only someone could explain to him the other half. We have a tax code, the President said, "that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." That sounds like a great argument for lowering taxes on the guy creating jobs in Buffalo. Alas, that's not what he has in mind.
APSet aside that India is a poor example to make Mr. Obama's point, since its corporate tax rate on foreign-owned companies can be as high as 55%. The President's argument is that U.S. tax-deferral rules make it more expensive for American companies to reinvest overseas profits at home than abroad. This, he claims, creates a perverse incentive for companies to "ship jobs overseas" and reduces investment and job creation in the U.S.
He's right, except that his proposals would only compound the problem. His plan would limit the tax deferral on income earned abroad by tightening the rules, limiting allowable deductions and restricting eligibility for foreign-tax credits. This "solution" is antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue Mr. Obama predicts. Other than that . . .
The current tax-deferral system is a clumsy attempt to deal with the fact that most other countries don't tax their companies' overseas profits. A German firm doing business in Ireland, say, pays no German income tax on its Irish profits, but it does pay Ireland's corporate income tax at its 12.5% rate. The U.S. company competing with that German business in Ireland, by contrast, pays Ireland the same 12.5% on its profits -- and it then pays Uncle Sam up to 35%, minus a credit for what it paid the Irish. And because almost everyone else's corporate tax rates are lower than America's (see nearby table), U.S. companies end up paying higher taxes than their international competitors.
Congress long ago created the corporate tax deferral to compensate for this competitive disadvantage. Under deferral, a company doesn't have to pay the U.S. corporate rate until it repatriates its earnings. It can retain them overseas or reinvest them abroad with no penalty. But if it brings them home or pays them as dividends, the tax bill comes due.
The German company faces no such quandary. It pays the Irish tax, and it's free to invest that money in Ireland or Germany or anywhere else. This territorial tax system, embraced by most of the world, eliminates the perverse incentive to hold money abroad that America's deferral system creates. Adopting a territorial system would be the most obvious and simplest way to eliminate the distortion that tax deferral creates. Alternatively, Mr. Obama could lower the U.S. corporate tax rate to a level that is internationally competitive.
Yes, we know: Few major U.S. companies pay 35% of their profits in taxes because of the foreign tax-deferral and other deductions, credits and loopholes. But that's precisely why Mr. Obama should want to take the better path to corporate tax reform by reducing the rate and removing loopholes. America now has the worst of both worlds -- a high statutory rate and a tax code so riddled with complexity that it is both expensive to administer and inefficient at collecting revenue. And yet Mr. Obama's proposal to limit deferral only layers on the complexity.
In promoting its new global tax raid, the White House fingered the Netherlands, which it lumped with Ireland and Bermuda as "small, low-tax countries" that supposedly account for an outsize share of reported foreign profits of U.S. firms. The Dutch corporate tax rate is 25.5% -- which isn't even all that low by current European standards. And the U.S. is the largest foreign investor in that "small, low-tax country," according to the Dutch Embassy. Perhaps reducing American investment there and slamming the Netherlands as a tax haven is Mr. Obama's way of reaching out to friends and allies.
But the Netherlands won't be the only country hurt. The explicit goal of this plan is to reduce the incentive for U.S. companies to invest abroad, which Mr. Obama derisively calls "shipping jobs overseas." Foreign companies may relish the loss of U.S. corporate competitiveness that his proposal will bring in the short term. But in the long term, reducing U.S. investment globally will hurt everyone. And that investment is a two-way street -- the Netherlands is also the fourth-largest foreign investor in the U.S.
Some of Mr. Obama's advisers understand all this, but then their real goal isn't tax reform or U.S. competitiveness. It's a revenue grab, one made easier by the fact that overseas tax "avoidance" is easily demagogued. To that political end, Mr. Obama conflates tax deferral with the offshoring of jobs -- hence the sly reference to Bangalore, India. With trillions of dollars of new spending, the White House and Treasury are desperate for new tax sources to pay for it all.
But even as a revenue raiser, this is likely to fail. Fewer companies will keep their headquarters in the U.S., especially small or mid-sized firms that can slip away without becoming a political target. Those companies that can't flee will sooner or later demand relief from Congress, which will be happy to create even more loopholes.
If Mr. Obama's proposal has a silver lining, it is that he has embraced the principle that tax rates matter to investment decisions. If his new and short-sighted proposal becomes law, he and all Americans will discover just how much.
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May 4, 2009
The Rich Pay More Taxes: Top 20 Percent Pay Record Share of Income Taxes
by Curtis S. Dubay
WebMemo #2420
Since the passage of the 2001 and 2003 tax cuts, critics have claimed incessantly that they disproportionately benefited the rich while burdening the poor. Now that the data is in, these claims have been shown to be unquestionably false.
Squeezing the Wealthy Even More
According to a report issued by the Congressional Budget Office (CBO), the tax cuts significantly increased the share of federal income taxes paid by the highest-earning 20 percent of households compared to their levels in 2000, President Clinton's final year in office.
In 2006, the latest available year from CBO, the top 20 percent of income earners paid 86.3 percent of all federal income taxes, an all-time high.[1] This is an increase of over 6 percent from 2000, when the top 20 percent paid 81.2 percent. During the same period, the bottom four quintiles all saw their share of the federal income tax burden fall sharply:
The bottom 20 percent of income earners' share of federal income taxes fell from -1.6 percent in 2000 to -2.8 percent in 2006;
The next 20 percent's share declined from 1.1 percent to -0.8 percent;
The middle quintile's share dropped from 5.7 percent to 4.4 percent; and
The fourth quintile's share decreased from 13.5 percent to 12.9 percent.
Each of these four quintiles' shares was an all-time low.
(http://www.heritage.org/Research/Taxes/images/wm_2420_chart1.jpg)
2001 and 2003 Tax Cuts Removed Low-Income Earners from Roles
The 2001 and 2003 tax cuts removed millions of taxpayers from the federal income tax rolls, leaving only those at the top to pay the bill. They lowered every federal income tax rate and created a new 10 percent bracket to further reduce taxes for low-income earners.
While these tax rate cuts lowered taxes for all taxpayers, low-income earners got the biggest cut. In addition to these rate cuts, the 2001 and 2003 tax cuts expanded the refundable Child Tax Credit from $500 per child to $1,000 per child. The combination of lower tax rates and an expanded Child Tax Credit meant many low-income taxpayers no longer paid any federal income taxes.
Was Greater Income the Cause?
Critics counter that the increase in tax shares for high-earners was due to income increases at the top of the income spectrum. But a closer look at the data shows this just is not the case.
The top 20 percent of earners saw their share of pre-tax income rise from 54.8 percent to 55.7 percent, from 2000 to 2006. During that same period, their share of federal income taxes increased from 81.2 percent to 86.3 percent.
The modest increase in incomes is not large enough to explain the large increase in the share of income taxes paid by the top 20 percent. Rather, the removal of substantial numbers of low-income taxpayers from the federal income tax rolls is the real culprit.
Refundable Credits Redistribute Income
The bottom 40 percent of income earners actually paid a negative share of federal income taxes in 2006. In other words, these taxpayers are actually paid money through the tax code. This happens through refundable credits like the Child Tax Credit and the Earned Income Tax Credit, which result in "refunds" when they are greater than the taxpayer's total income tax liability.
For instance, if a family with one child has an income tax liability of $300, it can claim the Child Tax Credit, which wipes out their tax liability, and still receive $700 from the IRS for the remainder of the $1,000 credit. On April 15, not only do the bottom 40 percent of all taxpayers pay no taxes, but they actually receive additional income from the IRS.
Refundable credits redistribute income from the top 20 percent of earners to the remaining tax filers, with the bottom 20 percent the prime beneficiaries. The bottom quintile's share of income, measured after taxes, actually increased a whopping 17 percent compared to its pre-tax levels because of the income they got from refundable credits. Comparing shares of income before taxes are paid to after, only the top quintile saw their share of income decline.
(http://www.heritage.org/Research/Taxes/images/wm_2420_chart2.jpg)
Obama's Tax Policies Widen the Gap
President Obama's tax policies would cause federal income taxes paid by the top 20 percent to increase and the shares of the remaining 80 percent to decrease even further. These policies include those passed as part of the stimulus legislation and those included in the President's Budget Blueprint.
The stimulus created the Making Work Pay Credit[2] and expanded the Child Tax Credit and Earned Income Tax Credit. These refundable credits will knock even more taxpayers from the federal income tax rolls and send more money to low-income taxpayers.[3] With fewer low- and middle-income taxpayers paying federal income taxes, the burden will shift even further in the direction of top earners.
President Obama also proposed in his Budget Blueprint to increase income taxes on those making over $250,000 by increasing their tax rates on investment income and reducing the amount they could deduct.[4] This would dramatically increase the share of taxes paid by the top 20 percent while the remaining 80 percent of earners would not pay higher taxes as a result of these proposed tax hikes.
Stop Shifting Burden to Top 20 Percent
To stop the shifting of the tax burden to a dwindling number of taxpayers, Congress should:
Make the 2001 and 2003 tax cuts permanent for all taxpayers, not just those making under $250,000. This would slow the shifting of the burden to the top 20 percent.
Stop creating and expanding refundable credits. Welfare spending and subsidies to low-income earners should be done through traditional spending programs, not hidden in the tax code. This would stop a growing portion of the population from being removed from the tax rolls.
Cut top tax rates to return the shares of income taxes paid by each quintile to their more-sustainable 2000 levels.
On Dangerous Ground
The shifting of the tax burden to a small segment of high-income taxpayers is economically dangerous. The beneficiaries of government services are increasingly those who share little or none of the tax burden to pay for them. As they become more numerous, they put more pressure on Congress for more services. Meanwhile, those who bear most of the burden are being squeezed even more, shrinking their number. The result is a growing group of government beneficiaries clamoring for more of a shrinking group's wealth. Congress should put an end to this practice.
Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
[1]Unless otherwise noted, all data come from Congressional Budget Office, "Historical Effective Federal Tax Rates: 1979 to 2006" April 2009, at http://www.cbo.gov/publications/collections/tax/2009/all_tables.pdf (April 23, 2009).
[2]Curtis S. Dubay, "'Making Work Pay Credit' Will Not Stimulate the Economy," Heritage Foundation WebMemo No. 2240, January 26, 2009, at http://www.heritage.org/Research/Taxes/wm2240.cfm.
[3]Curtis S. Dubay, "Obama's Stimulus Has "Spread the Wealth Around': Are Tax Hikes Next" Heritage Foundation WebMemo No. 2354, March 23, 2009, at http://www.heritage.org/Research/Economy/wm2354.cfm.
[4]U.S. Office of Management and Budget, A New Era of Responsibility: Renewing America's Promise (Washington, D.C.: U.S. Government Printing Office, 2009), p. 123, Table S-6, at http://www.whitehouse.gov/omb/assets
/fy2010_new_era/A_New_Era_of_Responsibility2.pdf (April 23, 2009).
http://www.heritage.org/Research/Taxes/wm2420.cfm
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McClintock on the Propositions
Here are Rep. McClintock's recommendations for the May 19th Special Election.
Prop 1A: Extend the Tax Increases. NO. This is the fig leaf that hides certain deficiencies suffered by the legislators who caved into pressure for the biggest tax increase in California's history. This measure EXTENDS the tax increases for up to two ADDITIONAL years in exchange for a spending limit that doesn't limit spending. The "spending limit" is laughable – it requires placing "unanticipated revenues" into a special fund that is then to be spent for a variety of additional purposes including education, debt service and health care. And since all funds are interchangeable, this merely allows funds spent for one purpose to be shifted for another. The bottom line: If you were against the tax increase, you're against Prop. 1A.
Prop 1B: Increases Public School Spending $9.3 Billion. NO. This is the classic J. Willington Wimpy approach to finance – "I would gladly pay you Tuesday for a hamburger today." In exchange for not making certain mandated school payments over the next two years, this measure obligates $9.3 billion in supplemental payments in future years. But wait, it gets better. According to the Legislative Analyst, it's not entirely clear the bill will actually save money in the short term, but very likely it will cost much more in the future.
Prop 1C: Lottery rip-off. NO. This measure takes the Lottery revenue away from the schools, diverts it into the general fund to pay for $5 billion of new borrowing to balance the general fund, and then locks the general fund into making additional payments to the public schools in perpetuity. If this sounds like another of the infamous Schwarzenegger "After me, the flood" proposals, you're right.
Prop 1D: California Children and Families Rip-off. YES. This measure irresponsibly rips off an irresponsible rip-off, which in balance is probably a (barely) good thing. The Children and Families Fund (now called First 5) was the Rob Reiner disaster that raised tobacco taxes through the roof to pay for some highly dubious community programs. This slush fund has built up a sizeable reserve that Prop 1D filches for the general fund.
Prop 1E: Mental Health Funding Rip-Off. YES. This measure irresponsibly rips off another irresponsible rip-off, in this case the Mental Health Services Act that is funded by a 1 percent surcharge on upper-income wage earners and small businesses. Both 1D and 1E would require a more hardheaded appraisal of spending priorities, which is the only reason that would justify voting for them.
Prop 1F: No Raise Without a Balanced Budget. NO. What's not to like about a measure that says to the Legislature, "If you don't pass a balanced budget you won't get a raise?" My advice: beware any measure that puts a representative's self-interest ahead of the public interest. I'm afraid this would ultimately end up as a perverse incentive for legislators to pass higher and higher taxes in order to qualify for higher and higher salaries. We actually had a balanced budget device in the constitution that worked well: the Gann Spending Limit. We need to bring it back.
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“Cap and Trade Is a Tax: And It’s A Great Big One”
Posted May 1st, 2009 at 2.55pm in Energy and Environment.
Cap and Trade Top Ten List
1. Cap and Trade Is a Massive Energy Tax
2. It Will Not Make A Substantive Impact on the Environment
3. It Will Kill Jobs
4. It Will Cause Electricity Bills and Gas Prices to Sharply Increase
5. It Will Outsource Manufacturing Jobs and Hurt Free Trade
6. It Will Make You Choose Between Energy, Groceries, Clothing or Haircuts.
7. It Will Be Highly Susceptible to Fraud and Corruption
8. It Will Hurt Senior Citizens, the Poor, and the Unemployed the Worst
9. It Will Cost American Families Over $3,000 a Year
10. President Obama Admitted “Electricity Rates Would Necessarily Skyrocket” under a cap-and-trade program. (January 2008)
What Would Global Warming Regulations Do?
Lieberman-Warner: Last year, the Senate rejected cap-and-tax legislation that would have capped CO2 emissions 70% below 2005 levels by 2050. A Heritage analysis of that bill found startling economic impacts.
Markey-Waxman: The cap-and-trade tax proposed by Rep. Henry Waxman (D-CA) and Rep. Edward Markey (D-MA) would double down on last year’s failed scheme, bringing in trillions of dollars in taxes, making it one of the largest sources of revenue for the federal government.
Six Hundred Hurricanes Couldn’t Cause This Much Economic Damage: In the first 20 years, Lieberman-Warner would have destroyed nearly 3 million jobs, caused some manufacturing sectors to cut jobs by 50% and generated up to $300 billion per year in government revenue while reducing income by nearly $5 trillion. For comparison, this is equal to the economic damage done by over 600 hurricanes …and the Markey-Waxman bill is worse.
Green Jobs Are a Myth, Real Job Losses are Not: For every “green job” created, others are wiped out. Job losses resulting from the Lieberman-Warner cap and trade would have surpassed 900,000 in some years. Keep in mind that this is net of any “green jobs” created.
New Version, More Expensive: Markey-Waxman will be much more costly than the bill rejected by the U.S. Senate last year. Such an expensive tax on all Americans is bad under normal circumstances and worse during a recession.
A “Carbon Constrained Future”
The Ultimate Outsourcing: India and China have repeatedly said they would not match U.S. environmental goals in order to protect their economies. Cap and Trade will merely move manufacturing jobs to China and India.
By 2100: By EPA calculations, the Lieberman-Warner bill would have at best resulted in a global drop in temperature of only 0.1 to 0.2 degrees Celsius by the year 2100.
A Carbon Tax Would Be No Different: Alternative carbon taxes share the central flaw of any other carbon reduction scheme. Similar to cap and trade, a carbon tax would cause significant economic damage and would do very little to reduce global temperatures.
An Alternative That Supports American Taxpayers: Instead of appeasing a radical environmental agenda, President Obama should give us access to all energy sources, including domestic oil production, nuclear energy, coal, and new renewable fuels. Instead of new taxes, the President should instead aim to lower gas and electricity prices. When government impediments are lifted, America’s energy entrepreneurs can develop innovative and market-driven solutions to our energy needs.
Title quote: Congressman John Dingell (D-MI), April 2009
http://blog.heritage.org/2009/05/01/cap-and-trade-is-a-tax-and-its-a-great-big-one/
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Just read a piece the other day stating that this same effect has been impacting Maryland.
Soak the Rich, Lose the Rich
Americans know how to use the moving van to escape high taxes.
By ARTHUR LAFFER and STEPHEN MOORE
With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit.
Mr. Quinn and other tax-raising governors have been emboldened by recent studies by left-wing groups like the Center for Budget and Policy Priorities that suggest that "tax increases, particularly tax increases on higher-income families, may be the best available option." A recent letter to New York Gov. David Paterson signed by 100 economists advises the Empire State to "raise tax rates for high income families right away."
Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.
And the evidence that we discovered in our new study for the American Legislative Exchange Council, "Rich States, Poor States," published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.
Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.
Martin Feldstein, Harvard economist and former president of the National Bureau of Economic Research, co-authored a famous study in 1998 called "Can State Taxes Redistribute Income?" This should be required reading for today's state legislators. It concludes: "Since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions, a relatively unfavorable tax will cause gross wages to adjust. . . . A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees."
More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found "a significant negative impact of higher marginal tax rates on state economic growth." In other words, soaking the rich doesn't work. To the contrary, middle-class workers end up taking the hit.
Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the "soak the rich" tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.
This result was all the more remarkable given that these were years when the stock market boomed and Wall Street gains were in the trillions of dollars. Examining data from a 2008 Princeton study on the New Jersey tax hike on the wealthy, we found that there were 4,000 missing half-millionaires in New Jersey after that tax took effect. New Jersey now has one of the largest budget deficits in the nation.
We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.
Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states "race to the bottom" and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.
They're wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation -- even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.
Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation -- much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves.
One last point: States aren't simply competing with each other. As Texas Gov. Rick Perry recently told us, "Our state is competing with Germany, France, Japan and China for business. We'd better have a pro-growth tax system or those American jobs will be out-sourced." Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.
The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it's too late.
Mr. Laffer is president of Laffer Associates. Mr. Moore is senior economics writer for the Wall Street Journal. They are co-authors of "Rich States, Poor States" (American Legislative Exchange Council, 2009).
http://online.wsj.com/article/SB124260067214828295.html
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ADIOS, NEW YORK
By TOM GOLISANO
May 20, 2009 --
I LOVE New York. But how much should it cost to call New York home? Decades of out-of-control budgets, spending hikes and relentless borrowing have made New York simply too expensive.
Politicians like to talk about incentives -- for businesses to relocate, for example, or to get folks to buy local. After reviewing the new budget, I have identified the most compelling incentive of all: a major tax break immedi ately available to all New Yorkers. To be eligible, you need do only one thing: move out of New York state.
Last week I spent 90 minutes doing a couple of simple things -- registering to vote, changing my driver's license, filling out a domicile certificate and signing a homestead certificate -- in Florida. Combined with spending 184 days a year outside New York, these simple procedures will save me over $5 million in New York taxes annually.
By moving to Florida, I can spend that $5 million on worthy causes, like better hospitals, improving education or the Clinton Global Initiative. Or maybe I'll continue to invest it in fighting the status quo in Albany. One thing's certain: That money won't continue to fund Albany's bloated bureaucracy, corrupt politicians and regular special-interest handouts.
How did the state get to this point? By spending, spending and spending some more.
* New York's budget was $72.7 billion in 1999. Ten years later it ballooned to $131.8 billion. Each year, on average, the budget has risen at an astounding 6 percent compounded annual rate -- more than dou ble inflation (2.8 percent).
* Medicaid spending alone works out to $2,283 for every man, woman and child in the state. That's the highest in the nation and twice the national average. In the last decade, the Medicaid budget grew 50 percent (from $30 billion in 1999 to $45 billion in 2009). In almost every sector (hospitals, nursing homes, medicine, clinics and home and community care), spending per recipient regularly exceeds the national average.
Faced with escalating costs and diminishing returns, Albany and its allies -- that is, the health-care unions (SEIU Local 1199 has more than 300,000 members, many of whom are politically active) -- have only one answer: increase taxes.
* New York spends the most, per pupil, in the nation on education. Our education spending is 63 percent above the national average. Costs went up about 70 percent in the last decade (from $12.7 billion in 1999 to $21.8 billion in 2009).
Like health care, education is something worth spending on and worth investing in, but we're spending more and getting less. New York City schools graduated only 54 percent of high-school students in 2007; Buffalo, just 47 percent, and Rochester 39 percent. Why do we keep spending more? Perhaps it's because New York teachers unions spend millions convincing Albany to spend more. And when faced with potential cuts, the union and its allies had one response: increase taxes.
* Nor is it just Albany. After all, local governments tax, too. In New York, the average total state and local tax burden is $5,260 for every man, woman and child. That's by far the highest in the country. And like Albany, when faced with problems, municipalities have one answer: increase taxes.
Upstate New York has been particularly hard hit. Add unreasonable real-estate taxes to uncontrolled state spending, and you wind up with whole communities decimated. An unworkable assessment process compounds the problem further. The result: Fifteen of the 20 highest-taxed counties in America are right here in Upstate New York. While homeowners in other areas build equity, we just pay more taxes.
This problem didn't begin with the current recession. New York faced a $6 billion shortfall before the economic downturn. However, in the face of economic turmoil, Gov. Paterson, Assembly Speaker Sheldon Silver and Senate Majority Leader Malcolm Smith looked to the unions and special interests, who answered with one voice: raise taxes.
That was irresponsible -- and may just prove to be counterproductive, since the top 1 percent of earners account for about 50 percent of state revenue and are the ones who can and will leave.
Among other hikes in taxes and fees, they raised the marginal tax rate on the most successful (and most mobile) New Yorkers to 8.97 percent, the second-highest rate in the nation.
Bottom line? By domiciling in Florida, which has no personal-income tax, I will save $13,800 every day. That's a pretty strong incentive.
Like I said, I love New York. But I'm not going to pay any more for the waste, corruption and inefficiency that is New York state government.
Tom Golisano is the board chairman of Paychex, Inc., and the founder of Responsible New York.
http://www.nypost.com/seven/05202009/postopinion/opedcolumnists/adios__new_york_170074.htm
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Marginal Tax on Corporate Profits was 74.2% in the 1st Quarter
Posted by Alan Reynolds
From the Bureau of Economic Analysis news release of May 29:
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $42.6 billion in the first quarter. . . Taxes on corporate income increased $31.6 billion. . . [therefore] profits after tax . . . increased $11.1 billion.
In other words, taxes extracted 74.2% of any added (marginal) corporate earnings, leaving only scraps for stockholder.
Companies that lost money, on the other hand, were often bailed out and/or nationalized.
Why bother even trying to maximize profits or minimize losses?
http://www.cato-at-liberty.org/2009/05/30/marginal-tax-on-corporate-profits-was-742-in-the-1st-quarter/
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Two profoundly scary pieces there BBG. The importance of marginal tax rates cannot be overstated-- and these rates are leading us to certain disaster.
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Before drawing conclusions I think you need to look closer at the numbers.
My best friend is a Senior Partner at PricewaterhouseCoopers specializing in very large entertainment entities. As he said, "I can make
any #1 blockbuster lose money for ten years." Simply put, no "profits". Yet...
I'm not arguing that our corporate tax rate is too high or too low; just if one is going to make such broad statements, i.e.
"leaving only scraps for the stockholder" one needs to look a little closer at the numbers.
Tax base and rates
Corporate "income" tax is not a tax on corporate income. It would be more accurate to call it a corporate "profit" tax. Corporate "taxable income" is that which remains after most business expenses have been deducted.
For regular income tax purposes, a system of graduated marginal tax rates is applied to "taxable income." For 2008, the marginal tax rates on a corporation's taxable income are as follows:
Taxable Income ($) Tax Rate[8]
0 to 50,000 15%
50,000 to 75,000 25%
75,000 to 100,000 34%
100,000 to 335,000 39%
335,000 to 10,000,000 34%
10,000,000 to 15,000,000 35%
15,000,000 to 18,333,333 38%
18,333,333 and up 35%
The effect of the marginal rate structure outlined above is to average out the lower marginal rates applied to the taxable income falling in the lower brackets, producing a flat tax rate of 35 percent on a corporation’s entire taxable income once the corporation’s taxable income exceeds $18.33 million.
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Perverse incentives are perverse incentives particularly when creative accounting is needed to game the system. Think the scary point of the CATO piece is that is a business performs poorly and gets bailed out by the government then investors take it on the chin, while if a company performs well marginal rates leave investors taking it on the chin. As the New York piece makes clear, then capital proceeds to vote with its feet.
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As the facts pointed out, avoiding "creative accounting" the tax rate is 35%. Is that high or low, I don't know,
but it sure isn't 74%! Therefore the article itself used "creative accounting". And many of these "incentives" were voted
in during the Bush administration. Again, perhaps they are valid; maybe not, again, that is not my point.
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Ah, so you are saying your calculations are to be favored over the ones released by the Bureau of Economic Analysis, posted below, due to an anecdote about a friend who is proud of his ability to cook the books, while the larger point about perverse incentive should be ignored. Got it.
EMBARGOED UNTIL RELEASE AT 8:30 A.M. EDT, FRIDAY, MAY 29, 2009BEA 09-20
* See the navigation bar at the right side of the news release text for links to data tables,
contact personnel and their telephone numbers, and supplementary materials.
Lisa Mataloni : (202) 606-5304 (GDP)
Andrew Hodge (202) 606-5564 (Profits)
Recorded message: (202) 606-5306
Gross Domestic Product, 1st quarter 2009 (preliminary)
Corporate Profits, 1st quarter 2009 (preliminary)
Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- decreased at an annual rate of 5.7 percent in the first quarter of 2009, (that
is, from the fourth quarter to the first quarter), according to preliminary estimates released by the Bureau
of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent.
The GDP estimates released today are based on more complete source data than were available for
the advance estimates issued last month. In the advance estimates, the decrease in real GDP was 6.1
percent (see "Revisions" on page 3).
The decrease in real GDP in the first quarter primarily reflected negative contributions from
exports, equipment and software, private inventory investment, nonresidential structures, and residential
fixed investment that were partly offset by a positive contribution from personal consumption
expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, decreased.
The smaller decrease in real GDP in the first quarter than in the fourth reflected a larger decrease
in imports, an upturn in PCE for durable goods, and a smaller decrease in PCE for nondurable goods that
were partly offset by larger decreases in private inventory investment and in nonresidential structures
and a downturn in federal government spending.
Motor vehicle output subtracted 1.36 percentage points from the first-quarter change in real GDP
after subtracting 2.01 percentage points from the fourth-quarter change. Final sales of computers added
0.06 percentage point to the first-quarter change in real GDP after subtracting 0.02 percentage point
from the fourth-quarter change.
_________________________
FOOTNOTE.--Quarterly estimates are expressed at seasonally adjusted annual
rates, unless otherwise specified. Quarter-to-quarter dollar changes are
differences between these published estimates. Percent changes are calculated
from unrounded data and are annualized. “Real” estimates are in chained
(2000) dollars. Price indexes are chain-type measures.
This news release is available on BEA’s Web site along with the Technical Note and Highlights
related to this release.
_________________________
BOX
Comprehensive Revision of the National Income and Product Accounts
BEA plans to release the results of the 13th comprehensive (or benchmark) revision of the national
income and product accounts (NIPAs), as part of the annual revision on July 31, 2009. More
information on the revision is available on BEA’s Web site at www.bea.gov/national/an1.htm, including
a link to an article in the March 2009 issue of the Survey of Current Business that discussed the changes
in definitions and presentation that will be implemented in the revision and a link to an article in the
May Survey that described the changes in statistical methods. The September Survey will contain an
article that describes the results of the revision in detail. The Web site also contains links to redesigned
PCE table stubs; other revised NIPA table stubs and press release stubs will be available in June.
_________________________
The price index for gross domestic purchases, which measures prices paid by U.S. residents,
decreased 1.0 percent in the first quarter, the same as in the advance estimate; this index decreased 3.9
percent in the fourth quarter. Excluding food and energy prices, the price index for gross domestic
purchases increased 1.4 percent in the first quarter, compared with an increase of 1.2 percent in the
fourth. The federal pay raise for civilian and military personnel added 0.3 percentage point to the
change in the first quarter gross domestic purchases price index.
Real personal consumption expenditures increased 1.5 percent in the first quarter, in contrast to a
decrease of 4.3 percent in the fourth. Real nonresidential fixed investment decreased 36.9 percent,
compared with a decrease of 21.7 percent. Nonresidential structures decreased 42.3 percent, compared
with a decrease of 9.4 percent. Equipment and software decreased 33.5 percent, compared with a
decrease of 28.1 percent. Real residential fixed investment decreased 38.7 percent, compared with a
decrease of 22.8 percent.
Real exports of goods and services decreased 28.7 percent in the first quarter, compared with a
decrease of 23.6 percent in the fourth. Real imports of goods and services decreased 34.1 percent,
compared with a decrease of 17.5 percent.
Real federal government consumption expenditures and gross investment decreased 4.3 percent in
the first quarter, in contrast to an increase of 7.0 percent in the fourth. National defense decreased 6.8
percent, in contrast to an increase of 3.4 percent. Nondefense increased 1.0 percent, compared with an
increase of 15.3 percent. Real state and local government consumption expenditures and gross
investment decreased 2.9 percent, compared with a decrease of 2.0 percent.
The real change in private inventories subtracted 2.34 percentage points from the first-quarter
change in real GDP, after subtracting 0.11 percentage point from the fourth-quarter change. Private
businesses decreased inventories $91.4 billion in the first quarter, following decreases of $25.8 billion in
the fourth quarter and $29.6 billion in the third.
Real final sales of domestic product -- GDP less change in private inventories -- decreased 3.4
percent in the first quarter, compared with a decrease of 6.2 percent in the fourth.
Gross domestic purchases
Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever
produced -- decreased 7.5 percent in the first quarter, compared with a decrease of 5.9 percent in the
fourth.
Gross national product
Real gross national product -- the goods and services produced by the labor and property supplied
by U.S. residents -- decreased 5.8 percent in the first quarter, compared with a decrease of 5.6 percent in
the fourth. GNP includes, and GDP excludes, net receipts of income from the rest of the world, which
decreased $4.1 billion in the first quarter after increasing $21.3 billion in the fourth; in the first quarter,
receipts decreased $99.7 billion, and payments decreased $95.5 billion.
Current-dollar GDP
Current-dollar GDP -- the market value of the nation's output of goods and services -- decreased
3.1 percent, or $110.6 billion, in the first quarter to a level of $14,089.7 billion. In the fourth quarter,
current-dollar GDP decreased 5.8 percent, or $212.5 billion.
Revisions
The preliminary estimate of the first-quarter change in real GDP is 0.4 percentage point, or $12.8
billion, higher than the advance estimate issued last month. The upward revision to the percent change
in real GDP primarily reflected upward revisions to private nonfarm inventory investment and to exports
that were partly offset by a downward revision to PCE for nondurable goods.
Advance Preliminary
(Percent change from preceding quarter)
Real GDP............................... -6.1 -5.7
Current-dollar GDP..................... -3.5 -3.1
Gross domestic purchases price index... -1.0 -1.0
Corporate Profits
Profits from current production (corporate profits with inventory valuation and capital
consumption adjustments) increased $42.6 billion in the first quarter, in contrast to a decrease of $250.3
billion in the fourth quarter. Current-production cash flow (net cash flow with inventory valuation and
capital consumption adjustments) -- the internal funds available to corporations for investment --
increased $59.0 billion in the first quarter, in contrast to a decrease of $97.0 billion in the fourth.
Taxes on corporate income increased $31.6 billion in the first quarter, in contrast to a decrease of
$130.3 billion in the fourth. Profits after tax with inventory valuation and capital consumption
adjustments increased $11.1 billion in the first quarter, in contrast to a decrease of $120.1 billion in the
fourth. Dividends decreased $42.2 billion compared with a decrease of $32.8 billion; current-production
undistributed profits increased $53.3 billion, in contrast to a decrease of $87.4 billion.
Domestic profits of financial corporations increased $116.1 billion in the first quarter, in contrast
to a decrease of $178.7 billion in the fourth. Domestic profits of nonfinancial corporations decreased
$64.2 billion in the first quarter, compared with a decrease of $89.1 billion in the fourth. In the first
quarter, real gross value added of nonfinancial corporate business decreased, and profits per unit of real
value added decreased. The decrease in unit profits reflected increases in both the unit labor and
nonlabor costs corporations incurred.
The rest-of-the-world component of profits decreased $9.3 billion in the first quarter, in contrast to
an increase of $17.5 billion in the fourth. This measure is calculated as (1) receipts by U.S. residents of
earnings from their foreign affiliates plus dividends received by U.S. residents from unaffiliated foreign
corporations minus (2) payments by U.S. affiliates of earnings to their foreign parents plus dividends
paid by U.S. corporations to unaffiliated foreign residents. The first-quarter decrease was accounted for
by a larger decrease in receipts than in payments.
Profits before tax increased $152.1 billion in the first quarter, in contrast to a decrease of $499.2
billion in the fourth. The before-tax measure of profits does not reflect, as does profits from current
production, the capital consumption and inventory valuation adjustments. These adjustments convert
depreciation of fixed assets and inventory withdrawals reported on a tax-return, historical-cost basis to
the current-cost measures used in the national income and product accounts. The capital consumption
adjustment decreased $56.8 billion in the first quarter (from -$88.1 billion to -$144.9 billion), compared
with a decrease of $0.1 billion in the fourth. The inventory valuation adjustment decreased $52.8 billion
(from $158.1 billion to $105.3 billion), in contrast to an increase of $249.0 billion.
* * *
BEA's national, international, regional, and industry estimates; the Survey of Current Business; and
BEA news releases are available without charge on BEA's Web site at www.bea.gov. By visiting the
site, you can also subscribe to receive free e-mail summaries of BEA releases and announcements.
* * *
Contacts:
GDP:
Lisa Mataloni
(202) 606-5304
Recorded Message:
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Bureau of Economic Analysis is an agency of the U.S. Department of Commerce.
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
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Woof JDN:
I think if you look up Alan Reynolds, whom I have followed for many years, you will find him to be a highly regarded economist across the political spectrum (he is definitely a supply sider). IIRC more than once he has won the WSJ's top prognosticator of the year award.
I appreciate your point about the 34% rate, but offer for your consideration that he may be taking into account other taxes e.g. state taxes, as well. I strongly suspect that upon examination his numbers will hold up quite nicely.
I agree with BBG's point about the manipulations of the economy enabled by high tax rates.
Also, the greybeards amongst us may remember Hillary Evita Clinton's amazing string of good luck with commodity straddles (back pre Reagan when the top individual rate was 70%) while advised by the largest employer in the state of AK (Tyson Foods) while her husband was running for governor , , ,
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BbyG; I don't think I did any calculations. The tax rate schedule I posted was from Wikipedia is a simple fact;
not a "calculation".
But you may do your own calculations. The numbers seem rather straightforward. However, I assure you, the accounting of the numbers before
you get to "profits" is not straightforward.
As for my friend, he didn't "cook the books"; rather he used perfectly legal methods approved by Republican
and Democratic administrations to minimize "profits" thereby minimize tax or in this case to minimize profit
distribution.
I presume you do the same for your own personal tax return or for your own business if you have one.
Or maybe you just need a better accountant?
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Guinness posted and Crafty agreed that Alan Reynolds is insightful and well respected. Our usual critic pretended to refute Reynolds analysis by posting nominal tax tables. Believe it or not nominal tables do not tell the whole story, hence the need for a whole case of printer paper if you care to see tax tables in context.
Reynolds was clear in what he was measuring: "Profits from current production (corporate profits with inventory valuation and capital consumption adjustments)"
Crafty wrote: "he may be taking into account other taxes e.g. state taxes, as well."
No, I believe that Reynolds is making logical adjustments missed in the tax code and saying the federal corporate taxes increase ate up 74% of new profits. Then the rest of that gets chopped with double, triple and quadruple taxation when you figure in state corporate tax, federal individual and state individual taxes.
One confused poster wrote, regarding US corporate tax rates: ""I don't know if that's too high or too low"...
If we want to compete for production (and jobs, income, etc.) in a global economy - it's too high!
For comparison, Eastern Europe's rates are lower. Western Europe's rates are lower. Even Communist China's rates are lower and they reduced them further in 2008.
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"I believe that Reynolds is making logical adjustments missed in the tax code and saying the federal corporate taxes increase ate up 74% of new profits."
The issue is "marginal tax rate". How can you make "logical adjustments missed in the tax code" if we are discussing the marginal TAX rate?
The marginal tax rate is the rate on the last dollar of income earned. This is very different from the average tax rate, which is the total taxes paid as a percentage of total income earned.
And "too high or too low" applies to the 35% rate. Note, this discussion was held before; America's adjusted rate of corporate taxation is on par or lower than most industrialized
nations; please refer back. And while 35% is the tax rate; you may add state and local, but then that also applies to Western Europe, Japan, etc. as well.
However, your while I don't agree with you comment that corporate taxes are too high, I too am concerned that Obama may raise them. And yes, I agree it will affect production ....
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"How can you make "logical adjustments missed in the tax code" if we are discussing the marginal TAX rate?"
Reynolds is aware of nominal tax rate tables, lol. No one argues that. The tax rates from the tables are applied to income or as you say - profits. The table you pasted took up a paragraph of space and the tax code takes 7500 pages. You will find if you look that there is substantial disagreement over the ever-changing government definition of business income. I wonder how many changes have been enacted since my business school accounting taught us that corporations must always keep at least 2 sets of books...
For example, the first 'Bush tax cut' repeal from the Pelosi-Obama congress took effect in 2008 and had to do with favorable depreciation treatment in the tax code for capital equipment investments. Like it or not, that has the effect of a change in the marginal tax rate if you compare apples with apples for the same measurements of previous years, without rewriting the tables.
America's corporate tax rate is second highest to Japan in the developed world. While you refer back to verify that, China was lowering theirs.
We also 'tax' corporations with our plethora of regulations, some helpful and some not, but all requiring teams of lawyers, lobbyists and accountants that are not involved involved in production, marketing or innovation.
Before you tell us again how simple it all is, please post all the rules that go with the tables and all the rates, adjustments and exclusions of the 50 states along with the federal and state individual tax rates that the share owner must also pay in order to see a spendable dime in return for his or her ownership investment in a c-corp.
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Not a great example, but even a one man senate candidate couldn't figure it out: http://minnesota.publicradio.org/display/web/2008/05/01/accountants/
"tax experts say the accountant should have known that Franken needed to pay taxes in the 19 different states where Franken earned money in the last four years." Of course the rules, rates and adjustments are different in each one. Same goes for Geithner and Daschle, much less GE or the former General Motors. I wonder what tax and regulation compliance costs General Motors paid in order to make a ZERO profit these last several years. What is the marginal tax rate on profits there??! Infinite and unmeasureable.
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Never said the tax code was "simple"; I agree, it's hard to find a more convoluted "book".
As for GM; it wasn't taxes and regulation that sunk them; it was bad management and a poor product; Business I.
As for world wide corporate taxes, it is hard to compare apples to apples;
PricewaterhouseCoopers, along with several other international consultancies, recently partnered with the World Bank in an extensive study on international business taxation (Doing Business 2008: The Global Picture). The World Bank, unlike the Tax Foundation and other mono-tax theists, takes into consideration the fact that businesses do, in fact, face a host of taxes in addition to the corporate profits tax. Particularly, it takes into consideration that businesses in many nations incur employment and social contribution taxes in amounts that are much higher as a share of profits than are the direct profit taxes themselves.
For example, looking at taxes on labor and social contributions, the U.S. is 3rd lowest as a percent of profits, ahead of only Denmark and New Zealand. In the U.S., taxes on labor and social contributions are mainly the employer’s share of social security taxes and state unemployment contributions and amount to 9.6% of profits. The average for such taxes in the industrialized world is 22.8%, more than double the U.S. level. In seven of those nations, labor and social service taxes are more than 30% of profits, and in two of those, France and Belgium, are over 50% of profits.
When the World Bank study adds up the total tax bill for businesses, they find that the rates vary from as low as 28.9% and 27.2% in Ireland and Iceland, respectively, to as high as 66.3% and 76.2% in France and Italy. The World Bank data shows the U.S. total business tax rate to be 46.2%, which happens to be exactly the average rate for the industrial nations. Eleven of the 24 nations have higher total tax rates than the U.S. while twelve have lower rates.
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"Never said the tax code was "simple" " - Oh? To this reader it read: 'Reynolds wrong, here are the correct rates'.
"it wasn't taxes and regulation that sunk them(General Motors); it was bad management and a poor product" - Likewise, never said it was, though interesting that all seemed to fail simultaneously indicating that it wasn't just a couple of flawed individuals. Business regulations and tax compliance were among the big burdens they had to carry, even at the zero income tax level. The 2 things that really brought them down IMO were the regs banning most new production of oil and gasoline and the bizarre relationship with labor where a company pays healthcare (among other things)for ten times as many people as it employs while the feds keep inventing new mandates (family leave?) $4 per gallon on vehicle manufacturers that make most of their money on SUVs and trucks was a killer and prices higher than that are certain to come back. But now they are little more than a government agency while we mandate they build vehicles they are not good at building, that consumers don't want and that don't turn a profit. I digress but was the power granted for that in Article II - or WTF?
Yes, as we discussed federal corporate income tax rates I knew you would measure something different to prove you right (?) since that taxrate is second highest in the developed world. So you find another study making a different measurement finding the US to be exactly average... :-(
We come at this from different points of view, you from your point of view and me believing in American exceptionalism - at least up through November 2006. I wonder what the founding fathers would think of taxation rates here on business that compare with state-run economies and stagnant social democracies at levels near 50%, before they are double, triple and quadruple taxed, and "exactly average" with the systems we tried so hard to not become. To find just one tax rate higher than a state run, oppressive, communist(?) country is shocking and shameful. I would hope it strikes others that way as well.
Even JDN admits he would not want to see the rate go higher for the damage it would do. Quite a change in just a couple of days: "don't know if that is too high or too low". (Am I that persuasive or ?) Does that not mean that even in your estimation we are at or near a point where lower rates would bring in greater revenues? If so then what is the advantage of the higher rates , other than scaring evil employers out?
Curious, did Ireland bring in more or less revenue and did it bring in more or fewer employers when it decided to become a low marginal tax rate state?
And for the stagnant social democracies of western Europe that we wish to emulate, do we also strive to attain their levels of unemployment as well - that have been historically double ours?
If so, we are making good progress.
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Odd you bring up Ireland; their economy is dying and they are now thinking of raising taxes to survive.
And I truly believe GM and Chrysler shot themselves in the foot. Pig headed and blind; they deserve to
go bankrupt and not be bailed out. Toyota, Honda, et al have been eating their lunch.
Further I think it is wrong that secured creditors are being given only
pennies on the dollar.
As for the tax rate going higher, I think the rate of 35% is about right at the current time; higher is wrong, but then so is lower.
And I do not desire to emulate Europe, but we need to be competitive, however I think one should compare apples to apples.
National Health Insurance (a different debate) is a "tax" that should be included in tax calculations as well as other social
welfare programs. Please see post above regarding the World Bank's study - our taxation rate is in the middle.
As for unemployment rate being double ours, well, as of yesterday the EU reported an unemployment rate of 9.2%; hardly
"double" that of ours.
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"Odd you bring up Ireland"
No you brought up Ireland but perhaps you didn't read YOUR post? Then cheapshot me and don't answer either followup question.
"as of yesterday the EU reported an unemployment rate of 9.2%; hardly "double" that of ours"
Apparently didn't read my post either. We are copying their failed systems and getting similar results.
Once again I regret the time invested. Shame on me.
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This data from an email from economist Scott Grannis, whom I hold in highest regard, in reply to my questions to him (use search function for "Grannis" to find out more about who he is). I find these numbers very interesting.
======================================================
Latest data is 2006 for federal capgains collections: $118 billion.
Figure it would not be more now, probably less due to stock market
decline
Total federal corporate income tax receipts: $320 billion. So cutting
the tax rate to 20% would give a static result of about $190 billion
On Feb 25, 2009, at 12:33 PM, Marc Denny wrote:
1) Total revenues from the Cap Gains tax?
2) Static revenue assumptions, revenue loss from cutting corp tax rate
from 34% to 20%?
If a hassle, then nevermind.
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Once again I regret the time invested. Shame on me.
No feces, Doug. There is no percentage in arguing with fools. Unable to make cogent points based on the linear development of a thesis JDN instead stifles informed exchange by introducing inane non-sequiturs. I've come to conclude that, unequipped to participate in this forum in a productive manner, he opts instead to make sure no one else is able to either. I will no longer be engaging with him, though I will point out to the rest of the list when he posts something particularly stupid.
Crafty, that's two of us who will not be engaging in the sorts of exchanges you prefer because doing so with some provides no return on the investment of time and energy. This is your list and you're welcome to run it as you please and I am certainly able to vote with my feet. Though I understand your desire to have a range of voices and opinions represented here, doesn't that desire presuppose that someone is equipped to engage in informed debate? There is evidence aplenty that is not the case where JDN is concerned.
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:-o :roll: :roll: :roll:
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Ugh.
I am on my way out the door to pick up my son.
Anyone who wants to discuss things, please call me at 310-543-7521. This is a 24 hour number.
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My understanding is the Constitution allows for government to set tax policy.
What I don't quite get is why is it ok for certain Americans to be targeted and discriminated against and their wealth confiscated and handed over to those less succesful.
Isn't there some sort of constitutional case against discrimination of one group of Americans?
First will be the lets get the rich. Included in the "rich" category will be those who are higher level middle class. Of course business will be thrashed.
Then will be more subtle and slow evolution of taxes on lower groups of middle class.
How can there not be some sort of constitutional case that protects some groups of Americans like this from this kind of discrimination?
Legal minds have any thoughts?
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Odd you bring up Ireland; their economy is dying and they are now thinking of raising taxes to survive.
And I truly believe GM and Chrysler shot themselves in the foot. Pig headed and blind; they deserve to
go bankrupt and not be bailed out. Toyota, Honda, et al have been eating their lunch.
Further I think it is wrong that secured creditors are being given only
pennies on the dollar.
As for the tax rate going higher, I think the rate of 35% is about right at the current time; higher is wrong, but then so is lower.
And I do not desire to emulate Europe, but we need to be competitive, however I think one should compare apples to apples.
National Health Insurance (a different debate) is a "tax" that should be included in tax calculations as well as other social
welfare programs. Please see post above regarding the World Bank's study - our taxation rate is in the middle.
As for unemployment rate being double ours, well, as of yesterday the EU reported an unemployment rate of 9.2%; hardly
"double" that of ours.
Hows that working out for Maryland????????
Last year the state of Maryland decided to impose a “millionaire’s tax” to close a budget gap; this year though, one-third of those in the millionaire tax bracket, are no longer there. They have either left the state, seeking a lower tax burden; or they have left the million dollar tax bracket altogether due to the economy.
http://www.rightpundits.com/?p=3993
you would think they would have learned after watching california's demise. why do people like you feel you have a right to take my income and use it to fund poorly run govt entitlement programs?????????
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CCP: "...why is it ok for certain Americans to be targeted and discriminated against and their wealth confiscated..."
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Thanks CCP for great points made.
My view is that equal protection under the law, consent of the governed, and common morality would prohibit taxing income earned from different sources or by different taxpayers differently. I don't know the case but understand that the U.S. Supreme Court has upheld our unevene tax system based on the logic that any taxpayer IF in any particular situation would be taxed the same way. But politicians know they are targeting and pandering when they make promises to raise taxes on the 2% and not on the 98% of voters. Voters know which people they are talking about. How does that pass anybody's test of consent of the governed?
The estate tax is the most egregious. If we chose a system that allowed no wealth to be passed from generation to generation whatsoever, at least pass for equal treatment under the law. Instead we will confiscate the majority of assets from only a small minority of the taxpayers and don't even try to conceal how it aimed at so few citizens that they are powerless to oppose or stop it.
Under previous tax cuts the estate tax was phased out for 2010 but will be brought back in for 2011 at 2002 levels with exclusions as low as one million dollars and rates as high as 55%. And that is only the federal portion of the tax.
The Pelosi-Obama leftist machine if still in power will likely tweak the estate tax limits so that it is only targeted, as your post suggests, at certain small minorities of people and excludes critical leftist electoral groups.
Compliance with constitutional and moral principles should NOT be trusted only for the courts to sort out. That didn't work with McCain-Feingold where the court upheld limits on first amendment political speech, second amendment infringements, Japanese-American internments, public takings limits, or hosts of other encroachments. Constitutional principles should be front and center on every issue, in every campaign and every debate IMHO.
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Huss, I don't buy all your pessimism on the US dollar as a world currency, but we will see. Over the decades those types of enemies and economic competitors would have abandoned the dollar at any time if they could: Russia, CHina, Brazil, Chavez, etc. If we really do rack up deficits in the tens to twenties of trillions of dollars in the near future, our collapse will force that move. I don't know how but someohow I think we will still wake up.
Leaving the gold standard was forced by policies and circumstances of that time, leading up to 1973. Going back is what I think they call putting toothpaste back in a tube...
The poster cheapshotting Ireland never did return to answer the questions I asked. Did revenues and employment increase when they went to a low tax rate strategy. Of course they did. Instead he points to their current troubles, but that could be said of California, once the greatest economic 'nation' on earth, or Maryland as you point out.
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you would think they would have learned after watching california's demise. why do people like you feel you have a right to take my income and use it to fund poorly run govt entitlement programs?????????
"My income" Huss, I am impressed! You are one of those earning a million plus! :-)
Maybe I am just jealous! :-)
But my previous posts were related to corporate tax rate, not individual. I too don't understand
why they put in a "millionaire's tax" although I guess it's because they have the money. On the other hand I doubt
if that is what caused California's demise. I don't know anyone earning a million plus (I do know some)
who would leave California for a 2% tax although if they keep raising it, ..... Still, it doesn't seem fair,
but then I happen to smoke cigars once in a while; why is there a tobacco tax and the money being
used to fund entitlement programs? I don't get that one either. Health care, maybe, but social
welfare programs? Maybe they should tax fat people too (I'm thin). Just kidding...
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Huss, I don't buy all your pessimism on the US dollar as a world currency, but we will see. Over the decades those types of enemies and economic competitors would have abandoned the dollar at any time if they could: Russia, CHina, Brazil, Chavez, etc. If we really do rack up deficits in the tens to twenties of trillions of dollars in the near future, our collapse will force that move. I don't know how but someohow I think we will still wake up.
Leaving the gold standard was forced by policies and circumstances of that time, leading up to 1973. Going back is what I think they call putting toothpaste back in a tube...
The poster cheapshotting Ireland never did return to answer the questions I asked. Did revenues and employment increase when they went to a low tax rate strategy. Of course they did. Instead he points to their current troubles, but that could be said of California, once the greatest economic 'nation' on earth, or Maryland as you point out.
Doug,
We do business in Brazil, India, The Republic of Georgia and Israel on a regular basis. Right now we are quoting Aerospace work in Brazil and for the life of me, I can not get the Brazilians to commit to a long term agreement in U.S $. The Indians just signed a contract with us in Canadian dollars and the Georgians will only take U.S $'s as a last resort. the only people that i find are confident in continueing to use the U.S $ are americans. Do you have any idea how much money Airbus lost last year when the U.S dollar tanked........... probably less then what they will lose if the U.S dollar continues to slide. They buy components in europe in Euros and sell aircraft in U.S $'s, its not a good situation.
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Maybe they should tax fat people too (I'm thin). Just kidding...
There should be a tax on unhealthy people who want to use govt programs. If im going to be forced to pay for their health care they should atleast do their part to lighten my load. Same goes for smokers and alcoholics, dont ask me to pay for the health care of those who do not care enough about themselves to take care of themselves. Drunk driving and hurt in a car wreck????????? unless you have cash the paramedics should just carry a pistol. Its time to get back to an age of self responsibility.
BTW, corporate income tax should be as close to zero as possible.
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Unfortunately the tax is also on smokers and drinkers who don't use government programs;
that was my point. Why discriminate? Therefore fat people should be taxed the same. :-)
As for the paramedics, my insurance reimburses them; the state (your/our taxes) don't pay.
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Unfortunately the tax is also on smokers and drinkers who don't use government programs;
that was my point. Why discriminate? Therefore fat people should be taxed the same. :-)
As for the paramedics, my insurance reimburses them; the state (your/our taxes) don't pay.
Unfortunatly my friend here in Canada everyone uses the same system. Health care is a state monopoly and competition is ilegal, therefore everyone draws from the same tax payer pool when they drink their liver to mush. Dont worry, you will get to experience it in the near future if obama has his way.
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All kidding aside (I smoke very little, drink a few beers, and exercise a lot)
where do you draw the line? What I mean is, do you charge smokers more?
Or drinkers? Or fat people? OR how about genetic issues? DNA screening?
Eliminate all those "undesirables" might be a mantra for us "healthy" ones,
but... is that right? I'm not sure...
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"If im going to be forced to pay for their health care they should atleast do their part to lighten my load. Same goes for smokers and alcoholics, dont ask me to pay for the health care of those who do not care enough about themselves to take care of themselves."
The logic of "if you are going to make me pay, then , , , the State and I own your *ss and get to tell you what to do" makes me really, really, really leery.
FWIW, IMHO the idea of the Canadian system prohibiting people seeking out private sector options is, in the deepest and truest sense of the word, a form of slavery.
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The logic of "if you are going to make me pay, then , , , the State and I own your *ss and get to tell you what to do" makes me really, really, really leery.
.
Know what makes me leery???????? close to %40 income tax rate on 150k and above, 13% govt/provincial sales tax, oppressive property tax (some how even in this down turn my property value went up, it might of had soemthing to do with the appraiser not liking me calling her comrade and asking her why i should pay more in taxes because i chose to put the money into my home instead of a beer and pot like some of the others in my small town)..................... the list goes on.
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Doug,
thanks for your thoughtful response.
I must think our founders are turning in their graves at the reality that Democrats are taxing certain groups of citizens in uneven ways and then doling out those founds to buy votes from their supporters, and THAT is precisely how they keep power.
And to boot they are expanding those on the dole to maintain this power - with conmfiscation of other people's wealth.
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Huss, Just getting back to you... Huss wrote: "Doug, We do business in Brazil, India, The Republic of Georgia and Israel on a regular basis. Right now we are quoting Aerospace work in Brazil and for the life of me, I can not get the Brazilians to commit to a long term agreement in U.S $. The Indians just signed a contract with us in Canadian dollars and the Georgians will only take U.S $'s as a last resort..."
The dollars slide covers about the time that I have been out of exporting unfortunately. A so-called strong dollar was a problem also.
Seems to me that if Brazilians do not want to commit to buy(?) longer term in US$ they are expressing lack of confidence in their own currency?
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Interesting little nugget where an FDR insider takes Roosevelt's tax policies to task.
Robert Higgs
Regime Uncertainty in the 1930s: A New Deal Insider’s Account
In the mid-1990s, when I was engaged in the research that would eventually be published early in 1997 in an article titled “Regime Uncertainty” (a modestly revised version of which appears as chapter 1 of my Depression, War, and Cold War), I had not read Raymond Moley’s book After Seven Years, published in 1939. Mea culpa. I should have read it much earlier. I am embarrassed to admit that although I purchased a copy in a used-book store many years ago, it sat on my shelf unread until recently.
Not for nothing is this book a standard source for New Deal historians. Moley was the leading figure in the “Brains Trust” that guided Franklin D. Roosevelt’s policy thinking and speaking during the 1932 campaign and, to a lesser extent, during the interregnum between Roosevelt’s election and his inauguration as president and, to a still lesser extent, even later (but then not as an organized group). Although Moley’s association with FDR grew somewhat strained after the president’s first year in office, he continued to work as a close adviser and speechwriter for several years until, in 1936 and 1937, he could no longer countenance the direction in which Roosevelt was taking the New Deal.
Had I read the book before the mid-1990s, I would have recalled then that Moley gave one of the clearest, best informed accounts ever written of the problem of regime uncertainty in the 1930s, an account all the more valuable and weighty because he was the ultimate insider, a man who had worked at the heart of the New Deal from its inception (he even lays claim [p. 23, fn. 6] to having given this political program its name). As I noted in my own article (see Depression, War, and Cold War, p. 8), my “hypothesis is a variant of /an old idea: The willingness of business people to invest requires a sufficiently healthy state of ‘business confidence.’” Moley’s discussion proceeds under this well-worn rubric.
In the following long quotation, I present Moley’s most sustained and complete account, which appears on pp. 370-72 of the volume published in New York by Harper and Brothers in 1939. He begins this account by faulting the president for, among other things, “a failure to understand what is called, for lack of a better term, business confidence.” He then goes on to write (I omit here one small footnote giving publication details for a book cited):
Confidence consists, on the one side, of belief in the prospect of profits and, on the other, in the willingness to take risks, to venture money. In Harry Scherman’s brilliant essay on economic life, The Promises Men Live By, the term is, by implication, defined much as Gladstone defined credit. “Credit,” Gladstone said, “is suspicion asleep.” In that sense, confidence is the existence of that mutual faith and good will which encourage enterprises to expand and take risks, which encourage individual savings to flow into investments. And in an age of increasing governmental interposition in industrial operations and in the processes of capital accumulation and investment, the maintenance of confidence presupposes both a general understanding of the direction in which legislative and administrative changes tend and a general belief in government’s sympathetic desire to encourage the development of those investment opportunities whose successful exploitation is a sine qua non for a rising standard of living.
This, Roosevelt refused to recognize. In fact, the term “confidence” became, as time went on, the most irritating of all symbols to him. He had the habit of repelling the suggestion that he was impairing confidence by answering that he was restoring the confidence the public had lost in business leadership. No one could deny that, to a degree, this was true, The shortsightedness, selfishness, and downright dishonesty of some business leaders had seriously damaged confidence. Roosevelt’s assurances that he intended to cleanse and rehabilitate our economic system did act as a restorative.
But beyond that, what had been done? For one thing, the confusion of the administration’s utility, shipping, railroad, and housing policies had discouraged the small individual investor. For another, the administration’s taxes on corporate surpluses and capital gains, suggesting, as they did, the belief that a recovery based upon capital investment is unsound, discouraged the expansion of producers’ capital equipment. For another, the administration’s occasional suggestions that perhaps there was no hope for the reemployment of people except by a share-the-work program struck at a basic assumption in the enterpriser’s philosophy. For another, the administration’s failure to see the narrow margin of profit on which business success rests - a failure expressed in an emphasis upon prices while the effects of increases in operating costs were overlooked - laid a heavy hand upon business prospects. For another, the calling of names in political speeches and the vague, veiled threats of punitive action all tore the fragile texture of credit and confidence upon which the very existence of business depends.
The eternal problem of language obtruded itself at this point. To the businessman words have fairly exact descriptive meanings. The blithe announcement by a New Deal subordinate that perhaps we have a productive capacity in excess of our capacity to consume and that perhaps new fields for the employment of capital and labor no longer exist will terrify the businessman. To the politician, such an extravagant use of language is important only in terms of its appeal to the prejudices and preconceptions of a swirling, changeable, indeterminate audience. To the businessman two and two make four; to the politician two and two make four only if the public can be made to believe it. If the public decides to add it up to three, the politician adjusts his adding machine. In the businessman’s literal cosmos, green results from mixing yellow and blue. The politician is concerned with the light in which the mixture is to be seen, the condition of the eyes of those who look.
Mutual misunderstanding and mutual ill will were, of course, unavoidable in the circumstances, and the ultimate result was a wholly needless contraction of business [in 1937-38] - a contraction whose essential nature was so little understood that it was denounced in high governmental quarters as a “strike of capital” and explained as a deliberate attempt by business to “sabotage” recovery.
After Seven Years contains many more nuggets of valuable information for the student of the New Deal or of Franklin Roosevelt himself. If you are at an early stage of your learning, do not wait as long as I did to read it.
http://hnn.us/blogs/entries/95589.html
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By PETER FERRARA
The federal income tax code is now so mangled that we can probably increase federal revenues with a 0% income tax rate for a majority of Americans.
Long before President Barack Obama took office, the bottom 40% of income earners paid no federal income taxes. Because of refundable income tax credits like the Earned Income Tax Credit (EITC), in 2006 these bottom 40% as a group actually received net payments equal to 3.6% of total income tax revenues, according to the latest Congressional Budget Office data. The actual middle class, the middle 20% of income earners, pay only 4.4% of total federal income tax revenues. That means the bottom 60% together pay less than 1% of income tax revenues.
This actually resulted from Republican tax policy going all the way back to the EITC, which was first proposed by Ronald Reagan in his historic 1972 testimony before the Senate Finance Committee on the success of his welfare reforms as governor of California. Besides calling for workfare, Reagan proposed the EITC to offset the burden of Social Security payroll taxes on the poor. As president, Reagan cut and indexed income tax rates across the board and doubled the personal exemption. The Republican majority Congress, led by former House Speaker Newt Gingrich, adopted a child tax credit that President George W. Bush later expanded and made refundable, while also reducing the bottom tax rate by 33% to 10%.
President Bill Clinton expanded the EITC in 1993. But it was primarily Republicans who abolished federal income taxes for the working class and almost abolished them for the middle class. Now Mr. Obama has led enactment of a refundable $400 per worker income tax credit and other refundable credits, which probably leaves the bottom 60% paying nothing as a group on net.
Many conservatives are deeply troubled by this, arguing that everyone should be contributing something to the tax burden. They worry that, not paying for any of the tab, this majority will see no reason not to vote for limitless spending burdens. But are conservatives now going to campaign on increasing taxes on the bottom 60%, arguing that is good tax and social policy? Steve Lonegan recently demonstrated in the New Jersey gubernatorial primary that this is not a viable political position. He proposed a 3% state flat tax which, while very good tax policy, would increase taxes slightly for the bottom half of income earners. His victorious opponent Chris Christie pounded away in advertising on that point.
But what if Republicans proposed a federal tax reform with a 0% income tax rate for the bottom 60% of income earners? With that explicit 0% tax rate framing the issue, abolishing the refundable tax credits that actually ship money to lower income earners through the tax code would become politically viable. Trading an explicit 0% tax rate for the bottom 60% in return for eliminating the refundable tax credits would likely be at least revenue neutral, and probably result in a net increase in revenue.
Such tax reform can and should be combined with overall welfare reform based on work that would ensure an adequate safety net for the poor. Considering the success of the 1996 reform to the Aid to Families with Dependent Children (AFDC) program, further reform could result in huge overall savings. Besides AFDC, there are 85 more federally administered welfare programs that could benefit from reform.
Moreover, we should then be free to adopt sound tax policy for the top 40% of earners who make 75% of total income. Suppose we tax all of the income of those top 40% once with a 15% flat tax? That would be close to revenue neutral on a dynamic basis (i.e. counting work incentive effects).
The usual distribution arguments against such a flat rate would not apply because the bottom 60% would bear a 0% rate. All flat tax proposals effectively try to do the same through generous personal exemptions that are tax neutral for low- and moderate-income workers. But the explicit 0% rate would make the reform more easily understood.
This -- rather than adopting still more refundable tax credits as some conservatives are advocating -- is also the way to eliminate the distorting tax preference for employer-provided health insurance. For the bottom 60%, there would no longer be any health insurance tax preference, and for the rest the favoritism would be reduced to a minimal 15%. Or the tax exclusion for employer provided health benefits could be eliminated altogether, affecting only the top 40%. The economic distortions caused by every other tax preference in the code would be minimized or eliminated entirely in this same way.
Contrary to the fears of conservatives, this tax system would sharply limit the size of government. No politician would dare suggest imposing income taxes anew on the bottom 60%. While the last two Democratic presidents won by running on a tax cut for the middle class, that game would be over. Instead conservatives can argue for middle-income and working-class votes to protect the 0% tax rate from big government liberals. As the Obama administration will soon learn, higher income earners have flexibility in their taxable income and increasing revenues by raising taxes on them is not easy.
Mr. Ferrara is director of entitlement and budget policy for the Institute for Policy Innovation. He served in the White House Office of Policy Development under President Reagan.
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Doubt these figure will much alter the redistributionist's desires:
How Much More Can We Redistribute: IRS Releases New Data
Posted July 30th, 2009 at 5.21pm in Entitlements.
The IRS released data today on the distribution of income taxes. It shows that the highest-earning taxpayers shoulder a considerable burden of the federal income tax.
According to the IRS, the top 1 percent of taxpayers paid over 40 percent of all federal income taxes in 2007. That is a higher share than the bottom 95 percent of taxpayers combined! They paid just over 39 percent.
The top 1 percent, those earning over $410,000, consists of 1.4 million taxpayers, while the bottom 95 percent contains 134 million.
In 2000, before the 2001 and 2003 tax cuts that some claim disproportionately benefited the rich, the top 1 percent paid less than 38 percent of income taxes while the bottom 95 paid almost 44 percent. Since the tax cuts, the top 1 percent’s share increased over 2 percentage points while the bottom 95 percent’s share decreased 5 percentage points. Those that argue the tax cuts solely benefited the rich are mistaken.
President Obama plans to raise the top 2 marginal tax rates on those making over $250,000 a year, and Chairman Charlie Rangel (D-NY) wants to slap a 6 percent surtax on top of that to partially pay for a government take over the health care system. These tax hikes, in addition to damaging the already badly weakened economy, will further shift the burden of the income tax to the highest earners.
In contrast, the bottom 40% of taxpayers pays no income taxes on average. In fact, they get money from the tax code well above anything they paid in because of refundable credits. And President Obama’s Make Work Pay credit, passed as part of the stimulus, will increase the money redistribute to these non-taxpayers.
It’s a dangerous situation when a majority of voters can get services and benefits from the government for no cost because there is no incentive for them to limit the growth of government. President Obama’s and Chairman Rangel’s redistributive tax policies will further push the burden of income tax to high earners while giving more benefits to non-taxpayers. But as the IRS data show, the economy cannot afford anymore spreading the wealth around.
http://blog.heritage.org/2009/07/30/how-much-more-can-we-redistribute-irs-releases-new-data/
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Tax Tax Tax at the Washington Post
Posted by David Boaz
A banner headline at the top of the Washington Post Sunday Metro section reads
It’s Time for Deeds to Step Up to the Plate on a Tax Increase
Columnist Robert McCartney, for years the top editor of the Metro section, says that Virginia’s Democratic gubernatorial nominee should “Propose to raise taxes to fix the roads. Yes, you read that correctly. Raise taxes.”
No doubt a lot of Republicans are hoping that Deeds will take the Post’s advice.
McCartney goes on to say that taxes must go up because (in bold) “The public sector needs to expand.” Because, you see, the infrastructure is failing in Virginia and also in D.C., and “Virginia’s roads clearly require extra revenue.”
Well, let’s see. Virginia’s state budget doubled between 1996 and 2006, from $17 billion to $34 billion. And the governor’s office estimated last December that the state would spend $37 billion in 2009 and $37.6 billion in 2010. Thanks to the recession, and to the state’s habit of spending during good years as if the party would never end, those numbers may drop slightly. But even with the current shortfalls, the budget’s gone up by $20 billion in the past 14 years, and they can’t find enough to fix the roads? What have they spent that extra $20 billion on?
Do Mr. McCartney, Mr. Deeds, and other tax-hikers ever think about prioritizing state spending? The Virginians who call themselves the Tertium Quids do. They urge the legislators to review the recommendations of the Wilder Commission and the Virginia Piglet Book to find some opportunities for savings.
But as usual, state governments spend with abandon while the money rolls in, and then when the lean years hit, they declare that they’ll need more money to teach math and fix the roads. It’s called the Washington Monument Syndrome — never cut the waste, the fat, the golf courses, the layers of bureaucracy, the fringes, the frills; threaten to cut the most basic or traditional or popular functions of government in order to pressure the voters to go along with a tax increase. Journalists shouldn’t play along.
Meanwhile, the Post’s Outlook section fronts a column by economist Gregory Clark declaring that we need to
Tax and Spend, or Face the Consequences
Specifically, he says, there will be no jobs for the stupid people in the new dynamic economy, so those of us with jobs are going to have to be taxed to the bone to support a huge class of nonworkers — or face revolution, I suppose. Which is even worse than congested highways.
Other Post writers have joined the tax-hike chorus recently: Steven Pearlstein, “Health Reform Threatened by Conservatives’ Anti-Tax Fantasy“; constant editorials on “the transportation funding problem”; Ruth Marcus on Obama’s need to display “political courage” by raising taxes so he can keep on spending; etc.
Alas, it is a constant frustration to the Post that, as Gregory Clark puts it, “The United States was founded, essentially, on resistance to taxes, and to this day, an aversion to the grasping hand of the state seems fundamental to the American psyche.”
http://www.cato-at-liberty.org/2009/08/10/tax-tax-tax-at-the-washington-post/
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By CHARLES MURRAY
America is supposed to be a democracy in which we're all in it together. Part of that ethos, which has been so essential to the country in times of crisis, is a common understanding that we all pay a share of the costs. Taxes are an essential ingredient in the civic glue that binds us together.
Our democracy is corrupted when some voters think that they won't have to pay for the benefits their representatives offer them. It is corrupted when some voters see themselves as victims of exploitation by their fellow citizens.
By both standards, American democracy is in trouble. We have the worst of both worlds. The rhetoric of the president tells the public that the rich are not paying their fair share, undermining the common understanding from the bottom up. Meanwhile, the IRS recently released new numbers on who pays how much taxes, and those numbers tell the people at the top that they're being exploited.
Let's start with the rich, whom I define as families in the top 1% of income among those who filed tax returns. In 2007, the year with the most recent tax data, they had family incomes of $410,000 or more. They paid 40% of all the personal income taxes collected.
View Full Image
David Klein
.Yes, you read it right: 1% of American families paid 40% of America's personal taxes.
The families in the rest of the top 5% had family incomes of $160,000 to $410,000. They paid another 20% of total personal income taxes. Now we're up to three out of every five dollars in personal taxes paid by just five out of every 100 American families.
Turn to the bottom three-quarters of the families who filed income tax returns in 2007—not just low-income families, but everybody with family incomes below $66,500. That 75% of families paid just 13% of all personal income taxes. Scott Hodge of the Tax Foundation has recast these numbers in terms of a single, stunning statistic: The top 1% of American households pay more in federal taxes than the bottom 95% combined.
My point is not that the rich are being bled dry. The taxes paid by families in the top 1% amounted to 22% of their adjusted gross income, not a confiscatory rate. The issue is that it is inherently problematic to have a democracy in which a third of filers pay no personal income tax at all (another datum from the IRS), and the entire bottom half of filers, meaning those with adjusted gross incomes below $33,000, have an average tax rate of just 3%.
This deforms the behavior of everyone—the voters who think they aren't paying for Congress's latest bright idea, the politicians who know that promising new programs will always be a winning political strategy with the majority of taxpayers who don't think they have to pay for them, and the wealthy who know that the only way to get politicians to refrain from that strategy is to buy them off.
For once, we face a problem with a solution that costs nothing. Most families who pay little or no personal income taxes are paying Social Security and Medicare taxes. All we need to do is make an accounting change, no longer pretending that payroll taxes are sequestered in trust funds.
Fold payroll taxes into the personal tax code, adjusting the rules so that everyone still pays the same total, but the tax bill shows up on the 1040. Doing so will tell everyone the truth: Their payroll taxes are being used to pay whatever bills the federal government brings upon itself, among which are the costs of Social Security and Medicare.
The finishing touch is to make sure that people understand how much they are paying, which is presently obscured by withholding at the workplace. End withholding, and require everybody to do what millions of Americans already do: write checks for estimated taxes four times a year.
Both of those simple changes scare politicians. Payroll taxes are politically useful because low-income and middle-income taxpayers don't complain about what they believe are contributions to their retirement and they think, wrongly, that they aren't paying much for anything else. Tax withholding has a wonderfully anesthetizing effect on people whose only income is a paycheck, leaving many of them actually feeling grateful for their tax refund check every year, not noticing how much the government has taken from them.
But the politicians' fear of being honest about taxes doesn't change the urgent need to be honest. The average taxpayer is wrong if he believes the affluent aren't paying their fair share—the top income earners carry an extraordinary proportion of the tax burden. High-income earners are wrong, too, about being exploited: Take account of payroll taxes, and low-income people also bear a heavy tax load.
End the payroll tax, end withholding, and these corrosive misapprehensions go way. We will once again be a democracy in which we're all in it together, we all know that we're all paying a share, and we are all aware how much that share is.
Mr. Murray is a resident scholar at the American Enterprise Institute. His most recent book, "Real Education: Four Simple Truths for Bringing America's Schools Back to Reality," will be out in paperback later this month (Three Rivers).
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Thank you Crafty and thank you Charles Murray for important points very clearly and constructively: "Our democracy is corrupted when some voters think that they won't have to pay for the benefits their representatives offer them."
Pres. Reagan unfortunately needed to make the following point to help fend off the charge that across-the-board rate cuts were really just tax cuts for the rich: he showed how 6 million or so of lower income working people would become free of the federal income tax altogether. This was a winning point politically and worth it at the time to rescue our collapsing economy and win the cold war, but also a critical mistake for the future.
Flat tax and the Fair tax proposals make the same mistake. To compare favorably with the current tax system, these proposals typically exclude the first 50k or so of income.
The current spending 'discussion' is a farce. Start all kinds of new entitlements with no mechanisms to ever control costs and then demagogue about someone else needing to pay for it.
If we had a rational tax code and at least a goal of a balanced budget then we could begin a national dialog about spending.
Getting everyone to pay their share of the tax on EVERY dollar earned is an illustration of what they mean by the expression of putting the toothpaste back in the tube. Once these people become total non-contributors, any change is a tax increase on the poor.
On the expense side, remember the story about 10 people going into a restaurant. 1 is going to pay 40% of the bill and maybe 4, 5 or 6 of them will pay nothing at all no matter what is ordered and consumed. Now have a rational discussion about costs and take a majority-rules vote... As Murray points out so well, our system is corrupted.
If we had a true flat-rate tax on all income, no matter who earned it or how, then the proverbial restaurant table could have a rational discussion about ordering hors d'oeuvres and desserts. The rich would still pay far more than their share but everyone would have a stake in the outcome.
Murray's solution is more politically palatable, which I will re-quote. I was going to add to his that we should end withholding too so people see what they pay but as I read deeper into his proposal, but it is already in there! Some politician should take his idea verbatim and run with it.
Quoting Murray:
"Fold payroll taxes into the personal tax code, adjusting the rules so that everyone still pays the same total, but the tax bill shows up on the 1040... End withholding, and require everybody to do what millions of Americans already do: write checks for estimated taxes four times a year."
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George Stephanopolous pointed out what he considered the obvious, that a $9 trillion dollar gap will need made up with new revenues and the obvious one is a federal Value Added Tax, not instead of, but on top of all of our other federal taxes.
The sales tax is a government revenue source that currently belongs to the states and localities if they choose to use it. We won't have power and control at the state level when the revenues are controlled by the feds.
The problem is and always has been the spending.
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By PETE DU PONT
Congress is in recess and many Americans are on vacation, but all that will end when Labor Day has passed and the House and Senate are back at work.
And that means the Europeanization of America will again be in full gear, from expanding government control and regulation of as many things as possible, to raising taxes, expanding the size of government, and reducing the choices individuals are allowed.
The Treasury reports that our country's federal debt has doubled in nine years, rising steadily, year by year, to $10.72 trillion from $5.67 trillion in 2000. Our deficit for the current year fiscal year, which ends Sept. 30, is expected to total $1.8 trillion, four times last year's figure, leaving us with a federal debt of $38,500 for every U.S. resident. Our economy is doing poorly; it will shrink about 2.6% this year. Unemployment in July reached 9.4% and will likely further increase, and tax revenues are down $353 billion over the first 10 months of this fiscal year.
So we can easily see what is just around the corner. Earlier this month Treasury Secretary Tim Geithner and Larry Summers, director of the National Economic Council, opened the door, suggesting that taxes on all taxpayers will have to go up. As Stephen Moore noted in The Wall Street Journal, "it would take almost $16,000 more from every household in America to balance the budget this year." We certainly won't get to balanced budgets for decades, but substantially higher taxation seems inevitable.
All of which leads to the essential economic question: Which tax increases do the current administration and Congress intend to enact? There are more than a dozen, all of which would negatively affect our economy.
One has already been signed into law by President Obama: an increase in the tax on tobacco, to $1.01 a pack of cigarettes from 39 cents, and to as much as 40 cents a cigar from a nickel--increases of 159% and 700%, respectively. This is expected to bring in $8 billion a year. Next up is a possible increase in alcohol, beer and wine taxes, raising about another $6 billion annually, and perhaps another $5 billion a year on sugary drinks will be enacted.
Then come a series of substantial tax increases that are on the Washington agenda that, if enacted, will create real problems for our country's economy.
First, allowing the expiration of the previous Bush administration tax cuts at the end of 2010. These reductions increased government tax receipts by $785 billion (just as the Kennedy and Reagan tax cuts increased tax revenues) and gave us eight million new jobs over a 52-month period. The cuts go away if Congress does nothing, raising tax rates on the top earners will to 39.6% from 35%, and on the next-highest bracket to 36% from 33%. The Joint Committee on Taxation estimates that 55% of these tax increases will come from small-business income.
Next comes Rep. Charles Rangel's additional tax increases, a part of the House health-care bill. The House Ways and Means chairman calls for a 1% surtax on couples with more than $350,000 in income, 1.5% on incomes more than $500,000, and 5.4% on incomes more than $1 million. The extra tax would kick in at lower levels for unmarried taxpayers. And if promised health-care cost savings don't materialize, the surtaxes would automatically double.
The House health-care bill contains several tax increases that would hit couples earning under $250,000 a year, contrary to President Obama's promises: $8.2 billion of tax increases for people using health savings accounts or other tax-free savings to purchase over-the-counter drugs; a "Comparative Effectiveness Research Tax" of $2 billion on all private and "public option" insurance, plus up to 8% paid by employers--mostly small businesses--that don't offer health insurance. There is even a proposed tax on individuals who do not have health insurance.
Then come some other tax increases the administration has favored:
• An increased tax on American companies doing business in other countries.
• Raising or abolishing the wage cap on Social Security taxes, which would effectively convert Social Security into a welfare program.
• Reducing the tax benefit for itemized deductions like charitable contributions, which would reduce philanthropy.
And then there's the Waxman-Markey "cap and trade" bill that has passed the House and will be taken up in the Senate this fall. It would give the government total control of the production, prices, availability and use of energy and add a global energy tax to imported goods--serious American protectionism. It would shrink America's economy by $400 billion each year and cause the loss of some 2.5 million jobs. For a household of four it would cost an average of about $3,000 a year. By 2035 the total family annual increased cost would be $4,600 for power, food, supplies, gasoline and transportation.
All told, the administration and Congress are pushing massive tax increases. Without a specific proposal we don't know how much taxes would go up if the Social Security ceiling is raised, but add the others up and we see up to $200 billion--and it could well be much more--in annual tax increases on businesses, individuals and the overall economy, which is already in recession.
The Wall Street Journal's Daniel Henninger observes that "to an independent voter or moderate Democrat, President Everyman is starting to look like a salesman for the superstate." These many proposed tax increases reinforce the point. They not only would be economically damaging, but chart a very scary course for our country.
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The Left Is Right -- Taxes Are a Moral Issue
Tuesday, September 15, 2009
One principle that all those on the left hold is that taxes constitute more than an economic issue; they are, first and foremost, a moral one. Economists on the left may argue for higher taxes on economic grounds but they and we know that at bottom, higher taxes, especially "taxing the rich," is what they believe morality demands.
For example, there are obviously only two possible ways to reduce government deficits: reduce spending or increase taxes (or some combination of both). The left advocates the later; the right advocates the former. Left-wing spokesmen, such as New York Times economics columnist and Princeton University professor of economics Paul Krugman, may offer economic arguments for raising taxes in order to lower government deficits, but their real motivations are moral: reducing economic inequality (by redistributing income) and expanding government (because government is the most effective way to help all citizens).
Now, as it happens, not only is there is nothing wrong with being animated by moral concerns -- we should all be. The problem with the left's advocacy of higher taxes is not that it is rooted in moral concerns. The problem -- actually the two problems -- are these:
First, higher taxes are rarely morally defensible. In fact, on purely moral grounds -- in other words, even if they did effectively reduce the deficit without paying an economic price for doing so -- they are usually not moral. More on this below.
Second, higher taxes are usually economically counterproductive. This does not matter to the left, however, because economic growth is not what most interests the left. Since Karl Marx, the left has always been far more interested in economic equality than in economic growth. It is true that liberals such as John F. Kennedy were more concerned with economic growth than with economic equality -- which is why he advocated lowering taxes -- but for much of the last century, unlike today, there was a major difference between liberal and left.
Now to return to the moral arguments, my difference with the left is not that I oppose morality dictating economic policy. I believe, in fact, that virtually all social policies should be rooted in moral concerns. My difference with the left is that I am convinced that moral considerations dictate lower, not higher, taxes.
It is too bad that libertarians and conservatives rarely take on the left on moral grounds because the left's moral foundations are as weak as their economic foundations.
The very notion of an income tax is morally debatable. On what moral grounds can the state force a citizen essentially at gunpoint to give away his legally and morally earned money? Why isn't taxation a form of legalized stealing? The obvious answer is that common sense dictates that citizens have the moral right, even the moral obligation, to vote to give money to, at the very least, enable a government to fund a police force, sustain a national defense, and help those incapable of helping themselves or of being helped by others.
But at some point beyond that, taxation becomes nothing more than legalized stealing. Obviously, people will differ over where exactly that point is, but no rational person disputes that such a point exists. No one could argue that a 100 percent tax -- even if it paid for every need every member of the society had -- was moral and not simply a form of theft.
So moral problem No.1 with taxation is the morality of forcing other people -- under threat of violence -- to give their money away.
A second moral problem is having some people give at a greater percentage rate than others. The biblical notion of tithing, for example, is entirely universal -- everyone gave a tenth what he had. No one was forced to give half while others gave a tenth.
A third moral problem is allowing those who pay no tax (such as the federal income tax) to vote on how much others will be forced to pay. It is quite difficult to morally defend the fact that about half of Americans pay no federal income tax, yet they determine how much the other half will be forced to pay.
A fourth moral problem is that the higher the taxes, the more decent people become cheaters. One of the leading religious ethicists of our time, Rabbi Joseph Telushkin, author of two volumes of Jewish ethical law, told me years ago when he lived in Israel during the height of its socialism with its correspondingly high taxes that he witnessed the finest citizens, religious and secular alike, having to cheat on taxes or be rendered impoverished. I have never forgotten that.
I know no one in America today -- and I know extraordinarily honest and generous people, liberal and conservative -- who does not in some way "cheat" on taxes -- as, for example, reporting expenses as business expenses that are not really so. I place the word cheat within quotation marks because not all cheating is illegal. Some people figure out how to avoid paying what the law demands through completely legal, but ethically questionable, means.
At a certain level of taxation, virtually every honest person is reduced to cheating either legally or illegally.
A fifth moral problem is that the higher the tax rate, the lower the charity rate. This is universally true. The more people give to the state, the less they give to their neighbor -- and even to members of their family -- in need.
And sixth and only finally because of the limitations in size of a single column, the higher the taxes, the less people are inclined to work hard. Why should they? At a given point, people just conclude that work is for suckers.
And I haven't even begun to discuss the economic failings of higher taxes.
So, next time someone on the left advocates higher taxes, remember two things: He or she is coming from a moral, not an economic, position. And the moral case against higher taxes is far more powerful than the moral case for them.
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Tables show better in the original, linked below.
Liberals and Taxes: The Big Question
By Gene Schwimmer
Like many Americans who watched their savings nosedive in the market crash of '08, I've had to retrench, rethink and re-strategize my retirement plans. One course I've considered is to spend less and save more. The second is, somehow, to get a nickel for every time some Liberal said or wrote something like this:
The last time the top income tax rate was 39%, the United States enjoyed a booming economy, rising incomes, low unemployment and expanding budget surpluses.
Unfortunately, that simple truth has been ignored by Republican propagandists and mainstream media alike during the debate over President Obama's stimulus plan and budget proposal.
Well, there's certainly a lesson here for Obama and the Democrats, and for Republicans, too. Surprisingly, it's the same lesson, and a lesson neither expects.
But first, a brief digression to dispel the Liberal claim that only "the rich" benefited from the Bush tax cuts:
Individual Income Tax Due in 2008,
Bush Law versus Clinton Law
For taxpayers who take the standard deduction and have no children
Taxpayer
Tax That Would Have Been Owed under Clinton-Era Tax Law
Tax Owed under Current Law, with Bush Tax Cuts
Single, income of 30,000
$3,157.50
$2,756.25
Single, income of 50,000
$7,262.50
$6,606.25
Married, income of $50,000
$5,085.00
$4,012.50
Married, income of $60,000
$6,585.00
$5,512.50
Single, income of $75,000
$14,262.50
$12,856.25
Married, income of $75,000
$9,426.50
$7,762.50
Single, income of $125,000*
$29,378.50
$26,472.25
Married, income of $125,000*
$23,426.50
$19,462.50
*This chart does not take into account the Alternative Minimum Tax
Source: The Tax Foundation
As the table shows, taxpayers in all income brackets paid less in taxes under Bush than under Clinton. Now about those budget surpluses. Here, courtesy of the Commerce Department's Bureau of Economic Analysis, is the record of annual federal tax receipts for the "Clinton surplus" years, 1998-2000, and for the years following, up to 2008.
Year
Receipts
(in billions of dollars)
1998
1,777.9
1999
1,895.0
2000
2,057.1
2001
2,020.3
2002
1,859.3
2003
1,885.1
2004
2,013.9
2005
2,290.1
2006
2,524.5
2007
2,660.8
2008
2,475.0
Note the amounts (in billions) for 1998, 1999 and 2000: $1,777.9, $1,895.0 and $2,057.0, respectively. But look, too, at the number for 2001: $2,021. What's so special about 2001? That's the year in which the "Bush tax cuts" became law, when Bush signed the bill, on June 7, 2001. But the bill did not become effective until the next year, 2002. In 2001, when Bush was signing the new rates into law, America was still under the then-current Clinton rates -- and so, the $2.021 trillion the federal government collected in 2001, was collected under the old Clinton tax rates, not the new Bush rates.
Now compare 2001's receipts to 2000 and what do you see? From 2000 to 2001, federal tax receipts declined under the Clinton tax rates.
Any Democrat who wants to blame the "Bush tax cuts" for the drops in tax receipts in 2002 and 2003, must first explain the drop that occurred in 2001 under the Clinton rates.
And then, when they've done that (if they can), they can explain the increases, in every year from 2004 through 2007, under the lower Bush tax rates.
Ah, but I digress, because we were talking about the "Clinton surpluses" or, to be more specific, the "Bush tax cuts'" supposed responsibility. And here's where it where it really gets interesting, because, for the Democrats' argument that the "Bush tax cuts" caused the deficit to make sense, tax receipts during the Bush years would have to have been less than they were under Clinton's tax rates. And indeed, tax receipts were less in some years, but not in others. And beginning in 2004, under the lower Bush tax rates, receipts rose, for four years running, and in 2008, even after a decrease from 2007, stood at $2.475 trillion -- 22.5% higher than the highest year under the Clinton tax rates.
So tell us, Democrats, how could the Bush "tax cuts," under which total tax receipts increased, have erased the surplus and caused a deficit?
(By the way, I put "tax cuts" in quotes because, as we just saw, taxes, i.e., total receipts actually went up, so it actually was a Bush tax raise. Bush did not cut taxes, he cut tax rates.)
Note also that three of the four budget-surplus years come after 1997, the year Clinton signed the bill Democrats seem to have forgotten, the Tax Relief Act of 1997, which lowered the capital gains tax rate, from 28% to 20%..
But if tax cuts did not cause the deficit, what did? Do you really need to ask? As always, the true culprit is spending. Here are the amounts for 2001-2007 (the latest year for which I could find a hard number):
Fiscal Year
Total Government Expenditures
(in billions of dollars)
2001
2,986.9
2002
3,209.9
2003
3,415.0
2004
3,594.8
2005
3,854.1
2006
4,135.8
2007
4,321.3
Source: The Budget for Fiscal Year 2009, Historical Tables, Table 15.2, pg. 319.
This one's a no-brainer. Note, first, that in every year, including 2001, 2002 and 2004, when federal receipts went down, federal expenditures went up. Bad enough, but look also at the percentages. In the period 2001-2007, federal receipts rose 31.7% ($2.0203 trillion to $2.6608 trillion), but federal expenditures rose 44.7% ($2.9869 trillion to $4.3213 trillion). As I said, I don't have hard figures beyond 2007, but for both years, undoubtedly, spending will be up and tax receipts will be down.
The 53% of us who pay federal taxes are doing our part, sending Congress more of the fruits of our labors every year. But for our representatives and senators (of both parties, sadly), what we send them is not enough. It's the spending, stupid -- or, as I like to say, it's the stupid spending. And for that, Congress, both Democrats and Republicans, get the blame. Why did the Founding Fathers create three branches of government and a system of checks and balances if not for Congress to prevent the executive from spending unlimited amounts of money on whatever he wants? Congress is supposed to put checks on the president, not write checks to the president, at least not blank ones. Or so I thought.
But there's a bigger point, here, one that both parties miss, but more to the detriment of Republicans than Democrats. Currently, the argument over taxes and surpluses revolves around the effects of changes in tax rates. Republicans argue that tax rate increases "kill jobs," Democrats argue that they do not. Democrats argue that raising taxes raises revenue, Republicans argue that it does not. Conversely, Democrats argue that cutting tax rates reduces revenue and turns surpluses into deficits; Republicans argue that doing so does neither.
Both parties are right -- and wrong, for the actual numbers, including those in the tables above, taken in aggregate, demonstrate no relation between tax rates on the one hand, and tax receipts, jobs, economic growth, surpluses or deficits. Indeed, a look at the entire history of U.S. tax receipts and federal expenditures, show deficits in years where tax rates were much higher than today, and surpluses in years before we had any income tax at all.
Now, the big question. Armed with these facts, what should be the Republicans' strategy going forward?
First, Republicans should acknowledge the numbers and concede that we can have growth and prosperity, and the higher tax revenues that result therefrom, under tax rates higher, even significantly higher, than today's. But, in the very next breath, Republicans should challenge Democrats to admit that we can have growth -- and increasing tax revenues -- with lower tax rates, including the Bush tax rates, too. If Democrats balk, then Republicans should make sure that the American public sees the numbers.
Then, challenge the Democrats to acknowledge that tax receipts -- even after 9/11, even in the midst of "the worst economic downturn since the Great Depression--were higher at the end of the Bush Administration (and under the Bush tax rates) than at the end of the Clinton Administration (under the higher Clinton tax rates) and thus, as a matter of simple logic, the Bush tax cuts could not possibly be responsible for the deficit. Indeed, had Congress acted responsibly and controlled spending, had Congress still increased spending, but increased it below the rate at which tax revenues were increasing, the budget surplus would still be very much with us. And again, if Democrats balk, then Republicans should show the American people the numbers.
Then, based on the record and the numbers, Republicans should point out the obvious: Though Congress can decide to raise tax rates, and determine what those rates will be, Congress cannot predict how much revenue will be raised or even whether any revenues will be raised at all. But we do know, and can see in the current revenue numbers, the economy's strength is very much a key factor in determining tax revenues. In other words, Republicans should argue, if Democrats want more tax revenues to spend, the only sure way to do so is to work with Republicans to enact and promote pro-growth fiscal policies. Simply raising tax rates will not do the trick, and imposing new, costly mandates, such as Cap and Trade, national health care and environmental regulations up the wazoo, will make things even worse.
And finally, Republicans should do what they've never done: raise the moral issue. In calling for higher taxes, Democrats cite two reasons. One is their desire to raise revenues to do all the things Democrats want to do. But as we've seen, we can get higher tax revenues under lower tax rates just as well as (and, some would say, better than) we can under higher tax rates.
The other reason Democrats cite is to "make the wealthy rich pay their fair share." But numerous studies have shown that as tax rates have gone down, the percentage of taxes paid by "the wealthy" goes up.
Clearly the federal government can increase its tax revenue with either lower, or higher, rates and, thus, as far as the goal or raising revenue is concerned, the choice of tax rates, within reason (obviously, with a tax rate of zero, we get zero revenues), is totally arbitrary. That being the case, Republicans can ask the Big Moral Question: If we can increase revenues with both lower and higher rates, why is it not better to increase them with lower rates? And if our goal is to "make the wealthy pay their fair share" and the share of taxes paid by the wealthy increases under lower rates, why do Democrats continually advocate higher rates?
The answer is so obvious, I need not state it. But the Democratic Party and every Democrat who advocates higher tax rates should be made to do so, and publicly.
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Page Printed from: http://www.americanthinker.com/2009/10/liberals_and_taxes_the_big_que.html at October 11, 2009 - 01:47:04 PM EDT
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Obama and the left machine is actually proposing a TEMPORARY program to boost employment? Is that what we want? Temporary hiring? A government program to boost private sector employment? They are also proposing the largest tax ever (cap and tax) on heavy manufacturing and a takeover of health care, housing, banking, energy and auto manufacturing...
http://online.wsj.com/article/SB10001424052748703298004574459341050610398.html
Job Creation 101
A hiring tax credit returns from the dead.
The White House is finally coming to realize that taxes affect job creation. Terrific. Its solution seems to be to bribe employers for hiring new workers, albeit only for a couple of years. Less than terrific.
Alarmed by the rising jobless rate, Democrats are scrambling to "do something" to create jobs. You may have thought that was supposed to be the point of February's $780 billion stimulus plan, and indeed it was. White House economists Christina Romer and Jared Bernstein estimated at the time that the spending blowout would keep the jobless rate below 8%.
The nearby chart compares the job estimates the two economists used to help sell the stimulus to the American public to the actual jobless rate so far this year. The current rate is 9.8% and is expected to rise or stay high well into the election year of 2010. Rarely in politics do we get such a clear and rapid illustration of a policy failure.
This explains why political panic is beginning to set in, and various panicky ideas to create more jobs are suddenly in play. The New York Times reports that one plan would grant a $3,000 tax credit to employers for each new hire in 2010. Under another, two-year plan, employers would receive a credit in the first year equal to 15.3% of the cost of adding a new worker, an amount that would be reduced to 10.2% in the second year and then phased out entirely. Why 15.3%? Presumably because that's roughly the cost of the payroll tax burden to hire a new worker.
The irony of this is remarkable, considering the costs that Democrats are busy imposing on job creation. Congress raised the minimum wage again in July, a direct slam at low-skilled and young workers. The black teen jobless rate has since climbed to 50.4% from 39.2% in two months. Congress is also moving ahead with a mountain of new mandates, from mandatory paid leave to the House's health-care payroll surtax of 5.4%. All of these policy changes give pause to employers as they contemplate the cost of new hires—a reality that Democrats are tacitly admitting as they now plot to find ways to offset those higher costs.
Alas, their new ideas are little more than political gimmicks that aren't likely to result in many new jobs. Congress doesn't want to give up revenue for very long, so it would make the tax credits temporary. Thus anyone who is hired would have to be productive enough to justify the wage or salary after the tax-credit expires—or else the job is likely to end. An employer would be better off hiring a temp worker and saving on the benefits for the same couple of years.
The tax credit would also inevitably go to some employers already planning to hire, or reward companies that lay off some workers only to hire others to take advantage of the tax credit. And it would reward parts of the country that are growing, such as Texas, at the expense of those that aren't, such as Michigan. In other words, it is a very inefficient business subsidy.
We know all this because a new jobs tax credit has already been tried—in the Carter Administration. In 1977 as he entered the White House, Jimmy Carter proposed a jobs credit and a Democratic Congress passed it. Its unfortunate history was recounted in 1980 by then-Treasury official Emil Sunley in a chapter of "The Economics of Taxation," a book edited by Henry Aaron and Michael Boskin for the Brookings Institution.
As Mr. Sunley summarized: "The impact of the credit on jobs was slight. In many firms those who make hiring decisions did not understand the firm's tax status." He added that, "Because the capital stock is fixed in the short run, to increase employment significantly, demand for output must increase. An incremental tax cut tied to employment will not by itself generate that increase in demand. Moreover, a temporary incremental credit is unlikely to affect significantly the long-run substitution of labor for capital." Call this Job Creation 101.
President Obama first floated the hiring credit in January, but it died after opposition from Democrats who seemed to get the joke. "If you have a company and you're selling fewer shingles, $3,000 isn't going to get you to hire somebody when your sales are shrinking," said Senator Chuck Schumer. Yet now even some Republicans, such as House GOP whip Eric Cantor, are saying they're receptive to the idea. Mr. Cantor ought to know better.
The lack of U.S. job creation is a big problem, but the quickest way Washington could help would be to stop imposing more financial burdens on hiring. And if Democrats really want to reduce taxes on labor, the cleanest way would be to reduce the payroll tax rate. They could finance a permanent payroll cut by using the $300-$400 billion or more in unspent stimulus money, rather than continuing with the transfer payments and pork barrel spending that have failed so miserably to create jobs.
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Thinking Hard About Retirement and Death
By PAUL SULLIVAN
Published: December 25, 2009
WITH 2010 a few days away, there are several tax matters that wealthy investors need to consider next year. The two at the top of the list are whether they should convert their taxable retirement account to a tax-free Roth individual retirement account and how to deal with the uncertainty over the estate tax.
Janine Racanelli, managing director of the Advice Lab, says there are ways to give money to grandchildren other than through an estate.
Jere Doyle, wealth strategist at Bank of New York Mellon, said the wealthy should not get their hopes up for an end to the estate tax.
“There is frustration due to the legislative uncertainty,” said Daniel Kesten, partner in the private client services group at Davis & Gilbert, a tax firm. “Congress had eight years to address this, but they waited until the last year when two wars and health care interrupted their thinking.”
That leaves the wealthy with decisions to make about two of the biggest financial events of their life: retirement and death.
ROTH CONVERSION Starting in 2010, there will no longer be an income limit for Roth I.R.A.’s, which allow people to contribute post-tax money that can appreciate tax-free. The income limit has been $100,000 a year for individuals. The question is whether converting an existing I.R.A., the proceeds of which are taxed when distributed, into a tax-free Roth I.R.A. makes sense.
While Congress approved the change in 2006, the opportunity to convert seems to come at an enticing time. Those whose pretax retirement accounts lost a lot of their value in the last two years might want to withdraw the money, pay tax on the amount and then put it into a Roth. For wealthy investors who do not see themselves falling into a lower income tax bracket at retirement or who believe tax rates will rise significantly, this could be a shrewd move.
But this requires a degree of omniscience that few showed with the recession that began in December 2007. “Why bother?” asked Tony Guernsey, head of national wealth management at Wilmington Trust. “Is it that much money?” He used the example of buying a Treasury bill with a week to maturity: you know the government will pay you back. But the same cannot be said for what the tax landscape — or your wealth — will look like when you retire.
The bigger benefit may come to people who plan to pass their Roth on to heirs. Unlike regular retirement accounts, there is no minimum distribution requirement with a Roth, and the tax-free treatment of its assets can be passed to an heir. “The real benefit is coming in the estate planning aspects,” said Mitch Drossman, national wealth strategist for Bank of America private wealth management. “The beneficiary must take minimum distributions. But it will be growing tax-free and distributed tax-free.”
ESTATE TAX The elephant in the room is the estate tax. Congress has adjourned for the year without making any changes in that tax law. So as of now, that means the tax will disappear in 2010 before reverting in 2011 to the old rate of 55 percent for estates worth more than $1 million.
Jere Doyle, wealth strategist at Bank of New York Mellon, said the wealthy should not get their hopes up for an end to the estate tax. He pointed out that an estate did not have to submit its first tax bill until nine months after a person’s death. The Senate could wait, then, until the summer to decide on the estate tax and make it retroactive to the beginning of the year. This would wreak havoc on estate planning. Even if the Senate acted early in the coming year, it could still lead to a flurry of legal challenges on the constitutionality of reinstating a tax that had disappeared.
But there is a broader issue for moderately wealthy people. When a person dies now, the value of his or her assets gets a “step-up in basis,” which means for tax purposes the assets are valued on the day of death. Without an estate tax, this provision disappears, and the appreciated value is subject to capital gains tax.
The Internal Revenue Service will grant a $1.3 million “artificial basis” on assets of a single person and $3 million for couples if the estate tax disappears. But on the rest of the assets, the heirs will have to determine what the original cost was and pay the capital gains on the appreciated amount. For long-held stock that has split many times, this could be extremely difficult.
“If there is no estate tax in 2010, we have an income tax problem for a larger group of the population,” Mr. Kesten said. He estimated that the number of people affected would go from 6,000 to 60,000.
Still, most advisers and accountants expect that an estate tax will be reinstated, and this has pushed the wealthiest to find new ways to reduce its impact. “If we’re resigned to an estate tax existing, it’s not a call on where rates will go but an acknowledgment we won’t have a repeal,” said Janine Racanelli, managing director and head of the Advice Lab at J. P. Morgan Private Bank.
One way is through giving money to heirs above the $1 million lifetime exemption level and paying the 45 percent gift tax now. This may seem odd at first, since the estate tax is currently the same rate. But the benefit comes from how the taxes are applied: the gift tax is added like sales tax, while the estate tax is deducted like income tax. Mr. Kesten noted that a person with a $30 million estate could give roughly $20 million to his heirs during his lifetime and pay $10 million in gift taxes, or he could leave the $30 million to them and they would receive $15 million, after estate taxes.
Ms. Racanelli points out that giving money to grandchildren above the exemption rate is also better than leaving it to them through the estate. She said a person could save more than $500,000 in taxes on $1 million by giving the money now.
An option to avoid gift and estate taxes is to lend money to heirs. The Internal Revenue Service rate for such intrafamily loans in December is 0.69 percent for up to three years. The money the child makes investing above the I.R.S. rate is not subject to the higher 45 percent gift tax, but instead the lower 15 percent capital gains tax, Mr. Doyle said. If you die before the loan is repaid, however, the outstanding balance could be subject to income tax.
GIFT TAX EXCLUSION One of the most basic but highly effective estate tax strategies is the annual gift tax exclusion. The I.R.S. in 2009 allowed people to give up to $13,000 a year to anyone they wanted, tax-free. (This exclusion is separate from the $1 million lifetime exemption.)
But this is something that many wealthier people overlook, said Phyllis Silverman, vice president and senior trust adviser at PNC Wealth Management. “They’re all very busy and the idea of $13,000 per individual may not make an impact on their minds,” she said. “But when they sit down with their financial adviser, they can see how it will lower their estate costs.”
For those with an estate subject to a 45 percent estate tax, each $13,000 gift will save them at least $5,520 in estate tax, Ms Silverman said. Or consider this example: A married couple with a $10 million estate gives $13,000 a year each to six people for a decade. At the end of that time, they will have given $1.56 million tax-free. Based on the current estate tax rate, they will have also saved $702,000 in taxes by moving that money out of their estate before they die.
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By PETE DU PONT
Weather-wise it has been a very cold January, and politically the Scott Brown Senate victory has chilled Washington even further for Democrats. But if the Democratic economic policies continue nevertheless, this year will be nothing like the bitter economic January we will be living in a year from now.
Government spending has already hugely increased, and so has the size and scope of government, but next year there will also be substantial tax increases for a great many Americans. The first reason will be the expiration of the Bush tax cuts . The top personal income tax rate will rise next Jan. 1 to 39.6% from 35%, a hike of nearly one-eighth. The dividend tax rate will rise to 39.6%, more than 2½ times the current 15%. And the capital gains tax rate will rise by a third, to 20% from 15%. If the House health care bill had passed, all three of these rates would have risen to 45%.
The estate tax, which fell to zero this year under the Bush tax cuts, will return in 2011--or sooner, if Congress acts to restore it. Another likely tax increase will be on the income of private equity and hedge-fund managers, from the capital gains rate of 15% to the new higher income tax rates. It has already been passed by the House and is supported by the Obama administration, as is an additional 10-year, $90 billion tax on banks aimed at "rolling back bonuses for top earners." It would affect some 50 banks, insurance companies, and large broker-dealers.
Meanwhile a number of last year's tax deductions have disappeared due to the failure of Congress to extend them into this year. The tax deduction for state and local sales taxes is one; the deduction for college tuition and fees is another; and the 50% write-off for small businesses for capital purchases--equipment, machinery or building a new plant--has disappeared as well, which will have a negative effect upon the construction of new business operation facilities.
Add on to all of these increases the biggest government deficits and spending increases (to 26.5% of gross domestic product from 21%) in half a century, the protectionism of free trade downsizing through the "buy American" requirements, China import restrictions, and the administration limitations of Columbia, South Korea, and Panama free trade agreements, and we have a very different, and not very prosperous, America ahead of us.
Or as economist Arthur Laffer wrote in his January Economic Outlook, we "cannot have a prosperous economy when government is overspending, raising tax rates, printing too much money, over-regulating and restricting the free flow of goods and services across national boundaries." We are, in his words, simply "moving in the wrong direction."
***
But what Mr. Laffer sees as most important is a substantial American economic collapse coming to us in 2011. His reasoning is simple and sensible: the impending 2011 tax increases will lead Americans to get their incomes into this year and pay the current lower tax rates. That will mean a 2010 GDP growth 3% to 4% higher than it otherwise would have been, and that will look very good.
But when the huge tax-increase agenda arrives a year from now, the economy will begin to decline, and will be some 3% to 4% smaller than it otherwise would have been. The artificially high growth in 2010 followed by artificially low growth in 2011 would "represent a larger collapse than occurred in 2008 and early 2009," Mr. Laffer writes.
He also points out that there is a four- to eight-month gap between market performance and economic performance. Indeed, the market has often reflected good or bad tax news four to eight months ahead of their impact on the economy. We historically saw that after the Harding tax cuts (1922), the Smoot-Hawley tariff bill (1929), the Kennedy tax cuts (1963) and the Reagan tax cuts of 1983. If this pattern repeats, we could see the market begin to deteriorate sometime in the summer or fall of this year.
In modern times the Kennedy, Reagan and George W. Bush tax rate reductions helped spur economic growth. the Obama tax rate increases will have the opposite effect. Americans headed to the polls this fall, worried about the increasing size and spending of the federal government, possibly a falling market, and next year's looming tax increases, may reproduce next November the voter revolt we saw in the 1994 congressional elections. That led to a Democratic presidency and a Republican Congress, which together were better for the American people than the full-scale liberalism we see in the current administration.
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Backdoor taxes to hit middle class
By Terri Cullen Terri Cullen
Mon Feb 1, 4:09 pm ET
NEW YORK (Reuters.com) --The Obama administration's plan to cut more
than $1 trillion from the deficit over the next decade relies heavily on
so-called backdoor tax increases that will result in a bigger tax bill
for middle-class families.
In the 2010 budget tabled by President Barack Obama on Monday, the White
House wants to let billions of dollars in tax breaks expire by the end
of the year -- effectively a tax hike by stealth.
While the administration is focusing its proposal on eliminating tax
breaks for individuals who earn $250,000 a year or more, middle-class
families will face a slew of these backdoor increases.
The targeted tax provisions were enacted under the Bush administration's
Economic Growth and Tax Relief Reconciliation Act of 2001. Among other
things, the law lowered individual tax rates, slashed taxes on capital
gains and dividends, and steadily scaled back the estate tax to zero in
2010.
If the provisions are allowed to expire on December 31, the top-tier
personal income tax rate will rise to 39.6 percent from 35 percent. But
lower-income families will pay more as well: the 25 percent tax bracket
will revert back to 28 percent; the 28 percent bracket will increase to
31 percent; and the 33 percent bracket will increase to 36 percent. The
special 10 percent bracket is eliminated.
Investors will pay more on their earnings next year as well, with the
tax on dividends jumping to 39.6 percent from 15 percent and the
capital-gains tax increasing to 20 percent from 15 percent. The estate
tax is eliminated this year, but it will return in 2011 -- though there
has been talk about reinstating the death tax sooner.
Millions of middle-class households already may be facing higher taxes
in 2010 because Congress has failed to extend tax breaks that expired on
January 1, most notably a "patch" that limited the impact of the
alternative minimum tax. The AMT, initially designed to prevent the very
rich from avoiding income taxes, was never indexed for inflation. Now
the tax is affecting millions of middle-income households, but lawmakers
have been reluctant to repeal it because it has become a key source of
revenue.
Without annual legislation to renew the patch this year, the AMT could
affect an estimated 25 million taxpayers with incomes as low as $33,750
(or $45,000 for joint filers). Even if the patch is extended to last
year's levels, the tax will hit American families that can hardly be
considered wealthy -- the AMT exemption for 2009 was $46,700 for singles
and $70,950 for married couples filing jointly.
Middle-class families also will find fewer tax breaks available to them
in 2010 if other popular tax provisions are allowed to expire. Among
them:
* Taxpayers who itemize will lose the option to deduct state sales-tax
payments instead of state and local income taxes;
* The $250 teacher tax credit for classroom supplies;
* The tax deduction for up to $4,000 of college tuition and expenses;
* Individuals who don't itemize will no longer be able to increase their
standard deduction by up to $1,000 for property taxes paid;
* The first $2,400 of unemployment benefits are taxable, in 2009 that
amount was tax-free.
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What is interesting Drudge headline notes this story was literally *pulled* from Reuters about four hours after it was aired.
How is this from the 'objective' MSM?
http://news.yahoo.com/s/nm/20100202/bs_nm/us_budget_backdoortaxes
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yahoo has pulled the article- is that the point?
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This bears watching!!! CCP, will you be the one to keep an eye on this for us?
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Liberal or conservative, republican, democrat, indie, etc......if you are fed up with our current tax system and advocate some system of reform (FairTax, Flat Tax, no tax, etc.), join the 66,000 and growing on-line revolt. Free, fast, & easy:
http://www.onlinetaxrevolt.com/
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U.S. Sales Tax Rates Hit Record High
William P. Barrett, 03.08.10, 6:00 AM ET
While President Obama's push to raise federal income taxes for the wealthy gets lots of attention, the continuing upward creep in the sales tax rates imposed by state and local governments has gotten less notice.
But Vertex Inc., which calculates sales tax for Internet sellers, reports that the average general sales tax rate nationwide reached 8.629% at the end of 2009, the highest since the Berwyn, Pa., company started tracking data in 1982. That was up a nickel on a taxable $100 purchase from a year earlier and up nearly 40 cents for the decade. The highest sales tax rate in the country now stands at 12%.
In Pictures: America's Highest Sales Taxes
During 2009 seven states and the District of Columbia raised sales tax rates, with one jurisdiction--North Carolina--actually doing it twice. Only four states hiked rates in 2008 and only one in 2007. Given state budget problems, the 2009 state sales tax increases aren't surprising. States have also been raising income tax rates on the wealthyand on corporations and boosting excise taxes on alcohol and tobacco. With states now facing record budget shortfalls, more tax increases seem likely.
State level sales tax generally accounts for only about two-thirds of the total sales tax bill. The rest comes from levies assessed by counties, municipalities, Indian tribes and special-purpose taxing districts funding mass transit, urban renewal and even stadiums. Among lower level jurisdictions such as counties and towns, Vertex counted 649 new or increased sales tax rates during 2009 and just 192 reductions.
The result is a wide range of combined sales tax rates across the country. At the bottom: 0%, found in all of Delaware and New Hampshire, and most of Montana, Oregon and Alaska. The country's highest rate now is 12%, in the tiny portion of tiny Arab, Ala., (population 7,500) sticking into Cullman County. The rest of the northern Alabama town, in no-sales-tax Marshall County, pays just 8%.
Right now Chicago has the highest big-city rate, 10.25%. But in a move forced by Cook County lawmakers, the rate is scheduled to drop on July 1 to 9.75%, matching that of Los Angeles. In New York City the total bite is 8.875%. Other high big-city rates include San FranciscoandSeattle(9.5%), New Orleans (9%), Houston, Dallas and Charlotte (8.25%), Las Vegas (8.1%) and Philadelphia and Atlanta (8%).
In Arizona, voters will go to the polls May 18 to pass judgment on a 1% rise in the state's 5.6% rate for three years. If approved, the rate in Phoenix would jump from 8.3% to 9.3%.
Some of the highest sales taxes in the nation are designed to grab dollars from tourists. The New Orleans International Airport has a special 10.75% rate, while Snowmass Village, the ski resort in Colorado, levies a 10.4% sales tax. (Many locales also impose special higher taxes on services purchased by tourists, such as rental cars and hotel rooms.)
Nationally, sales taxes in 2008 generated more revenue for state and local governments--about $450 billion, a recent Government Accountability Office report suggests--than did either property taxes ($411 billion) or personal income taxes ($310 billion).
At the federal level and in some states, the income tax is progressive, with higher rates imposed on upper-income taxpayers. But rich and poor pay the same sales tax rate. In many states, however, there's no sales tax on food or medical prescriptions.
The combined local sales rate is what local merchants charge for in-person customers. Through a parallel system called the use tax, it's also what residents in a given jurisdiction are supposed to pay on purchases over the Internet from out-of-state sellers, but such payments are widely flouted. Congress has declined to pass legislation that would require large Internet only sellers like Amazon.com and Overstock.com to collect sales taxes for all states. (Currently, they only have to do so for states in which they have some physical presence.)
Many big online merchants, including Wal-Mart, Dell, Office Depot Inc. and Staples Inc., collect sales taxes from Internet buyers. Some states, with New York in the lead, have adopted new "Amazon" laws designed to force the Web giant and others to collect their taxes. More such laws are likely this year.
West Virginia adopted the country's first sales tax in 1921. Periodically, the federal government has considered a national sales tax, but such proposals have never gotten traction.
In Canada, which has a national 5% sales tax, all but two of the provinces (Alberta and Saskatchewan) have combined sales taxes of 12% or higher. The highest is the 15.5% hit on Prince Edward Island.
http://www.forbes.com/2010/03/05/sales-tax-rates-record-high-personal-finance-shopping-tax.html?boxes=Homepagechannels
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I don’t understand. If Obamacare is going to save us all this money, why do we need another tax? I’m confused. Someone please explain it to me without using Obamaspeak.
http://www.foxnews.com/politics/2010/04/07/obama-economic-adviser-says-consider-value-added-tax/
Updated April 07, 2010
Obama Economic Adviser Says U.S. Should Consider 'Value Added Tax'
NYPost.com
Acknowledging it would be a highly unpopular move, White House economic adviser Paul Volcker said yesterday the United States should consider imposing a "value added tax" similar to those charged in Europe to help get the deficit under control. A VAT is a national sales tax that, like state and city sales taxes, would be collected by retailers.
Volcker, at the New-York Historical Society, told a panel on the global financial crisis that Congress might also have to consider new taxes on carbon and energy.
The VAT suggestion was immediately met with outrage by Republicans.
"It shouldn't surprise anyone that the Obama White House would advocate a European-style tax to help finance their European-style government health-care plan," said Brian Walsh, a spokesman for the National Republican Senatorial Campaign Committee.
Click here for more on this story from the New York Post.
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JACOB LAKSIN
Hope in Jersey
In the state’s latest tax war, Governor Christie is standing firm.
11 April 2010
New Jersey governor Chris Christie’s recently unveiled budget has been alternately hailed and condemned for imposing spending cuts on the economically ailing state, but one item that’s not actually in the proposed budget has proved the biggest flashpoint: the so-called “millionaire’s tax” surcharge on incomes of $400,000 or more. Former governor Jon Corzine enacted the tax on a one-year timeline to replenish the state’s chronically empty coffers and bolster depleted revenues. By allowing it to expire, Christie has touched off a charged but vital debate about the kind of state New Jersey is—and the kind it should be.
The death of the millionaire’s tax has provoked howls of outrage from New Jersey Democrats. State Senate president Stephen Sweeney complained that while Christie’s budget forces lean times on the state, “the only people that got a break are the higher-income people.” Sweeney has threatened that the Democrat-controlled state legislature would block the budget unless the tax is reinstated. The New Jersey Star Ledger was equally incensed, raging that “the governor can’t possibly justify deep tax cuts for the state’s wealthiest families while he’s imposing these spending cuts.” The paper charged that by refusing to tax the rich more, the governor was engaging in “class warfare.” With the goading of politicians and the media, New Jersey residents have also warmed to the idea that the rich are not sharing in the sacrifice that tough times demand. Despite having a broadly favorable view of their new governor and little appetite for additional tax hikes, they oppose eliminating the tax on high earners.
Christie’s critics would seem to have a strong case: Why should the rich get a tax break, especially when the governor is asking the state to tighten its collective belt? The fiscal reality is more complicated. For one thing, many of those hit by the millionaire tax aren’t really millionaires, but small businesses. Of the 63,480 income tax returns filed for incomes of $400,000 and more in 2008, over half had some small-business income, according to the New Jersey Division of Taxation. Moreover, New Jersey’s wealthy already face one of the heaviest tax burdens in the country. According to the latest figures, the top 1 percent of income earners pays 45 percent of state income taxes, the consequence of a highly progressive tax structure that will put New Jersey into a sixth-place tie this year with New York for the nation’s highest top marginal income-tax rate. With the sunset of the millionaire’s tax surcharge, New Jersey returns to the still-high rate established in the original “millionaire’s tax”: passed in 2004 by then governor Jim McGreevey, it considers individuals making $500,000 or more as millionaires, raising their tax rate to 8.97 percent. New Jersey also has the second-highest sales tax rate; the sixth-highest corporate tax rate; and the highest property taxes in the nation. Overall, as Christie points out, New Jersey collects more state and local taxes as a percentage of income than any other state. Affluent residents, of course, pay the largest share.
And their tax burden is likely to increase even without the millionaire’s tax. With President Obama set to let the Bush tax cuts expire this year, Tax Foundation staff economist Mark Robyn points out that New Jerseyans earning over $500,000 annually could face a 50 percent marginal tax rate—that is, each dollar earned past the $500,000 threshold will be taxed at nearly 50 percent. As Robyn suggests, that “increases the likelihood that high-income New Jersey residents will seek out states with a lower tax rate.”
Evidence suggests this tax-driven exodus is already underway. Several studies have documented that New Jersey’s tax burden is driving wealth—as well as the jobs, job opportunities, and revenues it creates—from the state. The most recent is a February study conducted by the Center on Wealth and Philanthropy at Boston College, which found that New Jersey lost more than $70 billion in wealth between 2004 and 2008 as wealthy households departed for lower-tax states like Pennsylvania and Florida. An October 2007 Rutgers University study on income by public policy professors James Hughes and John Seneca made similar findings. Examining Census Bureau and Internal Revenue Service data, they found that by 2005 New Jersey had lost nearly $8 billion in gross income since the start of the decade. As a result of the income loss and the associated drop in consumer spending, the authors estimate, the state lost nearly 39,000 jobs, $2.76 billion in gross domestic product, and $85.4 million in state sales- and income-tax revenues. Their study didn’t offer a sole explanation for the vanished income, but Professor Seneca says that high taxes are one probable cause. “Certainly, if you talk to tax accountants and estate advisors, the anecdotes are numerous that the general tax structure is a factor,” he says.
In fleeing for more tax-friendly locales, high-income earners have left New Jersey with some unwelcome distinctions. The state now ranks fifth-highest in the country in outward migration, with 450,000 residents moving out since the beginning of the decade and 400,000 moving in—a net loss of 50,000. Even that doesn’t convey the full impact of capital flight, because those who leave tend to be wealthier—and pay more in income taxes—than the new residents, who are often immigrants. Rutgers’ James Hughes, dean of the school’s Edward J. Bloustein School of Planning and Public Policy, points to a telling economic indicator. New Jersey ranks in the top three states in the nation in providing business for leading moving companies like Van Lines and Mayflower, but those companies don’t do nearly as much business with those moving into the state. “That suggests that the people who are leaving are wealthier while those moving in have nothing to move in,” Hughes observes. Combine the outflow of wealth with the spending of the state’s perennially profligate legislature, and it’s not hard to see why New Jersey is facing a $10.7 billion budget deficit this year.
That bleak economic outlook may explain why Democrats have not moved to reinstate the millionaire’s tax, even as they’ve decried the Christie administration for failing to do so. “When Democrats criticize Christie for not renewing the millionaire’s tax, they are in essence blaming themselves,” says Joseph Malone, the Republican budget officer in the state assembly. “Democrats have the majority in the state assembly and the state senate, so if they want to raise this tax somebody should step up and move forward with the legislation. They are blaming Christie for something they and the Corzine administration wouldn’t do.”
Republicans have mostly cheered Christie’s refusal to raise taxes, but some object to various aspects of his budget and what they might mean for the state’s financial future. The biggest concern: the budget eliminates $848 million in property tax rebates while cutting aid to schools and municipalities. That could force districts to make up for the lost revenue by raising property taxes. Paul Mulshine, the lone conservative columnist at the Star Ledger, warns that “local property taxes will skyrocket under the Christie budget.” Democrats could also capitalize on the aid cuts to offer voters a stark choice: pay more in taxes or raise them on the rich.
That is not necessarily a winning argument, however. As City Journal’s Steven Malanga points out, even in the absence of state aid, New Jersey school districts are already flush with cash. New Jersey’s education spending per pupil is 60 percent above the national average, and state schools have been on a costly spending spree since 2001, hiring thousands of new teachers even as enrollment has grown by a modest 3 percent. Amid the ongoing fiscal crisis, taxpayers are unlikely to be receptive to suggestions that they bankroll the schools’ already-bloated budgets by paying more in property taxes. Meanwhile, Governor Christie has tried to prevent the possibility of a property tax hike. To that end, he has called for a constitutional amendment to limit property-tax rate increases to 2.5 percent per year and promised to back municipalities in contract negotiations with unions.
Others worry that Christie’s budget could lay the groundwork for a tax hike on the rich because it doesn’t do enough to shrink the size of government. The most vocal conservative critic in this regard has been Steve Lonegan, the fiery former mayor of Bogota, New Jersey, who lost out to Christie in last year’s gubernatorial primary. “New Jersey already has an enormously progressive tax code in the country and the Democrats want to make it worse,” says Lonegan, now head of the New Jersey chapter of the free-market grassroots group Americans for Prosperity. “That said, I’m very concerned that Christie’s budget is creating a political environment in which Democrats will offer taxes on the wealthy as the only solution.” As an example, Lonegan notes that, despite promises to cut spending, Christie’s budget actually increases several government welfare programs. The governor supports expanding Medicaid enrollment for children up to 350 percent of the federal poverty level, and he has proposed expanding food stamps to 185 percent of the poverty level. “We can’t be putting more people on the dole when we should be putting them to work,” Lonegan protests. More broadly, he worries that the failure to cut government entitlements “gives Democrats the leverage they need to raise taxes on the high income earners we desperately need to build this state.”
Republicans in the state legislature seem confident that it won’t come to that. Assemblyman Malone dismisses the Democrats’ carping about the millionaire’s tax as little more than “political rhetoric.” In private discussions, he says, his Democratic colleagues admit that another tax on the rich will jeopardize the revenues the state needs to regain its financial footing. “Unless there’s a 100 percent reversal in revenues, the starting point for the budget is that there is no additional money,” says Malone, who notes that the past year alone saw a 12 percent decline in revenues—the worst in state history. “Democrats don’t want this turmoil, and I don’t think there’s anybody who doesn’t understand the depth of the financial crisis we face in the state.” Matt Rooney, founder of the conservative New Jersey politics blog Save Jersey, agrees. No matter what they may say in public, Democrats are unlikely to oppose the budget because it doesn’t contain a tax increase. “Dire circumstances and public opinion have Democrats over a barrel,” Rooney says. “The uncomfortable truth is that many Democrats do know better.”
If that’s indeed the truth, then the squabbling over the millionaire’s tax and the amped-up charges of “class warfare” are nothing more than a noisy political sideshow. After years of financial mismanagement, this is a hopeful sign that the state is not condemned to repeat the past.
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I understand that when you want a service, there is a cost. How someone can ever get a service by not paying for it is just beyond me. Making someone else pay for it is theft. It does not matter how rich the guy is that a thief steals from, scaling on either side of the equation does not affect the operation. ( nice copyright notice by the way). Taxes are a legalized theft, the "Voluntary" is a fiction that is like the voluntary contribution to the bosses birthday fund, or attendance at the office Xmas party..........The latter two have become more so in recent years, mainly because the bosses use of the "your fired" gun has become limited.........
If everyone is paying a flat percentage, or a pay as you go fee, then everyone is paying a fair share. Otherwise we are talking about a redistribution system, which is patently unfair. Many people with money are perfectly willing to share some out to charity, and that is only right. It is perfectly right to be a scrooge too, it is their property, but there is a certain negativity attached to these types of folks.........
Living in most cities has a pay as you go sales tax, if you don't like it you can move. Fees are the same way, if you do not like it then live without the service. When the government majkes a service/fee mandatory is when they are limiting life, liberty and happiness. Tjhat is what authoeitarion states do, and I will always have and issue with those types of laws/ means of earning revenue.
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"If everyone is paying a flat percentage, or a pay as you go fee, then everyone is paying a fair share."
I am with Rarick on this one (unfortunately that only makes two of us). Every dollar earned should be taxed the same. Then we all have the same stake in our nation when we vote for or against programs, taxes and expenditures. That is the way public spending gets scrutinized and contained. Necessary assistance should be addressed only on the spending side and better yet on the private charitable side.
Since this is politically impossible, then the compromise has to be to move only in the direction of flatter, wider and simpler taxes that reach further into the electorate, not to target or isolate any group as the party of free lunch and class warfare proposes.
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I guess this could go under spending, education or another topic.
Yet since we are talking about NJ there is a titanic fight between newly elected Gov. Christie and teachers unions.
I keep seeing commercials telling us how Christie is hurting our children by trying to cap pay increases for teachers and asking them to contribute into their own pensions.
http://www.dailyrecord.com/apps/pbcs.dll/article?AID=2010100411013
Private unions and unions of public officials are in my opinion not the same.
No one is against teachers per se but teachers in NJ are some of the highest paid in the country, our porperty taxes ARE the highest in the country.
If I recall the unions in California destroyed Schwarzenegger. Christie seems to be winning here.
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Some facts in this video will set your teeth grinding:
[youtube]http://www.youtube.com/watch?v=XX8EswfGKQw&feature=player_embedded[/youtube]
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On the Glen Beck show on Monday night Art Laffer proposed the following:
1) 11% corporate tax
2) 11% income tax for everyone
3) Abolish all other taxes.
THIS IS BRILLIANT!!!
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Tjhe other alternative I have seen is a national sales tax. everything but food. There would be a certain guaranteed income from clothes and other necessary items, and people would be paying in scale to income too. That would satisfy both side of the political equation, if everyone was working to their principles and not their agenda, eh?
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"An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." --Justice John Marshall, McCullough v. Maryland, 1819
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Thus far, I like the fair tax concept the best.
www.fairtax.org
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Rarick, GM, all
(please see discussion in this thread from around March 2009 on this topic)
In the hypothetical, I like the 'fair tax' as well. Closer to the theme of the founders who had only import duties then which I do not like now. I like the Laffer proposal with 11% flat income tax plus 11% corporate income tax MUCH better, but is also not possible politically.
The transition to consumption-only taxes from where we are now is impossible at this time. It requires FIRST a repeal of the federal government's power to tax income. Otherwise you are creating an additional layer of taxation. Our opponents are talking about a VAT right now as an ADDITIONAL layer of taxation. Repeal of the 16th amendment is not going to happen in this political environment, you won't win support from independents, moderates Dems or moderate Republicans, and you need roughly 75% support to end all income taxation when we are more than a trillion a year in the red already.
This is no time politically for long range hypotheticals. We need to oppose new tax increases, repeal the most recent 25 new taxes signed by Obama (http://republicans.waysandmeans.house.gov/UploadedFiles/DemTaxIncreases1.pdf), make 'permanent' the expiring cuts, and then CUT SPENDING FIRST! (IMHO!)
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Laffer's 11 & 11 proposal seems to me both profound and politically brilliant. The amount of growth it would unleash I think would be staggering.
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The Week /Congress's Carried Interest Tax Folly
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JOHN RUTLEDGE, The Wall Street Journal (05/22/10): Nero fiddled while Rome
burned, but at least he didn't strike the match. Members of Congress are
doing Nero one better. In the middle of the second global financial crisis
in two years, Congress is preparing to dramatically raise a key tax rate
on long-term investment. This is sure to discourage capital investment,
increase the cost of money to start and grow businesses, and depress
real-estate and stock prices, all at the worst possible time.
Last week, Senate Finance Committee Chairman Max Baucus (D., Mont.) and
House Ways and Means Chairman Sander Levin (D., Mich.) released joint
legislation that would among other measures significantly raise the tax on
"carried interest." Now the tax rate on these long-term capital gains
earned by the general (managing) partners of investment partnerships is
15%. The new law would raise the rate to as high as 38.5% (three-fourths
of the gain would be taxed at ordinary income tax rates and one-fourth at
capital gains rates, both of which will be increasing as well).
Tax rates matter. And what matters about them is what activities get
taxed, not who gets taxed. When you increase the tax rate on an activity,
you get less of it. The only question is how much less of it you will get.
Nero fiddled while Rome burned, but at least he didn't strike the match.
Members of Congress are doing Nero one better. In the middle of the second
global financial crisis in two years, Congress is preparing to
dramatically raise a key tax rate on long-term investment. This is sure to
discourage capital investment, increase the cost of money to start and
grow businesses, and depress real-estate and stock prices, all at the
worst possible time.
Last week, Senate Finance Committee Chairman Max Baucus (D., Mont.) and
House Ways and Means Chairman Sander Levin (D., Mich.) released joint
legislation that would among other measures significantly raise the tax on
"carried interest." Now the tax rate on these long-term capital gains
earned by the general (managing) partners of investment partnerships is
15%. The new law would raise the rate to as high as 38.5% (three-fourths
of the gain would be taxed at ordinary income tax rates and one-fourth at
capital gains rates, both of which will be increasing as well).
Tax rates matter. And what matters about them is what activities get
taxed, not who gets taxed. When you increase the tax rate on an activity,
you get less of it. The only question is how much less of it you will get.
Congress should be asking one question: "Is long-term investment something
we really want less of, especially now?" Unfortunately, in today's
political climate, tax policy discussions focus almost exclusively upon
who, not what, gets taxed. This means singling out specific groups of
people-bankers, Wall Street, "the rich," the owners and executives of
insurance, oil and drug companies-to punish for our economic difficulties.
This may be politically popular but will have bad consequences for the
economy.
Carried interest refers to the share of the capital gains (typically 20%)
earned on long-term investments in real estate, venture capital, private
equity and other investments organized as partnerships that is allocated
to the general (managing) partner. Limited partners (i.e., passive
investors) pay this share to align their interests with those of the
general partner and to provide incentives for him to increase capital
gains.
Both general partners and limited partners pay taxes based on the
character of the income earned by the partnership: ordinary income rates
on dividends and short-term capital gains, and the long-term capital gains
rate on the long-term capital gains. Some partnerships, such as hedge
funds, earn mostly short-term gains, and pay ordinary income tax rates.
Other partnerships, such as real estate, venture capital and private
equity, make long-term investments. Their profits are mostly made up of
long-term capital gains and are taxed at lower long-term capital gains tax
rates as a way to encourage long-term investment.
The economic impact of the proposed tax rate hike is unequivocally
negative for long-term investment. It will lead to changes in the terms of
investment partnerships that will reduce after-tax returns for all
investors, including the limited partners.
Before partnerships are formed, the fees, carried interest, governance and
other provisions are heavily negotiated. The proposed tax increase reduces
the after-tax value of carried interest compensation. A material change in
the after-tax economics of something as critical as general partner
compensation will result in an entirely different set of terms in which
both general partners and limited partners share the pain.
The resulting drop in after-tax returns for all investors will reduce
capital committed to long-term investments in partnerships of all sorts.
This means less capital formation, less construction activity, less
manufacturing activity for capital goods makers and their suppliers, fewer
start-ups, fewer jobs, lower productivity growth, and lower wages. The
direction of these changes is not in question. The only question is how
much less of these things we are going to get....
Read On or Post a Comment:
http://online.wsj.com/article/SB10001424052748704852004575258401601217646.html
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By ARTHUR LAFFER
People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.
It shouldn't surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.
Likewise, who is gobsmacked when they are told that the two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the nontaxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it's also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter.
People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, "high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994."
Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn't rocket surgery, as the Ivy League professor said.
On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.
Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there's always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.
.Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.
Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe "double dip" recession.
In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn't take effect until Jan. 1, 1983. Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.
But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.
Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.
View Full Image
Associated Press
.In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what's going to happen to tax rates, this conversion seems like a no-brainer.
The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain't seen nothing yet.
Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
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Crafty, Arthur Laffer is exactly right - thanks for finding and posting that. The automatic tax increase at the end of the year are the elephants in the room that no one wants to talk about. Only Democrats can stop that from happening. Even if Republicans win one or both chambers, they take office after the first of the year and anything they pass will require Obama's signature.
By 2012 it will be very difficult to keep calling this country "Bush's mess".
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Quoting Laffer: "...Jan. 1, 2011...the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero... Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.
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I would argue that like Sept 2008, when investors and markets begin to see an impending implosion of values they won't sit around and wait to be the last person to sell off.
The big opportunity now is for Democrats to take some wind out of Republican sails by passing new budgets with new spending reforms coupled with comprehensive tax reforms now. Unfortunately for the republic, that isn't likely to happen.
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How the New Wealth Taxes Will Hit You
By LAURA SAUNDERS
The health-care bill that Congress passed in March contained two surprising new taxes to help pay for the changes: an extra 0.9% levy on wages for couples earning more than $250,000 ($200,000 for singles) and a new 3.8% tax on investment income on those same people (technically, people with "adjusted gross incomes" above those amounts).
Each tax signals a radical change in policy. For workers, the extra 0.9% levy puts a progressive element in what used to be a totally flat tax. The 3.8% tax on investment income also knocks down a longstanding wall by applying a "payroll" tax to unearned income. Until now, FICA taxes for Social Security and Medicare have applied only to wages, not investment income.
While many details remain unclear and the Internal Revenue Service hasn't issued any guidance, here are preliminary answers to the most important questions taxpayers are asking.
These taxes take effect in 2013, two elections away. Might they be repealed first?
Not likely. "Congress would have to undo the health reform, and budget constraints would still be there," says Clint Stretch of Deloitte Tax. "Even if Republicans take control of Congress, President Obama holds the veto pen until Jan. 20, 2013."
How does the 0.9% tax work?
If Joe and Mary each earn $175,000, their total employment income is $350,000. Currently they owe 1.45%—$5,075—of regular Medicare tax, and their employers owe a matching amount. In 2013, the couple will owe an extra 0.9%—$900—on their wages above $250,000, which is $100,000. Their employers pay nothing extra.
What about the 3.8% tax on net investment income?
This levy is keyed to "modified adjusted gross income," with a threshold of $250,000 for couples and $200,000 for singles. (This is simply adjusted gross income for nearly everybody except expatriates, who must add back certain exclusions.) The tax is a flat 3.8% on investment income above the threshold.
How would this work?
Example 1: John and Jane, a married couple, have $400,000 of AGI—$200,000 of wages plus $200,000 of investment income. Because they have $150,000 of investment income above the $250,000 threshold, they would owe an extra $5,700.
Example 2: Anne, a single filer, earns $40,000 but has an investment windfall of $190,000, for total income of $230,000. Because she has investment income of $30,000 above her $200,000 threshold, she would owe $1,140 of additional tax.
Example 3: Retirees Mary and Bill have no wages but they do have a taxable IRA payout of $90,000, plus investment income of $150,000, for a total of $240,000. They don't owe the new tax, because they have no investment income above the $250,000 threshold.
What is investment income?
Interest, except municipal-bond interest; dividends; rents; royalties; and capital gains on the sales of financial instruments like stocks and bonds. The taxable portion of insurance annuity payouts also counts, unless it is from a company pension. So do gains from financial trading, as well as passive income from rents and businesses you don't participate in. All are subject to the 3.8% tax on amounts above the $250,000 or $200,000 threshold, as described above.
Not taxed: Distributions from regular and Roth IRAs and other retirement accounts, including pensions and Social Security, and annuities that are part of a retirement plan. Life-insurance proceeds, muni-bond interest and veterans' benefits don't count, nor does income from a business you participate in, such as a Subchapter S or partnership.
Could the 3.8% tax apply to gains on the sale of a home?
Yes, if there is a taxable gain above the $500,000 ($250,000, single) exclusion for gains on the sale of your residence.
Example: Fred and Fran, who bought their home in a New York suburb for $50,000 in 1972, sell it in 2013 for $1 million. After subtracting the $50,000 cost and $500,000 exclusion, they have investment income of $450,000. If they also have a taxable IRA payout of $70,000 and a pension of $30,000, they would owe the tax of $11,400 on $300,000.
What happens if a taxpayer who owes the new tax on investments also has a large itemized deduction—say, medical expenses or a theft loss?
Even if taxable income is zero because of deductions, he or she could still owe the 3.8% tax. Example: Myra is a single filer with investment income of $100,000 and wages of $200,000. But during the same year she loses $300,000 in a Ponzi scheme. She pays no income tax, but she still owes the new Medicare tax of $3,800 on her net investment income, says Sharon Kreider, a tax expert in Sunnyvale, Calif.
Does the 3.8% tax affect trusts and estates?
Yes, and it can hit them hard. The tax is levied on investment income as low as $12,000 that isn't paid out to beneficiaries. Some believe the tax may also hit children's unearned income subject to the "kiddie tax" if the parents owe it themselves.
What professions are able to avoid this tax?
Ms. Kreider and others see a sweet spot for real-estate professionals. The law deems their rents to be "active" income, so they wouldn't be subject to the investment tax. Often they don't owe self-employment taxes on that rental income, either.
What steps do experts recommend to minimize these taxes, other than taking capital gains before 2013 or buying municipal bonds?
• Examine both your regular and investment income: the higher your regular AGI, the more likely that your investment income will be subject to the new tax. So while Social Security and pensions don't count as investment income, they raise AGI. This makes Roth IRA conversions even more attractive for many. "Roth withdrawals don't raise AGI and aren't investment income," says Vern Hoven, a tax expert in Gig Harbor, Wash.
• Reconsider a defined-benefit pension if you're eligible—say, you're in a small business or have consulting income, says Mark Nash of PricewaterhouseCoopers. Pension payouts don't count as investment income, and the older a taxpayer is, the more he can contribute.
• Taxpayers selling assets should consider installment sales, says Ms. Kreider, if spreading out the income would minimize the new tax.
• For some, life insurance may become more attractive. Because life-insurance proceeds at death aren't subject to this tax, a taxpayer could buy a policy, borrow from it and settle up at death, avoiding income tax on investment gains within the policy. But Mr. Nash cautions that the savings must outweigh the fees and other disadvantages such policies may have.
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"'Next year when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits step up. Because I'm calling their bluff."
That was President Barack Obama, the heretofore unknown deficit hawk, all but announcing the other day the tax trap that he's been laying for Republicans. From what we hear about intra-GOP debates, more than a few will be happy to walk right into it.
You don't need a Mensa IQ to figure this one out. Mr. Obama's plan has been to increase spending to new, and what he hopes will be permanent, heights. Then as the public and financial markets begin to fret about deficits and debt, he'll claim that the debt is "unsustainable" and that the only "responsible" policy is to raise taxes.
White House officials even talk privately about the galvanizing political benefit of a bond market crisis, which would force panicked Members of Congress to accept a big new value-added tax. The President's two looming tax reports—one from his deficit commission and the other from Paul Volcker's economic advisory group—are intended to propose a VAT and other tax options. Whatever their initial reception, the proposals will be there to be pulled from the shelf when the political moment is right.
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Associated Press
.Voila, Mr. Obama will have established a new spend-and-tax policy architecture that has the feds taking from 25% to 30% of GDP, up from the roughly 21% modern average.
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This strategy explains why Mr. Obama is now starting to fret in public about deficits and debt. This week he even said reducing the debt will be "our project." Funny how debt seemed a lower priority when he was urging Congress to pass $862 billion in stimulus and $1 trillion in new health-care subsidies.
The Congressional Budget Office is contributing to this political drama by declaring this week that the "federal budget is on an unsustainable path." Of course, but why? The biggest reason is that Medicare and Medicaid keep rising at two to three times the rate of everything else in the economy and, as CBO explains, will eventually take up every dollar of tax revenues raised, leaving no money for anything else, including national defense.
"Slowing the growth rate of outlays for Medicare and Medicaid," advises CBO, "is the central long term challenge for federal fiscal policy." This is the same CBO that blessed ObamaCare's Medicaid expansion to 16 million more recipients.
What CBO's latest apocalyptic report doesn't stress is what we'd call the more important deficit in its forecast: the growth deficit. CBO predicts an annual rate of GDP growth of 2.2%. Yet since 1959 the U.S. economy has grown at an average rate of 3%, and during the 1980s and 1990s it was closer to 3.5%. The compounding effect of restoring this faster pace of growth would mean far more net national wealth and would certainly make debt repayment easier.
Even Mr. Obama's current spending level of 25% of GDP would be more manageable if the slow economic recovery weren't keeping tax revenue at unusual lows. In 2007, the economy threw off revenue of 18.5% of GDP. That fell to 14.8% in 2009 and may not be too much higher this year. The point is that there is no hope of balancing the federal budget without a return to higher levels of economic growth.
This is where Republicans need to maneuver around Mr. Obama's tax trap. He and his White House economists believe that taxes have little effect on growth so they can get revenues to 20% or 25% of GDP simply by raising tax rates or imposing a VAT. But if they're wrong about the impact of those taxes on a still-fragile economy recovery, they could keep the economy on a subpar growth path for years to come. We think the last thing the U.S. economy needs at the moment—and the worst policy for the deficit—is the big tax increase that will hit on January 1 with the expiration of the Bush tax cuts.
Yet we hear that even many Republicans are privately insisting that any extension of those Bush tax cuts must be "paid for" with other tax increases. Under Congress's perverse budget rules, extending those tax cuts will "cost" the Treasury revenue, even though extending those tax rates would only prevent a tax increase.
And because Congress still uses static revenue scoring—meaning no change in economic behavior from tax changes—the Joint Tax Committee thinks it will raise nearly $1 trillion over 10 years from the higher tax rates on incomes, dividends and capital gains. That's highly improbable. After those tax rates were cut in 2003, total federal tax revenue increased by 44%, or $743 billion, from 2003-2007.
In other words, Democrats have rigged the rules so that merely stopping a tax increase will be scored to increase the deficit. These are the same Democrats who haven't "paid for" trillions of spending in the last four years, but watch them soon denounce Republicans as fiscally irresponsible merely for trying to stop a tax increase. Orwell would love modern Washington.
If Republicans go along with this perverse pay-as-you-go logic, they will play into Mr. Obama's hands. He'll gladly offer to raise taxes on the wealthy in order to "pay for" extending the lower Bush rates on the middle class. Never mind that the tax increases on capital gains, dividends and income tax rates will do the most economic harm.
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Republicans need to break out of their rhetorical preoccupation with debt and deficits, focusing their political aim instead on spending and above all on reviving economic growth. They should hold the line against all tax increases and begin to consider a menu of tax cuts to make the U.S. more competitive, especially if the economy continues to underperform.
Mr. Obama's strategy of spending our way to prosperity clearly hasn't worked, as the voters are coming to understand. But if the GOP policy response is merely to bemoan deficits, they will soon find themselves back at their historic stand as tax collectors for the welfare state. To avoid Mr. Obama's tax trap, Republicans also need a growth agenda.
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By ARTHUR B. LAFFER
The current debate over extending and increasing federal unemployment benefits encapsulates the disagreement between the Democrats in power in Washington and their Republican opponents. What the consequences will be of raising unemployment benefits in today's depressed economy is at issue.
The most obvious argument against extending or raising unemployment benefits is that it will make being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment. Empirical research supports this view.
The Democratic retort is that the economy today is so different from the past that we have to suspend our traditional understanding of economics. With five job seekers for every job opening, the unemployed are desperate for work and increasing unemployment benefits will have very little if any disincentive effect. This view hinges on a total change in employee behavior from "normal" times to the current period of "the Great Recession."
On the face of it, the idea that higher unemployment benefits won't lead to more unemployment doesn't make much sense. Imagine what the unemployment rate would look like if unemployment benefits were universally $150,000 per year. My guess is we'd have a heck of a lot more unemployment. Common sense and personal experience indicate higher unemployment benefits will make unemployment less unattractive and thereby increase unemployment even in the Great Recession. As the chart nearby clearly shows, since the 1970s there's been a close correlation between increased unemployment benefits and an increase in the unemployment rate. Those who argue that things are different today don't have the data to back up their claims.
. ..The Democratic argument also ignores the impact of unemployment benefits on employer costs. Employers don't usually hire people to assuage their consciences. They hire people to make after-tax profits. And if workers require more pay because of higher unemployment benefits, employers will hire fewer employees. Whether increased unemployment benefits incentivize workers to work less or disincentivize employers from hiring more workers, the effect will be the same—higher unemployment.
The second point made by the Obama administration is that unemployment benefits are a great way to stimulate demand. Increased unemployment benefits operate quickly and the recipients spend what they get, which makes these stimulus funds the best bang for the buck.
Here again the facts are in dispute. Studies have shown that previous stimulus spending—much of which was also targeted for the poor and unemployed—was to a large extent saved and not spent. But I'm not going to rest my case on the obvious failure of Washington's prior stimulus packages. Based upon the above logic (as described in the January 2009 white paper co-authored by White House economists Christina Romer and Jared Bernstein) the administration forecast that the unemployment rate would be a little above 7.3% in the third quarter of this year. That isn't going to happen.
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Associated Press
.The flaw in their logic is that when it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn't a "tooth fairy," or as my former colleague Milton Friedman repeated time and again, "there ain't no such thing as a free lunch." The government doesn't create resources. It redistributes them. For everyone who is given something there is someone who has that something taken away.
While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.
To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to the unemployed, then people who otherwise would have had those 10 apples now won't. The stimulus of 10 apples for the unemployed is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken.
Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial "toll for the troll." These massive inefficiencies could lead to lower output.
To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.
But it doesn't stop there. While the income effects sum to zero, the substitution effects aggregate. The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.
Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working. It's pretty basic economics.
No one opposes unemployment benefits as a transition aid for people to get back on their feet and find a new job. Unemployment benefits are a safeguard for individuals down on their luck. But to argue that unemployment benefits actually reduce unemployment is disingenuous at best, and could induce our government to enact policies that have the effect of destroying our nation's production base from whence all benefits ultimately flow.
More
Obama Shifts to Export-Led Jobs Push
Long Recession Ignites Debate on Jobless Benefits
.Any government program that would reduce unemployment has to make working more attractive for both employer and employee. Since late 2007 the federal government has spent somewhere around $3.6 trillion to stimulate the economy. That is a lot of money.
My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?
Mr. Laffer is the chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy—If We Let It Happen" (Threshold, 2008).
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I risk posting this before Lebron James decision is announced. I think they pay state taxes around the country for every away game. Where would you want to play your home games?
Top state income tax
Ohio: 6%
New York: 9%
Florida: "No state income tax"
You do the math.
("LeBron James expected to join Miami Heat, league executive says")
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Representation Without Taxation
Published on July 8, 2010 by Edwin Feulner, Ph.D.
Professional sports leagues have ways of ensuring that “the last shall be first.” Teams with bad regular-season records get the top draft choices, theoretically allowing them to bring in the best young talent. Teams with excellent records draft later.
It’s supposedly a way to “level the playing field,” but as any fan knows, it doesn’t work perfectly. Some teams seem to be good season after season, while others usually struggle. In the NFL, for example, the Pittsburgh Steelers have captured six Super Bowls, while the Detroit Lions have never been to one.
Billionaire owners can afford to run their leagues however they wish. But in the real world it makes little sense to punish success or reward failure. Yet that’s exactly what the federal government’s tax policy does.
According to a recent report by the non-partisan Congressional Budget Office, in 2007 (the most recent year for which figures are available) the top 20 percent of earners paid 70 percent of all federal taxes. The bottom 40 percent of earners paid no income tax.
In fact, the CBO reports that during the Bush presidency the tax burden for the bottom 80 percent of taxpayers plunged, even as their income grew. For those in the bottom 20 percent, for example, income increased 4.6 percent, while the tax share paid dropped by 27 percent. The same held true for the next four quintiles—they earned more, yet paid a smaller percentage of taxes.
It’s only the highest earners (the top 20 percent) who saw their share of the tax burden increase. It jumped by 3.4 percent, while they enjoyed a 12 percent increase in their income.
Lawmakers aren’t just talking about taxing the rich; they’re doing it. And political rhetoric, aside, the already disproportionate burden on the highest earners has been growing. Except for “the rich,” Americans tend to be getting more for less.
This matters, because paying taxes should be a civic duty. It gives Americans a stake in our country, and gives us a reason to keep a skeptical eye on Washington. It seems only fair that, while the wealthy will always pay more, everyone should pay something. Everyone, after all, benefits from our unparalleled military might, and we all ought to contribute something, no matter how small an amount, to keep it strong.
Yet the Tax Policy Center reports that 47 percent of households owed no income tax in 2009. In fact, many actually make money through the Earned Income Tax Credit.
It’s time to heed an age-old warning. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy.
It’s unclear who first spoke these wise words. Some attribute them to French-born writer Alexis de Tocqueville. Others cite British writer Alexander Fraser Tytler. Or it may have been an unheralded op-ed writer in the Midwest. The origin doesn’t matter. It’s the insight that counts. When people can vote themselves something for nothing, they will, and they’ll keep squeezing the rich until they have nothing left to give.
Governments have always used higher tax rates to discourage certain behaviors. A recent example is tobacco taxes, which often double or triple the price of a package of cigarettes. Lawmakers don’t want people to smoke, but they don’t want to ban smoking outright. Instead they just keep dialing up the taxes, and fewer people light up.
But the government doesn’t want to discourage economic success. Politicians on both sides of the aisle speak every day about creating jobs and growing our economy. So why do they also implement policies that punish success by over-taxing “the rich”?
We’d better figure that out—and stop it—before we kill the goose that lays the golden eggs.
Ed Feulner is the president of The Heritage Foundation.
http://www.heritage.org/Research/Commentary/2010/07/Representation-Without-Taxation
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It has come to this: Congress, quite by accident, is incentivizing death.
When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death's door to stay alive until Jan. 1 so they could spare their heirs a 45% tax hit. Now the situation has reversed: If Congress doesn't change the law soon—and many experts think it won't—the estate tax will come roaring back in 2011.
Not only will the top rate jump to 55%, but the exemption will shrink from $3.5 million per individual in 2009 to just $1 million in 2011, potentially affecting eight times as many taxpayers.
The math is ugly: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.
Of course, there is a "death incentive" whenever Congress raises the estate tax. But it hasn't happened in decades; the top rate has held steady or fallen since 1942, according to tax historian Joseph Thorndike of Tax Analysts, a nonprofit group. In fact, the jump from zero to 55% would be "the largest increase in a major tax that we've ever seen," Mr. Thorndike says.
Death or Taxes
That possibility presents a bizarre menu of options for wealthy older people—and their heirs. Estate planning was never cheerful, but now it is getting downright macabre, at least for the tax averse.
"You don't know whether to commit suicide or just go on living and working," says Eugene Sukup, an outspoken critic of the estate tax and the founder of Sukup Manufacturing, a maker of grain bins that employs 450 people in Sheffield, Iowa. Born in Nebraska during the Dust Bowl, the 81-year-old Mr. Sukup is a National Guard veteran and high school graduate who founded his firm, which now owns more than 70 patents, with $15,000 in 1963. He says his estate taxes, which would be zero this year, could be more that $15 million if he were to die next year.
Advisers say the estate-tax dilemma is especially awkward for heirs. "At least in December 2009, people wanted to keep their relatives alive," says Ronald Aucutt, an estate-tax attorney with McGuire Woods in the Washington area. Now he and others are worried that heirs may be tempted to pull plugs on Dec. 31. Economists might call the taking of a life to reap a tax advantage a "perverse incentive." District attorneys might call it homicide.
Taxpayers trying to cope with such surreal situations need to understand how they came to be. The roots go back to 2001, when Congress cut the estate tax rate to 45% from 55% and increased the exemption gradually over a decade. From its 2001 level of $675,000, the exemption rose to $3.5 million per individual by 2009.
Thanks to legislative sausage making, the rules got extreme after that: The tax disappeared altogether in 2010, but was programmed to revert in 2011 to a $1 million exemption with a top 55% rate.
Few Washington insiders expected Congress to allow the tax to snap back so sharply next year. So why, with nine years to act, didn't it fix the problem? Political wisdom holds that estate tax changes can't happen in election years for fear of angering voters, and Hurricane Katrina derailed a 2005 opportunity. Late last year, the House of Representatives passed an extension of the 2009 estate tax, but the Senate didn't act.
Compounding the problem, lawmakers didn't hammer out a fix early this year, as many had expected. Extending the 2009 law retroactive to the beginning of 2010 would have made a seamless transition and resolved issues taxpayers are now facing. Instead, the estate tax has been in limbo all year.
Senators are divided among three possible solutions. Some favor the pre-Bush rate of 55%, while others advocate a 35% rate (with a more generous exemption). A third group prefers the old 45% rate.
Many Washington insiders are betting Congress won't act this year because of an overflowing to-do list, the fall election and fewer than 40 working days left in 2010. At least one near-deal has failed the Senate this year.
Pressure to act will likely grow following the November elections, when Congress is expected to address many other expiring Bush-era tax breaks, including income taxes and capital-gains rates.
Meanwhile, the living and their relatives face a complex calculus with unknown variables. The Internal Revenue Service has yet to issue guidance explaining current estate-tax law, and no one knows if Congress will include retroactive elements when members deal with the tax.
"Not only is the future uncertain, but the past is also. We have no idea what the law is," Mr. Aucutt says.
So far in 2010, an estimated 25,000 taxpayers have died whose estates are affected by current law, according to the nonpartisan Tax Policy Center. That group includes least two billionaires, real-estate magnate Walter Shorenstein and energy titan Dan Duncan.
Another unknown is whether—assuming lawmakers act—changes will be retroactive to the beginning of 2010, and if they will be mandatory. Experts say a pure retroactive extension might be constitutional, but they doubt one is feasible at this late date.
"Enough very wealthy people have died whose estates have the means to challenge a retroactive tax, and that could tie the issue up in the courts for years," says tax-law professor Michael Graetz of Columbia University.
Whatever the outcome, few see the zero-tax regime persisting for very long because of the nation's stratospheric debt and deficits. "I don't see how Congress can get out of this without creating winners and losers," says Beth Kaufman, an attorney at Caplin & Drysdale in Washington.
Estate planners and doctors caution against making life-and-death decisions based on money. Yet many people ignore that advice. Robert Teague, a pulmonologist who ran a chronic ventilator facility at a Houston hospital for two decades, found that money regularly figured in end-of-life decisions. "In about 10% of the cases I handled at any one time, financial considerations came into play," he says.
Struggling to Live
In 2009, more than a few dying people struggled to live into 2010 in hopes of preserving assets for their heirs. Clara Laub, a widow who helped her husband build a Fresno, Calif., grape farm from 20 acres into more than 900 acres worth several million dollars, was diagnosed with advanced cancer in October, 2009. Her daughter Debbie Jacobsen, who helps run the farm, says her mother struggled to live past December and died on New Year's morning: "She made my son promise to tell her the date and time every day, even if we wouldn't," Mrs. Jacobsen says.
In New York the lapsing tax spawned a major family conflict, according to one attorney. As a wealthy patriarch lay dying at the end of the year, it became clear that under the terms of the will his children would receive more if he died in 2010, while his wife (not the children's mother) stood to benefit if he died in 2009. The wife then filed a "do not resuscitate" order and the children challenged it. The patriarch lived a few days into 2010, but his estate, like Mrs. Laub's, remains unsettled given the legislative uncertainty.
Mr. Aucutt, who has practiced estate-tax law for 35 years, expects to see "truly gruesome" cases toward the end of the year, given the huge difference between 2010 and 2011 rates.
Without knowing what the estate tax is, has been or will be, advisers say it is difficult to offer counsel that applies broadly, as techniques that work under one version of the law backfire in others.
Entrepreneur Eugene Sukup: 'You don't know whether to commit suicide or keep on living and working.'
Whatever happens, advisers say people who might be affected should take a careful look at their power-of-attorney documents. Under last year's law, large gifts before death sometimes made sense, depending on the state of residence. This year they could be a terrible move.
Advisers also suggest paying attention to health-care proxies. Who will be making choices, using what factors? Anne L. Stone, an attorney in McLean, Va., has an elderly female client who recently instructed her to write a provision into a health proxy directing her children to take estate taxes into account when making end-of-life decisions.
What about the options for taxpayers who are so eager to reduce their heirs' tax burden that they are considering ending their lives? Three states—Oregon, Washington and Montana—allow versions of the practice. Oregon's law took effect in 1997 and Washington enacted a similar one in 2009. Montana's Supreme Court recently ruled that nothing in the state constitution prohibited doctors aiding patients with dying, but voters haven't yet specifically authorized it.
'Suicide Tourism'
Still, states strongly discourage what's becoming known as "suicide tourism" with elaborate residency and documentation requirements.
Similarly, some countries, such as Switzerland and the Netherlands, have long allowed physicians to aid patients in dying. But only Switzerland extends this benefit to foreigners.
Doctors and hospice professionals, meanwhile, say moving terminally ill patients to places with so-called aid-in-dying laws is usually a bad idea because it adds stress at an already difficult time. "Many people are thinking about [the estate tax], but the truth is that committing suicide is not a normal way of ending your life," says Porter Storey, vice president of the American Academy of Hospice and Palliative Medicine.
The uncertainty of the legislation is causing stress even for relatively healthy taxpayers like Art Nickel, who is 78 and lives in the Denver area. He owns a substantial sum in low-cost stock accumulated during a 35-year career as an IBM systems engineer. Like Mr. Sukup, he started with nothing and worked his way up, putting himself through the University of Wisconsin and serving in the Air Force.
"I plan to keep living," Mr. Nickel says, "but I don't know how to plan until Congress straightens this mess out."
—John D. McKinnon contributed to this article.
Write to Laura Saunders at laura.saunders@wsj.com and Mary Pilon at mary.pilon@wsj.com
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If it seems as if the tax code was conceived by graphic artist M.C. Escher, wait until you meet the new and not improved Internal Revenue Service created by ObamaCare. What, you're not already on a first-name basis with your local IRS agent?
National Taxpayer Advocate Nina Olson, who operates inside the IRS, highlighted the agency's new mission in her annual report to Congress last week. Look out below. She notes that the IRS is already "greatly taxed"—pun intended?—"by the additional role it is playing in delivering social benefits and programs to the American public," like tax credits for first-time homebuyers or purchasing electric cars. Yet with ObamaCare, the agency is now responsible for "the most extensive social benefit program the IRS has been asked to implement in recent history." And without "sufficient funding" it won't be able to discharge these new duties.
That wouldn't be tragic, given that those new duties include audits to determine who has the insurance "as required by law" and collecting penalties from Americans who don't. Companies that don't sponsor health plans will also be punished. This crackdown will "involve nearly every division and function of the IRS," Ms. Olson reports.
Well, well. Republicans argued during the health debate that the IRS would have to hire hundreds of new agents and staff to enforce ObamaCare. They were brushed off by Democrats and the press corps as if they believed the President was born on the moon. The IRS says it hasn't figured out how much extra money and manpower it will need but admits that both numbers are greater than zero.
Ms. Olson also exposed a damaging provision that she estimates will hit some 30 million sole proprietorships and subchapter S corporations, two million farms and one million charities and other tax-exempt organizations. Prior to ObamaCare, businesses only had to tell the IRS the value of services they purchase. But starting in 2013 they will also have to report the value of goods they buy from a single vendor that total more than $600 annually—including office supplies and the like.
Democrats snuck in this obligation to narrow the mythical "tax gap" of unreported business income, but Ms. Olson says that the tracking costs for small businesses will be "disproportionate as compared with any resulting improvement in tax compliance." Job creation, here we come . . . at least for the accountants who will attempt to comply with a vast new 1099 reporting burden.
Meanwhile, the IRS will be inundated with useless information, because without a huge upgrade its information systems won't be able to manage and track the nanodetails.
In a Monday letter, even Democratic Senators Mark Begich (Alaska), Ben Nelson (Nebraska), Jeanne Shaheen (New Hampshire) and Evan Bayh (Indiana) denounce this new "burden" on small businesses and insist that the IRS use its discretion to find "better ways to structure this reporting requirement." In other words, they want regulators to fix one problem among many that all four Senators created by voting for ObamaCare.
We never thought anyone would be nostalgic for the tax system of a few months ago, but post-ObamaCare, here we are.
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And here is a less technical explanation of last night's post:
THE TAX SYSTEM EXPLAINED IN BEER
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100...
If they paid their bill the way we pay our taxes, it would go something like this...
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7..
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do..
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?
They realised that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
"I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man,"but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!"
"That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
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Americans Voting with their Feet
Posted by Daniel J. Mitchell
The Financial Times reports that the number of Americans giving up their citizenship to protect their families from America’s onerous worldwide tax system has jumped rapidly. Even relatively high-tax nations such as the United Kingdom are attractive compared to the class-warfare system that President Obama is creating in the United States.
I run into people like this quite often as part of my travels. They are intensely patriotic to America as a nation, but they have lots of scorn for the federal government.
Statists are perfectly willing to forgive terrorists like William Ayres, but they heap scorn on these “Benedict Arnold” taxpayers. But the tax exiles get the last laugh since the bureaucrats and politicians now get zero percent of their foreign-source income. You would think that, sooner or later, the left would realize they can get more tax revenue with reasonable tax rates. But that assumes that collectivists are motivated by revenue maximization rather than spite and envy.
From the FT article:
The number of wealthy Americans living in the UK who are renouncing their US citizenship is rising rapidly as more expatriates seek to escape paying tax to the US on their worldwide income and gains and shed their “non-dom” status, accountants say. As many as 743 American expatriates made the irreversible decision to discard their passports last year, according to the US government – three times as many as in 2008. …There is a waiting list at the embassy in London for people looking to give up citizenship, with the earliest appointments in February, lawyers and accountants say. …“The big disadvantage with American citizens is they catch you on tax wherever you are in the world. If you are taxed only in the UK, you have the opportunity of keeping your money offshore tax free.”
To grasp the extent of this problem, here are blurbs from two other recent stories. Time magazine discusses the unfriendly rules that make life a hassle for overseas Americans:
For U.S. citizens, cutting ties with their native land is a drastic and irrevocable step. …t’s one that an increasing number of American expats are willing to take. According to government records, 502 expatriates renounced U.S. citizenship or permanent residency in the fourth quarter of 2009 — more than double the number of expatriations in all of 2008. And these figures don’t include the hundreds — some experts say thousands — of applications languishing in various U.S. consulates and embassies around the world, waiting to be processed. …[T]he new surge in permanent expatriations is mainly because of taxes. …[E]xpatriate organizations say the recent increase reflects a growing dissatisfaction with the way the U.S. government treats its expats and their money: the U.S. is the only industrialized nation that taxes its overseas citizens, subjecting them to taxation in both their country of citizenship and country of residence. …Additionally, the U.S. government has implemented tougher rules requiring expatriates to report any foreign bank accounts exceeding $10,000, with stiff financial penalties for noncompliance. “This system is widely perceived as overly complex with multiple opportunities for accidental mistakes, and life-altering penalties for inadvertent failures,” Hodgen says. These stringent measures were put into place to prevent Americans from stashing undeclared assets in offshore banks, but they also make life increasingly difficult for millions of law-abiding expatriates. “The U.S. government creates conflict and abuses me,” says business owner John. “I feel under duress to understand and comply with laws that have nothing to do with me and are constantly changing — almost never in my favor.” …Many U.S. expats report being turned away by banks and other institutions in their countries of residence only because they are American, according to American Citizens Abroad (ACA), a Geneva-based worldwide advocacy group for expatriate U.S. citizens. “We have become toxic citizens,” says ACA founder Andy Sundberg. Paradoxically, by relinquishing their U.S. citizenship, expats can not only escape the financial burden of double taxation, but also strengthen the U.S. economy, he says, adding, “It will become much easier for these people to get a job abroad, and to set up, own and operate private companies that can promote American exports.”
The New York Times, meanwhile, delves into the misguided policies that are driving Americans to renounce their citizenship.
Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship. …[F]rustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete. American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income. One Swiss-based business executive, who spoke on the condition of anonymity because of sensitive family issues, said she weighed the decision for 10 years. She had lived abroad for years but had pleasant memories of service in the U.S. Marine Corps. Yet the notion of double taxation — and of future tax obligations for her children, who will receive few U.S. services — finally pushed her to renounce, she said. …Stringent new banking regulations — aimed both at curbing tax evasion and, under the Patriot Act, preventing money from flowing to terrorist groups — have inadvertently made it harder for some expats to keep bank accounts in the United States and in some cases abroad. Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision.
http://www.cato-at-liberty.org/2010/07/18/americans-voting-with-their-feet/
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(Sounds like cognitive dissonance to me but I will put this under tax policy)
Bill Krystol mentioned this on Fox News Sunday today.
“Our results indicate that tax changes have very large effects on output. Our baseline specification implies that an exogenous tax increase of one percent of GDP lowers real GDP by almost three percent. Our many robustness checks for the most part point to a slightly smaller decline, but one that is still typically over 2.5 percent. In addition, we find that the output effects of tax changes are much more closely tied to the actual changes in taxes than to news about future changes, and that investment falls sharply in response to exogenous tax increases.”
Chistina D. Romer and David H. Romer, ‘The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks’, American Economic Review, June 2010
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http://www.independent.org/blog/?p=6958
Romer’s Research: Expiration of Bush Tax Cuts Will Be Highly Contractionary
By Randall Holcombe on Jul 15, 2010 in Budget and Tax Policy, Economics, Politics, Science, Taxation
Christina Romer, Chair of the President’s Council of Economic Advisers and economics professor at the University of California at Berkeley, has published an article (co-authored with David Romer) in the June 2010 issue of the American Economic Review titled “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” Unlike her statements in her role as an Obama adviser, this article is serious academic research, published in what is generally recognized as the world’s leading academic economics journal.
In the article, the Romers divide legislated tax changes into those undertaken in response to economic conditions and those that are “exogenous,” by which they mean changes made for other reasons. The expiration of the Bush tax cuts clearly falls into the “exogenous” category, because it is the result of legislation passed years ago, before anybody could have anticipated the economic conditions under which they would expire.
What the Romers found is that exogenous tax increases, such as will occur with the expiration of the Bush tax cuts, “… are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes.”
Here is a strong argument, based on solid academic research, for extending the Bush tax cuts, and not letting them expire, made by one of President Obama’s top economic advisers. It will be interesting to see to what extent the insights of Christina Romer, economics professor, have an impact on what that same Christina Romer, adviser to the president, has to say in public about the impending tax rate increases.
Romer, the economics professor, says raising rates now will be “highly contractionary.” Will Romer, the president’s adviser, speak up and tell the public that letting the Bush tax cuts expire will hamper the recovery? Or will she toe the party line and not tell Americans the public policy implications of her own academic research?
Another interesting sidelight here is that the opening footnote in the article says it was written with financial support from the National Science Foundation. Here is a big opportunity for NSF-funded research to have a direct policy impact, because (1) the research has direct policy relevance to current economic conditions, and (2) because it was undertaken by somebody who actually has policy influence.
We shall see if that opportunity for an impact actually results in any policy impact. My guess is, it won’t, and that any policy statements Romer makes on the subject will be based more on politics than on her knowledge of economics.
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Isn't C. Romer that chunky bureaucratic drone female who is BO's chief economist? Fascinating that she would think this AND publish it!
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"Isn't C. Romer that chunky bureaucratic drone female who is BO's chief economist?"
I recall that Clinton's chief adviser on incremental Marxism, Laura Tyson, was quite a bit cuter.
"Fascinating that she would think this AND publish it!"
Could be that a sham-husband / co-author would not withhold the work, just speculating. All researching economists know that excessive taxation chokes off incentives and economic activity; they only argue about the magnitude. Robert Mundell used to use the word "asphyxiating" when he designed the Reagan program. Some economists sell their souls and go to work for the 'progressive' politicians while most of the others stay mostly silent about it while they write abstractions with complexity in obscurity for public grants, a little like the climategate system.
The question remains: why does this not either cause her to leave the administration or persuade them to change course? I recall that Paul Volcker was quietly pushed aside for his own independent thinking. His willingness to stand by the candidate during the meltdown was of enormous political value. His real opinions were not.
Jumping to Geithner who was on all the shows Sunday. We are going to extend the tax cuts for the 95% for reasons that apply better to the 5% who actually might spur investment and hire. First the percentages are a G*d D*amned Lie by deception. We are not taxing people; we are taxing income - and those are not the percentages. By their own hysterical disparity percentages, the punishing tax increases will apply to the 40% of the income that would otherwise be most available for job creation. The purpose of the punishing tax hikes on the rich is "to prove to the world" we are serious about dealing with our debt, by implementing tax policies that are known to be"highly contractionary"!
I would rather see us prove to the world that we are serious about creating optimal conditions for robust private growth and prosperity, but that is NOT their objective.
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I heard this on the radio without knowing the discussion:
"After they take your income, they will come for your things."
Property tax is one example where you are taxed for mere ownership, even though the ownership is lawful and made with after-tax dollars. My property taxes are greater than my income.
The other of course is the estate tax where is taxed for the mere accumulation of AFTER TAX DOLLARS!
Both are going up. They raise for the rich first, and then on you. Fight them at every step. Don't agree to any new taxes or any increases IMO. It is much like parenting of 2-3 year olds. How else will they ever learn to behave within limits?
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Alexander's Essay – July 29, 2010
Taxes Do NOT Create Jobs
Recovery Rhetoric v. Reality
"Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands." --Thomas Jefferson
Funded by whom?Fact: Despite all of the claims by Barack Hussein Obama and his cadre of Socialists about "creating or saving" jobs through their so-called "stimulus plan," their taxing revenue out of the private sector (from this and future generations) does NOT "stimulate" private sector job growth -- quite the contrary. (Nor is there any expressed authority in our Constitution for such redistribution of wealth -- but who pays attention to that venerable old parchment?)
Late last Friday, after the White House press corpse had departed for weekend resorts, Obama released his administration's "Mid-Session Budget Review," which analyzed the results of his effort to "fundamentally transform the United States of America" with his "stimulus" plan. From almost any vantage point, the report is tantamount to an admission of failure, but Obama's rhetorical smokescreen continues to imply otherwise.
That plan, officially known as the American Recovery and Reinvestment Act but more accurately known as the American Socialization and Redistribution Act, is Obama's ruse to confiscate from taxpayers -- and borrow primarily from the Red Chinese -- almost a trillion dollars, then redistribute it to his constituents through government-controlled conduits.
As George Bernard Shaw wrote, "A government which robs Peter to pay Paul can always depend on the support of Paul."
The deficit created by Obama's plan this year alone is projected to be $1.471 trillion. That's the largest deficit in our nation's history and the largest as a percentage of U.S. economic output since World War II. According to Heritage Foundation analyst Brian Riedl, "Before the recession, federal spending totaled $24,000 per U.S. household. President Obama would hike it to $36,000 per household by 2020 -- an inflation-adjusted $12,000-per-household expansion of government."
Notably, if federal spending were reduced to the per-household rates under Ronald Reagan, we'd have a balanced budget by 2012 without any tax hikes. Of course, that would require cutting government spending, and such a notion is antithetical to the Socialists in control of the U.S. government. That might explain why unemployment in Washington, DC, is just 3 percent.
Of such debt, Thomas Jefferson observed, "We must not let our rulers load us with perpetual debt. ... I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared. ... The fore horse of this frightful team is public debt. Taxation follow that, and in its turn wretchedness and oppression."
There is much to be feared because Obama's plan, if unaltered, will break the back of free enterprise and the consequence will, most assuredly, be "wretchedness and oppression."
Obama claims that his stimulus package "creates or saves jobs." Setting aside the utter ridiculousness of this made-up metric and the mainstream media's willingness to let him trot it out, Obama's "stimulus" does nothing more than take income from the private sector and use it to grow government. It is not about job creation but about job displacement. It's about embezzling funds from the private sector to underwrite jobs that a small cadre of central government planners determines are necessary to further centralize their power and control over the economy.
Memo to Obama, et al.: Private sector job creation occurs when private enterprises have sufficient capital to improve and expand their operations in order to meet growing demand in a competitive, healthy economy. The job creation that occurs when the private sector is able to compete in a free market unfettered by excessive government interference (taxation and regulation) is the most stable and secure type of job growth.
Of course, taxes are necessary to fund some government jobs -- most notably those actually authorized by our Constitution, such as in national defense.
However, the current debate is not even centered on tax reductions, but merely holding the line on taxes now. When the current Bush-era tax rate limits expire on 1 January 2011, Obama will, without a single vote in Congress, usher in the largest tax increases in the history of our Republic, even if Congress extends breaks for the lower brackets. This business of sunsetting tax limits is a charade -- cut taxes and then Congress must vote to increase taxes. As it is, the Socialists look heroic for extending tax breaks on all but the "rich."
Here is the breakdown:
The 10% bracket rises to 15%
The 25% bracket rises to 28%
The 28% bracket rises to 31%
The 33% bracket rises to 36%
The 35% bracket rises to 39.6%
The "marriage penalty" and "death tax" will also return, and for more than half of Americans who have substantial savings and investments, the capital gains tax will rise from 15 percent to 20 percent and the dividends tax will rise from 15 percent to 39.6 percent.
This is what I know for certain, firsthand, as a small business owner: If my taxes were lower, I would have more capital to provide salary and wage increases, hire more employees and purchase more equipment to grow our business.
Republicans claim that those hit hardest by Obama's tax increases will be small business owners. But make no mistake: Those hit hardest by Obama's tax increases will not be the owners of small businesses. Instead, they will be the employees of small businesses -- those who like to be employed, those who employ others to provide services and produce equipment for small businesses, those who maintain the physical plants of small businesses, etc.
As Rep. Paul Ryan (R-WI) lectured uber-Leftist Chris Matthews recently, more than "75 percent of those people who pay that [highest] tax rate are small businesses who file as individuals, not corporations."
I know this, because I'm one of them.
If you're among those who've been led to believe that the current U.S. tax code is "fair" because it's "progressive" (that is, it seizes a much greater percentage of capital from those who create wealth and private sector jobs), I would argue that, from the perspective of those in need of jobs, the current tax system is regressive, as it reduces employment opportunity. When was the last time you were offered a career job by a poor person?
Rejecting the oppression of such taxes, Jefferson wrote, "To take from one, because it is thought his own industry ... has acquired too much, in order to spare to others, who ... have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it."
In fact, the current job outlook for the unemployed has grown much worse under Obama. There are now five Americans seeking a job for every one job opening.
Of course, socialists decry any effort to replace their "tax-borrow-and-spend" Keynesian mantra with a simple flat or national sales tax. Aside from saving Americans billions of hours of tax-time toil, this would spread the burden of the cost of government over a greater share of American taxpayers.
Let me reiterate: Taxes do not "save or create" private sector jobs, but merely redistribute wealth from the most productive part of the economy (the private sector) to the least productive (the government). That truth, however, will not stop Obama's unmitigated assault on free enterprise. He and his administration will continue to use two tactics to argue for tax increases and more government growth.
First, Obama is the consummate blame-shifter, rarely talking about the economy without mentioning that he "inherited this mess" from the previous administration. In truth, the "Bush deficits" are primarily the result of two events. One was the devastating effect of the Jihadi 9/11 attack on our nation, which wounded the economy, lowered tax revenues, and greatly increased the cost of defending our nation. The other was the cascading crisis of confidence which began with central government meddling in the housing markets and ended in a near collapse of our economy.
So much for the once noble Democrat Party of men like Harry "The Buck Stops Here" Truman.
Second, once Obama dismisses the current fiasco as the result of "failed policies of the past," he trots out the old classist rhetoric upon which every failed socialist regime has been built: the Politics of Disparity.
But don't take my word for it. Here's a sampling of recent fodder from the ObamaPrompter: "hundreds of billions of dollars on tax breaks for the wealthiest ... hundreds of billions of dollars in tax cuts for the wealthiest Americans ... a massive deficit ... neglected to pay for two tax cuts for the wealthiest Americans ... tax breaks for the wealthiest 2 percent of Americans ... we're going to make sure that the wealthiest Americans pay ... more effective in stimulating recovery than tax breaks for the very wealthiest ... the wealthiest 1 percent of households ... tax breaks to the wealthiest few that make the rich richer and the deficit even larger ... save billions of dollars by rolling back tax cuts for the wealthiest ... tax breaks that make the rich even richer ... economy that was working pretty well for the wealthiest Americans ... programs would be funded by raising taxes on the wealthiest Americans ... instead of giving all the tax breaks to the wealthiest few ... massive tax cuts for the richest Americans ... the policies were, you cut taxes for the richest people who don't need tax cuts," ad nauseam.
Obama has cleverly twisted the tax lexicon to the point where he now calls tax increases "investments" and claims that tax cuts "cost the government."
Meanwhile, Obama's favorite lap dog, Joe Biden, was out shoring up support for more taxing and spending. "Americans deserve a government that actually works, a government that people can trust; government that people can rely on; and a government that actually gets things done effectively, efficiently, without waste, without fraud, without abuse," he boasted. "We're trying to build a government that delivers much more bang for the buck than it ever has before. So far, we've spent $600 billion..."
What Americans deserve is a lot less government and a lot more free enterprise capacity to grow our economy. That capacity is central to liberty.
Best case scenario, it will take several election cycles before we have enough conservative members of Congress to replace the U.S. tax code with an equitable system that promotes economic growth. In the interim, I humbly submit the Alexander stimulus plan: Cut taxes dramatically for all Americans, make equal cuts in discretionary government spending anywhere and everywhere, and reduce non-discretionary spending by altering the terms of social programs.
I can assure you that if a trillion dollars had been pumped into the economy in the form of tax and regulatory relief, we'd be well down the road to recovery.
As Jefferson put it, "Excessive taxation ... will carry reason and reflection to every man's door, and particularly in the hour of election."
One might only hope a majority of the electorate has the capacity for such reason and reflection.
Semper Vigilo, Fortis, Paratus et Fidelis!
Mark Alexander
Publisher, The Patriot Post
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By ARTHUR LAFFER
Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.
—President John F. Kennedy,
Economic Report of the President,
January 1963
If only more of today's leaders thought like JFK. Sadly, in the debate over whether to extend the 2001 and 2003 tax cuts, and if so whether the cuts should be extended to those people who are in the highest tax bracket, there is a false presumption that higher tax rates on the top 1% of income earners will raise tax revenues.
Anyone who is familiar with the historical data available from the IRS knows full well that raising income tax rates on the top 1% of income earners will most likely reduce the direct tax receipts from the now higher taxed income—even without considering the secondary tax revenue effects, all of which will be negative. And who on Earth wants higher tax rates on anyone if it means larger deficits?
Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. President Clinton cut the highest marginal tax rate on long-term capital gains from the sale of owner-occupied homes to 0% for almost all home owners. We've also cut just about every other income tax rate as well.
During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period. (See the nearby chart).
.These results shouldn't be surprising. The highest tax bracket income earners, when compared with those people in lower tax brackets, are far more capable of changing their taxable income by hiring lawyers, accountants, deferred income specialists and the like. They can change the location, timing, composition and volume of income to avoid taxation.
Just look at Sen. John Kerry's recent yacht brouhaha if you don't believe me. He bought and housed his $7 million yacht in Rhode Island instead of Massachusetts, where he is the senior senator and champion of higher taxes on the rich, avoiding some $437,500 in state sales tax and an annual excise tax of about $70,000.
Howard Metzenbaum, the former Ohio senator and liberal supporter of the death tax, chose to change his official residence to Florida just before he died because Florida does not have an estate tax while Ohio does. Goodness knows what creative devices former House Ways and Means Chairman Charlie Rangel has used to avoid paying taxes.
In short, the highest bracket income earners—even left-wing liberals—are far more sensitive to tax rates than are other income earners.
When President Kennedy cut the highest income tax rate to 70% from 91%, revenues also rose. Income tax receipts from the top 1% of income earners rose to 1.9% of GDP in 1968 from 1.3% in 1960. Even when Presidents Harding and Coolidge cut tax rates in the 1920s, tax receipts from the rich rose. Between 1921 and 1928 the highest marginal personal income tax rate was lowered to 25% from 73% and tax receipts from the top 1% of income earners went to 1.1% of GDP from 0.6% of GDP.
Or perhaps you'd like to see how the rich paid less in taxes under the bipartisan tax rate increases of Presidents Johnson, Nixon, Ford and Carter? Between 1968 and 1981 the top 1% of income earners reduced their total income tax payments to 1.5% of GDP from 1.9% of GDP.
And then there's the Hoover/Roosevelt Great Depression. The Great Depression was precipitated by President Hoover in early 1930, when he signed into law the largest ever U.S. tax increase on traded products—the Smoot-Hawley Tariff. President Hoover then thought it would be clever to try to tax America into prosperity. Using many of the same arguments that Barack Obama, Nancy Pelosi and Harry Reid are using today, President Hoover raised the highest personal income tax rate to 63% from 24% on Jan. 1, 1932. He raised many other taxes as well.
President Roosevelt then debauched the dollar with the 1933 Bank Holiday Act and his soak-the-rich tax increase on Jan. 1, 1936. He raised the highest personal income tax rate to 79% from 63% along with a whole host of other corporate and personal tax rates as well. The U.S. economy went into a double dip depression, with unemployment rates rising again to 20% in 1938. Over the course of the Great Depression, the government raised the top marginal personal income tax rate to 83% from 24%.
Is it any wonder that the Great Depression was as long and deep as it was? Whoever heard of a country taxing itself into prosperity? Not only did taxes as a share of GDP fall, but GDP fell as well. It was a double whammy. Tax receipts from the top 1% of income earners stayed flat as a share of GDP, going to 1% in 1940 from 1.1% in 1928, but at what cost?
We all know that there are lots of factors influencing tax revenues from the rich, but the number one factor has to be the statutory tax rates government tells the rich they have to pay. Not only do the direct income tax consequences of higher tax rates on those in the highest brackets lead to higher deficits, the indirect effects magnify the tax revenue losses many fold.
As a result of higher tax rates on those people in the highest tax brackets, there will be less employment, output, sales, profits and capital gains—all leading to lower payrolls and lower total tax receipts. There will also be higher unemployment, poverty and lower incomes, all of which require more government spending. It's a Catch-22.
Higher tax rates on the rich create the very poverty and unemployment that is used to justify their presence. It is a vicious cycle that well-trained economists should know to avoid.
Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
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http://citypaper.net/articles/2010/08/19/blogging-business-privilege-tax-philadelphia
Pay Up
Got a blog that makes no money? The city wants $300, thank you very much.
by Valerie Rubinsky
Published: August 18, 2010
[ death and taxes ]
For the past three years, Marilyn Bess has operated MS Philly Organic, a small, low-traffic blog that features occasional posts about green living, out of her Manayunk home. Between her blog and infrequent contributions to ehow.com, over the last few years she says she's made about $50. To Bess, her website is a hobby. To the city of Philadelphia, it's a potential moneymaker, and the city wants its cut.
In May, the city sent Bess a letter demanding that she pay $300, the price of a business privilege license.
"The real kick in the pants is that I don't even have a full-time job, so for the city to tell me to pony up $300 for a business privilege license, pay wage tax, business privilege tax, net profits tax on a handful of money is outrageous," Bess says.
It would be one thing if Bess' website were, well, an actual business, or if the amount of money the city wanted didn't outpace her earnings six-fold. Sure, the city has its rules; and yes, cash-strapped cities can't very well ignore potential sources of income. But at the same time, there must be some room for discretion and common sense.
When Bess pressed her case to officials with the city's now-closed tax amnesty program, she says, "I was told to hire an accountant."
She's not alone. After dutifully reporting even the smallest profits on their tax filings this year, a number — though no one knows exactly what that number is — of Philadelphia bloggers were dispatched letters informing them that they owe $300 for a privilege license, plus taxes on any profits they made.
Even if, as with Sean Barry, that profit is $11 over two years.
Barry's music-oriented blog, Circle of Fits, is hosted on Blogspot; as of this writing, its home page has two ads on it, but because he gets only a fraction of the already low ad revenue — the rest goes to Blogspot — it's far from lucrative.
"Personally, I don't think Circle of Fits is a business," says Barry. "It might be someday if I start selling coffee mugs, key chains or locks of my hair to my fans. I don't think blogs should be taxed unless they are making an immense profit."
The city disagrees. Even though small-time bloggers aren't exactly raking in the dough, the city requires privilege licenses for any business engaged in any "activity for profit," says tax attorney Michael Mandale of Center City law firm Mandale Kaufmann. This applies "whether or not they earned a profit during the preceding year," he adds.
So even if your blog collects a handful of hits a day, as long as there's the potential for it to be lucrative — and, as Mandale points out, most hosting sites set aside space for bloggers to sell advertising — the city thinks you should cut it a check. According to Andrea Mannino of the Philadelphia Department of Revenue, in fact, simply choosing the option to make money from ads — regardless of how much or little money is actually generated — qualifies a blog as a business. The same rules apply to freelance writers. As former City Paper news editor Doron Taussig once lamented [Slant, "Taxed Out," April 28, 2005], the city considers freelancers — which both Bess and Barry are, in addition to their blog work — "businesses," and requires them to pay for a license and pay taxes on their profits, on top of their state and federal taxes.
Mannino says the city doesn't keep track of how many bloggers and small-website owners are affected. But bloggers aren't the only ones upset with the city's tax structure. In June, City Council members Bill Green and Maria Quiñones-Sánchez unveiled a proposal to reform the city's business privilege tax in an effort to make Philly a more attractive place for small businesses. If their bill passes, bloggers will still have to get a privilege license if their sites are designed to make money, but they would no longer have to pay taxes on their first $100,000 in profit. (If bloggers don't want to fork over $300 for a lifetime license, Green suggests they take the city's $50-a-year plan.)
Their bill will be officially introduced in September. "There's a lot of support and interest in this idea," Green says.
Perhaps, but it doesn't change the fact that the city wants some people to pay more in taxes than they earn. "I definitely don't want to see people paying more in taxes and fees than what [we] earn," says Bess. "But I do think the city needs to establish a minimal amount of money that they won't tax, whether you're a bike messenger, microblogger or a freelance typist."
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By ARTHUR LAFFER
Framed on a wall in my office is a personal letter to me from Bill Gates the elder. "I am a fan of progressive taxation," he wrote. "I would say our country has prospered from using such a system—even at 70% rates to say nothing of 90%."
It's one thing to believe in bad policy. It's quite another to push it on others. But Mr. Gates Sr.—an accomplished lawyer, now retired—and his illustrious son are now trying to have their way with the people of the state of Washington.
Mr. Gates Sr. has personally contributed $500,000 to promote a statewide proposition on Washington's November ballot that would impose a brand new 5% tax on individuals earning over $200,000 per year and couples earning over $400,000 per year. An additional 4% surcharge would be levied on individuals and couples earning more than $500,000 and $1 million, respectively.
View Full Image
Associated Press
Bill Gates Sr.
.Along with creating a new income tax on high-income earners, Initiative 1098 would also reduce property, business and occupation taxes. But raising the income tax is the real issue. Doing so would put the state's economy at risk.
To imagine what such a large soak-the-rich income tax would do to Washington, we need only examine how states with the highest income-tax rates perform relative to their zero-income tax counterparts. Comparing the nine states with the highest tax rates on earned income to the nine states with no income tax shows how high tax rates weaken economic performance.
In the past decade, the nine states with the highest personal income tax rates have seen gross state product increase by 59.8%, personal income grow by 51%, and population increase by 6.1%. The nine states with no personal income tax have seen gross state product increase by 86.3%, personal income grow by 64.1%, and population increase by 15.5%.
It's striking how the high-tax states have underperformed relative to those with no income tax. Especially noteworthy is how well Washington has performed compared to states with no income tax.
If Washington passes Initiative 1098, it will go from being one of the fastest-growing states in the country to one of the slowest-growing. And passage of I-1098 will only be the beginning. Just look at Ohio, Michigan and California to see that once a state adopts an income tax, there is no end to the number of reasons that such a tax could be extended, expanded and increased.
Over the past 50 years, 11 states have introduced state income taxes exactly as Messrs. Gates and their allies are proposing—and the consequences have been devastating.
. ..The 11 states where income taxes were adopted over the past 50 years are: Connecticut (1991), New Jersey (1976), Ohio (1971), Rhode Island (1971), Pennsylvania (1971), Maine (1969), Illinois (1969), Nebraska (1967), Michigan (1967), Indiana (1963) and West Virginia (1961).
Each and every state that introduced an income tax saw its share of total U.S. output decline. Some of the states, like Michigan, Pennsylvania and Ohio, have become fiscal basket cases. As the nearby chart shows, even West Virginia, which was poor to begin with, got relatively poorer after adopting a state income tax.
Washington's I-1098 proposes a state income tax with a maximum rate higher than any of those initially adopted by the other 11 states. In one fell swoop, Washington would move from being one of the lowest-tax states in the nation to being one of the top nine highest. It's economic suicide.
The states that have high income tax rates or have adopted a state income tax over the past 50 years haven't even gotten the money they hoped for. They haven't avoided budget crises, nor have they provided better lives for the poor. The ongoing financial travails of California, New Jersey, Ohio, Michigan and New York are cases in point.
Over the past decade, the nine states with the highest tax rates have experienced tax revenue growth of 74%—a full 22% less than the states with no income tax. Washington state has done better than the average of the nine no-tax states. Why on earth would it want to introduce a state income tax when it means less money for state coffers?
What's true for those states with the highest tax rates is doubly true for the 11 states that have instituted state income taxes over the past half-century. They too have lost huge sums of tax revenue.
A final thought for those who want to punish the rich for their success: As the nearby chart shows, those states with the highest tax rates, and those states that have introduced state income taxes, have seen standards of living (personal income per capita) substantially underperform compared to their no-tax counterparts.
If Mr. Gates Sr. and his son feel so strongly about taxing the rich, they should simply give the state a chunk of their own money and be done with it. Leave the rest of Washington's taxpayers alone.
Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
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There is nothing stopping anyone who wishes to voluntarily write a check to the federal or state governments from doing so.
https://www.pay.gov/paygov/forms/formInstance.html?agencyFormId=23779454
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Once again major publications are reading the forum here and taking our material, this time the WSJ. :-) If we were starting from scratch (we aren't), the fair tax has merit, but only at a far lower rate of spending and taxation. A much higher taxer than Rand Paul is accusing him (rightly) of supporting a 23% (30%) tax on groceries, forcing him to go on defense and say that is after we repeal the 16th amendment and take away the right of the federal government to tax income whatsoever- which feeds back into the line they are running against him that he is out of touch and out of the mainstream. In an age where we elected Pelosi, obama, and name your favorite local liberal, let's say Boxer, we aren't going to repeal all taxation on income, state of federal.
http://online.wsj.com/article/SB10001424052702304510704575562230737760778.html
Public anxiety over rising taxes is helping Republicans in this midterm election—with one exception. Democrats are trying to turn the tables on the GOP over the so-called FAIR Tax, a tax reform idea that has bounced around conservative circles for years.
The proposal would end all current federal taxes, junk the Internal Revenue Service and impose in their place a 23% national sales tax. In 16 House and three Senate races so far, Democrats have blasted GOP candidates for at one point or another voicing an interest in the FAIR tax. In Kentucky's Senate race, Democrat Jack Conway is running a TV spot charging that Republican "Rand Paul wants a new 23% sales tax on groceries, clothes, prescriptions, everything."
FAIR tax proponents are right to say these Democratic attacks are unfair and don't mention the tax-cutting side of the proposal, but the attacks do seem to work. Mr. Paul's lead in Kentucky fell after the assault, and the issue has hurt GOP candidate Ken Buck in a close Colorado Senate race.
In a special House election earlier this year in Pennsylvania, Democrat Mark Critz used the FAIR tax cudgel on Republican opponent Tim Burns. In a district that John McCain carried in 2008, Mr. Critz beat the Republican by eight points and is using the issue again in their rematch.
This is a political reality that FAIR taxers need to face. Pushed by Texan Leo Linbeck and his Americans for Fair Taxation, among others, the FAIR tax became a political fad in the 1990s. It was promoted by Tom DeLay, the former House Majority Leader who never brought it to a vote even as he soaked campaign contributions from its supporters.
Mike Huckabee, who raised taxes when he was Arkansas Governor, embraced the FAIR tax in his 2008 Presidential run to try to assert some conservative economic bona fides. Yet none of these voices or checkbooks can be heard now that other candidates who once flirted with the FAIR tax are under attack.
No one supports tax reform more than we do, and in theory a consumption tax like the FAIR tax is preferable to an income tax because it doesn't punish the savings and investment that drive economic growth. If we were designing a tax code from scratch, the FAIR tax would be one consumption tax option worth debating.
But we live in a country that already has an income tax, and most states rely on sales taxes for a major part of their revenue. Unless the Sixteenth Amendment that allowed an income tax is repealed, voters rightly suspect that any new sales tax scheme will merely be piled on the current code. Adding a 23% federal sales tax on top of a 5% or more state sales tax levy would also be a huge additional tax on all purchases. The temptation to avoid such a tax by paying cash or via other means would be high, and collection might require the same army of auditors that the IRS now deploys.
These are all reasons we've long been skeptical of the FAIR tax as a practical tax reform, and the current campaign only reinforces our doubts. No doubt we'll once again hear from the many FAIR taxers who seem eternally vigilant to write letters whenever tax reform is raised. But if the FAIR tax is going to get anywhere politically, its supporters ought to show they can defend the candidates who are under attack for having endorsed it, or even having said nice things about it.
Our advice to the FAIR taxers is that voters will start to take the idea seriously once the income tax is on the road to repeal. Until then, our advice to candidates would be to avoid the FAIR tax and focus on goals that are more achievable and less politically self-destructive.
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http://www.ibtimes.com/articles/77208/20101029/unemployment-jobs-china-tax-incentives-small-businesses.htm
China announced on Friday tax incentives for small businesses in a bid to raise employment levels in the country.
China will offer preferential tax measures, including tax cuts or tax breaks, to unemployed people who start their own business, said a paper released by the Chinese ministry of finance.
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With capital gains tax rate increases coming, people sell off assets before the end of the year. With new death taxes coming Jan.1, people will want to do what in December to avoid the new tax??
http://trib.com/news/state-and-regional/article_d826231c-ae29-576b-b23a-13bb9c16dcdc.html
Wyoming Rep. Lummis: Estate tax rise has some planning death
By BEN NEARY - The Associated Press trib.com | Posted: Saturday, October 30, 2010
CHEYENNE -- U.S. Rep. Cynthia Lummis says some of her Wyoming constituents are so worried about the reinstatement of federal estate taxes that they plan to discontinue dialysis and other life-extending medical treatments so they can die before Dec. 31.
Lummis, a Republican who holds her state's lone seat in the House, declined to name any of the people who have made the comments.
But she said many ranchers and farmers in the state would rather pass along their businesses -- "their life's work" -- to their children and grandchildren than see the federal government take a large chunk.
"If you have spent your whole life building a ranch, and you wanted to pass your estate on to your children, and you were 88 years old and on dialysis, and the only thing that was keeping you alive was that dialysis, you might make that same decision," Lummis told reporters.
Lummis and other Republicans are fighting to renew the Bush-era tax cuts, which expire at the end of the year. The cuts exempt large inheritances as well as certain wage income, interest, dividends and capital gains. She said the estate tax would go from zero this year to a maximum of 55 percent next year.
Lummis said the children of some people choosing death over taxes told her of their parents' decision. She wouldn't identify them and said it would be their decision to come forward.
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I agree with Rarick 100% on the previous post here with more emphasis on pay as you go taxes, much lower rates overall, and that excessive inheritance taxes just discourage economic success.
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Big talk this week that Obama might go along with extending tax cuts. Good decision, lousy timing after unemployment doubled over the period of promising expiration and rate increases. He can't run again or even govern if we don't grow this economy so he has no choice except over hammering out the details. The Pelosi-Reid Lame-Duck should steal this one and do it now. They should have done it when unemployment hit whatever they considered to be unacceptable, if not before.
The liberal rationale to go along is that everyone knows that you don't raise taxes in a recession. Precise definition aside, an economy with 9.6% partially measured unemployment is bad enough to follow that rule. If raising rates is 'contractionary', why would you ever do it?
What they will get wrong is to again make the rate extensions 'temporary'.
The problem is not just the marginal rates investors and businesses face, it is the unnecessary destruction that uncertainty causes. Now we are poised to repeat that mistake. Slightly higher rates the last two years might have been less damaging than not knowing the future rates. At least investors and businesses could calculate choices and make decisions.
Making tax rates 'permanent' just means eliminating automatic expiration; temporary extensions mean continuing the uncertainty depending on political winds and economic results.
Sustained growth isn't built in an uncertain system. We don't need one or two quarters of good growth or one or two years of it. We need DECADES of sustained growth and even then we still face huge fiscal challenges.
If the lame duck Dems pass on this, what should the new R congress do? In the end that depends on what they can get some Dem senators and the President to sign on with, but the starting point has to be what is right and what the economy needs. If they extend by one year they create the same uncertainty that hampered growth the past year. If they extend two years, then the second year is exactly where we were last year. That may set up another Republican year in a bad economy in 2012 but it doesn't favor sustained growth, so it is irresponsible.
The responsible action is to make current rates 'permanent' which only means subject to new congressional action at any time.
The package from a new Republican House does not have to be exactly as things were. The estate tax does not have to stay at zero, it just needs to be low and permanent and not return to 55%. The Corp rate needs to be near the OECD average or median. Any worse destroys Obam's goal of doubling exports in 5 years. Capital gains rates need to reflect no taxation for inflationary gains which are not income. And maybe rates across the board should be cut by one point or even one tenth of a point, nothing severe before real spending cuts, but make the symbolic statement that when the other team punted on growing this economy, they gave up possession of the ball.
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Patriot Post
The Senate rejected an attempt to repeal a part of ObamaCare that will require nearly 40 million businesses to file tax forms in 2012 for every vendor that sells them $600 or more in goods. That mountain of paperwork will cost businesses -- especially small ones -- greatly, but it will raise an estimated $19 billion in tax revenue on underreported income over 10 years. Democrats couldn't figure out how to make up that revenue, and they thus defeated the repeal effort.
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Second post of day:
It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds. – Samuel Adams
Weekly Feature
A bestselling book many FairTaxers have read is, “The World Is Flat: A Brief History of the Twenty-First Century” by Thomas Friedman. A simplistic description of its premise is that global commerce is advancing around the world faster than ever before with less boundaries every year due to technology and other factors. This trend points to the FairTax as a way for American businesses to remain competitive and the Made In America label to make a comeback. These same forces are changing the way you can promote the FairTax.
In the day and age of technology like Facebook, the Samuel Adams quote above just might be an understatement.
Technology has amplified the rate at which we impact the world around us. Email, instant messaging, texting, cell phones, YouTube, Twitter and Facebook have allowed us to connect with thousands of people at the speed of our fingers. With social networking sites we have far more instant connections than at any other time in our history. The ease and simplicity of using these sites has never been greater. Now every day, regular people can have far greater impact than at any other time in our history. Samuel Adams would be excited!
For example, Facebook, the top daily website with over 500 million members, was directly responsible for at least one new co-sponsor of the FairTax bill last year in Indiana and likely more.
Here’s another lesson from our Indiana volunteer leaders: FairTax Indiana volunteers and supporters became “friends” with as many of the candidates as possible and posted FairTax information whenever it was necessary. They requested meetings with the candidates through Facebook connections and eventually 27 of the primary candidates committed to becoming a co-sponsor if elected. In total, at least one FairTax committed candidate ran in all 9 congressional races in the general election. This led to 6 FairTax committed candidates winning in the General Election on Nov 2nd!
Just last month, a polite Facebook contact turned into a FairTax.org spokesman being interviewed in front of millions of Fox Business Channel’s “Follow the Money” viewers.
So when you send Congress a message to support the FairTax, send an e-card to your friends or yourself for forwarding or follow the FairTax on Twitter or Facebook, know your voice carries more impact than ever and our message is spreading. As always, local volunteers need old fashioned boots on the ground support as well.
Thank you!
FairTax in the News
FairTax would boost nation's economy – Wisconsin Rapids Tribune
As the 112th Congress approaches, so does the passage of the FairTax... Well-known people like Dave Ramsey and Chuck Norris back the FairTax. One of the most popular stars on YouTube, Philip DeFranco, has published a short video which includes promotion of the FairTax.
Last month, the CEO of Cisco and the president of Oracle Corporation penned a joint letter in the Wall Street Journal with a solution to our economic fatigue. Their common sense plea was to lower the U.S. tax rate for corporations wishing to bring their overseas earnings to the United States. The current rate of up to 35 percent strongly discourages re-investment in our nation and is opposite the policy of the rest of the developed world. They imagined a trillion dollars flooding into our nation and millions of Americans hired. They were ignored...
How to Straighten This Country Out - ThePilot.com
...First, do away with the IRS.
Replace it with the Fair Tax. Every Fair Tax proposal I've seen calls for lower-income citizens to receive advanced rebates to prevent further hardship on those folks until we can create higher-paying jobs for them. The Fair Tax would cause hundreds of companies to either open headquarters locations or move entirely to the U.S.
The result would be millions of new jobs, good jobs that would result in much higher revenues being collected from the Fair Tax. Employers would be competing for good workers, and the economy would explode with success...
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Fair tax, flat tax. We need to do something.
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National Sales Tax has considerable appeal to me.
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The only problem is collecting it. Imagine the problems with evasion when you start looking at large purchases, heck even the small ones add up.
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http://thehill.com/blogs/blog-briefing-room/news/75119-irs-commissioner-doesnt-file-his-own-taxes
IRS Commissioner Douglas Shulman does not file his own taxes in part because he believes the tax code is complex.
During an interview on C-SPAN's "Newsmakers" program that aired on Sunday, Shulman said he uses a tax preparer for his own returns.
**I guess the fact that he's actually filing is an improvement over other politically powerful types.**
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"National Sales Tax has considerable appeal to me."
It will be in addition to federal income tax unless you can explain where the votes will come from to repeal the 16th amendment in our lifetime, and an additional layer of taxation is exactly what liberals and deficit hawk independents (our opponents) are calling for right now.
Unless you live in South Dakota, Florida or a handful of other places, you will still be required to complete a full income tax return.
Add in a state sales tax and a 30% federal sales tax is really a 35-39% state and federal sales tax, not to mention that my property taxes in the tens of thousands. When you start making any exclusions such as for governments purchases or home purchases, it will start to look like a 50 or 60% tax.
Are we REALLY going to mess with housing right now?
In my very strong humble opinion this is a great big boulder in the middle of the conservative road threatening again to split the movement as Huckabee was able to do by opportunistically adopting the Fair Tax platform in 2008 with no plan or proposal whatsoever for repealing the 16th.
If we were designing a tax system from scratch, for a low spending low tax nation, this idea would be very very interesting. We aren't and we aren't.
IMO we need to: 1) cut spending first. (Then cut spending again.)
2) Bring everybody into the tax system and simplify income taxation. Since a true flat tax is something else that will never happen, I would offer something like this: a 1cent tax on the first dollar of income and a cap on the highest rate, maybe 25%. Make tax rates continuously variable in between with no more stair steps. Then we can argue about what income level is best to set the cap.
If a new system can't be passed, then any incremental simplifying the existing system is still far preferable to authorizing any new tax authority for Washington. Each time we can eliminate a deduction or loophole we should lower all marginal rates accordingly - until the private sector flourishes. Get social engineering out of the tax code and over to the spending side where it has to compete with every other public need.
3) Regulatory reform is just as crucial as taxes.
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I know this much, if you have six different CPA's/tax attorney's to do your taxes (especially if you are self-employed, have complex returns) you'll probably get six different amounts owed. That has to be addressed.
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For the record, my idea of the national sales tax would be in lieu of all other taxes. IMHO this would unleash an extraordinary surge in productivity and growth.
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Overlooked in the brawl over expiring Bush-era tax rates is what will happen to the death tax. Without action in the lame duck Congress, the estate tax will rise from the dead on January 1 with a vengeance, the rate climbing back to 55% from zero this year. The exemption amount will revert to a miserly $1 million, unindexed for inflation, so more middle class taxpayers will get hit year after year.
President Obama and Congressional Democrats don't think this is a high priority, but voters do. A November Gallup Poll found that Americans think that keeping the estate tax "from increasingly significantly" is "very important" by 56% to 17% "not too important." That's more than think it is a priority to extend current tax rates (50%), extend jobless benefits (48%), ratify the Start treaty (40%) or let openly gay men and women serve in the military (32%).
Liberals are content to let the rate revert to 55%, with some moderate Democrats arguing for a 45% rate. Republican Jon Kyl of Arizona and Democrat Blanche Lincoln of Arkansas are pushing a compromise that would lower the top rate to 35% with a $5 million deduction. That rate is still 35 percentage points too high for our liking, but we'll take it as an alternative to the greedy political confiscation of more than half of the wealth built by someone who has saved over a lifetime. An estate of $5 million isn't all that much for a successful and thrifty business person with some real estate to accumulate over 50 or 60 years.
Senior Economics Writer Stephen Moore says congressional Republicans may drive a harder bargain on behalf of taxpayers. Also, Global View Columnist Bret Stephens explains why Iran's foreign minister doesn't want to talk to the US Secretary of State.
.Mr. Obama, who professes to care about small businesses and jobs, should pay attention to new estimates by the Joint Committee on Taxation. The committee finds that reverting to the 55% rate with a $1 million exemption will tax roughly 10 times more small businesses and farms than would Mr. Kyl's proposal. A recent study by Doug Holtz-Eakin, the former director of the Congressional Budget Office, finds that the estate tax reduces savings and capital formation and forces family businesses to liquidate at the time of an owner's death, which puts hundreds of thousands of jobs in peril.
As for the deficit, Congress could give relief to families and enhance revenue collections by lowering the gift tax rate to 10% or 15% from 35% on any gifts above $13,000 a year. This would allow parents to pass along more money to their kids and grandkids while they are still alive, increasing federal tax collections in the next few years by billions of dollars.
The Gallup results confirm that voters intuitively understand this tax isn't really about socking Bill Gates or Warren Buffett. Those two billionaires, like most others, have made sure they'll escape the grim tax reaper by parking most of their wealth into tax-exempt foundations. That may explain why the estate tax is so fiscally inconsequential, raising barely 1% of all federal revenue (0.6% in 2009).
At least 10 Senate Democrats have campaigned at one time or another for death tax repeal or relief. The next few days will determine whether they were telling the truth. The result will tell us if Congress is turning to a tax agenda rooted in growth and fairness, or sticking with the policy of government greed and envy that has defined the last four years.
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Krauthammer on O'Reilly last night said the tax deal is great for Obama. It effectively reduces revenues by 900 billion which is another bailout paid for by foreign debt holders, and he gets the unemployment extension, and if it stimulates the economy, the two year extension is perfect for the runnup to the 12 election.
He is clearly going against the grain.
On one hand we want the economy to do better. On the other hand the Bamster will take all the credit for it if it does and give blame to Repubs if it doesn't. He is obviously one of the least gracious Presidents we have ever had. Then again Democrats never are gracious when it comes to giving credit to a Republican.
Yesterday's embarrasing performance by the narcisstic commander in heat goes along with what I suspect is that he will fall apart everytime he doesn't get his way.
Bamster gets credit for health care reform (from the liberal's point of view) despite the fact he had nothing to do with it. He didn't come up with it. He obviously didn't understand it. The House and Senate rammed it through despite polls that it was unpopular *despite* his going all over the place selling it - and yet he will go down in history as the one who got it through. This according to Charles Krauthammer.
Whether he gets relected will not be as per Charles that he should not be underestimated - it will be a combination of two things:
Whether or not the Republicans can come up with a decent candidate and if the economy/unempolyment turns - leaving us with trillions in debt.
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Breaking News Alert
The New York Times
Thu, December 09, 2010 -- 8:53 PM ET
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Obama Weighs Overhaul of Tax Code to Lower Rates and Close Loopholes
President Obama is considering whether to push early next
year for an overhaul of the income tax code to lower rates
and raise revenues in what would be his first major effort to
begin addressing the long-term growth of the national debt.
While administration officials cautioned on Thursday that no
decisions have been made and that any debate in Congress
could take years, Mr. Obama has directed his economic team
and Treasury Department analysts to review options for
closing loopholes and simplifying income taxes for
corporations and individuals, though the study of the
corporate tax system is farther along, officials said.
Read More:
http://www.nytimes.com?emc=na
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"To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it." --Thomas Jefferson
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IMHO CK, for whom I have high regard, misses a key point. Not raising taxes is not a stimulus!!! However many good points abound in this piece.
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windle of the year
By Charles Krauthammer
Washington Post
Friday, December 10, 2010;
Barack Obama won the great tax-cut showdown of 2010 - and House Democrats don't have a clue that he did. In the deal struck this week, the president negotiated the biggest stimulus in American history, larger than his $814 billion 2009 stimulus package. It will pump a trillion borrowed Chinese dollars into the U.S. economy over the next two years - which just happen to be the two years of the run-up to the next presidential election. This is a defeat?
If Obama had asked for a second stimulus directly, he would have been laughed out of town. Stimulus I was so reviled that the Democrats banished the word from their lexicon throughout the 2010 campaign. And yet, despite a very weak post-election hand, Obama got the Republicans to offer to increase spending and cut taxes by $990 billion over two years. Two-thirds of that is above and beyond extension of the Bush tax cuts but includes such urgent national necessities as windmill subsidies.
No mean achievement. After all, these are the same Republicans who spent 2010 running on limited government and reducing debt. And this budget busting occurs less than a week after the president's deficit commission had supposedly signaled a new national consensus of austerity and frugality.
Some Republicans are crowing that Stimulus II is the Republican way - mostly tax cuts - rather than the Democrats' spending orgy of Stimulus I. That's consolation? This just means that Republicans are two years too late. Stimulus II will still blow another near-$1 trillion hole in the budget.
At great cost that will have to be paid after this newest free lunch, the package will add as much as 1 percent to GDP and lower the unemployment rate by about 1.5 percentage points. That could easily be the difference between victory and defeat in 2012.
Obama is no fool. While getting Republicans to boost his own reelection chances, he gets them to make a mockery of their newfound, second-chance, post-Bush, Tea-Party, this-time-we're-serious persona of debt-averse fiscal responsibility.
And he gets all this in return for what? For a mere two-year postponement of a mere 4.6-point increase in marginal tax rates for upper incomes. And an estate tax rate of 35 percent - it jumps insanely from zero to 55 percent on Jan. 1 - that is somewhat lower than what the Democrats wanted.
No, cries the left: Obama violated a sacred principle. A 39.6 percent tax rate versus 35 percent is a principle? "This is the public option debate all over again," said Obama at his Tuesday news conference. He is right. The left never understood that to nationalize health care there is no need for a public option because Obamacare turns the private insurers into public utilities, thus setting us inexorably on the road to the left's Promised Land: a Canadian-style single-payer system. The left is similarly clueless on the tax-cut deal: In exchange for temporarily forgoing a small rise in upper-income rates, Obama pulled out of a hat a massive new stimulus - what the left has been begging for since the failure of Stimulus I but was heretofore politically unattainable.
Obama's public exasperation with this infantile leftism is both perfectly understandable and politically adept. It is his way back to at least the appearance of centrist moderation. The only way he will get a second look from the independents who elected him in 2008 - and abandoned the Democrats in 2010 - is by changing the prevailing (and correct) perception that he is a man of the left.
Hence that news-conference attack on what the administration calls the "professional left" for its combination of sanctimony and myopia. It was Obama's Sister Souljah moment. It had a prickly, irritated sincerity - their ideological stupidity and inability to see the "long game" really do get under Obama's skin - but a decidedly calculated quality, too. Where, after all, does the left go? Stay home on Election Day 2012? Vote Republican?
No, says the current buzz, the left will instead challenge Obama for the Democratic nomination. Really now? For decades, African Americans have been this party's most loyal constituency. They vote 9 to 1 Democratic through hell and high water, through impeachment and recession, through everything. After four centuries of enduring much, African Americans finally see one of their own achieve the presidency. And their own party is going to deny him a shot at his own reelection?
Not even Democrats are that stupid. The remaining question is whether they are just stupid enough to not understand - and therefore vote down - the swindle of the year just pulled off by their own president.
http://www.washingtonpost.com/wp-dyn/content/article/2010/12/09/AR2010120904472_pf.html
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Government & Politics
Framing the Tax Debate
"Tax deal" is the buzz phrase of the week in Washington, as Barack Obama and congressional Republicans came to an agreement Monday on a two-year extension of current income tax rates for all Americans. Predictably, the Left went hysterical. House Democrats promptly held a voice vote to reject the compromise unless undisclosed changes are made to it, though the Senate began debate on a larded-up version of the proposal Thursday night with a test vote scheduled for Monday. As usual, the devil is in the details -- and, in this case, the definitions.
Obama, his fellow Democrats and their acolytes in the media continue to frame the debate in terms of tax "cuts" versus the budget deficit -- as if tax rates before 2001 were the natural order of things and to keep rates where they are is a "cut" that will increase the deficit. On the contrary, without the deal, everyone's taxes will rise by hundreds or even thousands of dollars next year. With the deal, no one's income taxes will be cut. In fact, some taxes will skyrocket. The estate (death) tax will be resurrected at 35 percent with a $5 million exemption -- up from 0 percent this year, but down from the previous 55 percent. The only new cut would be a temporary payroll tax reduction of two percentage points.
The facts, however, don't stop the Left from their dishonest characterization. "The far-reaching package ... would add more than $900 billion to the deficit over the next two years," The Washington Post lamented. Ditto for The New York Times, the Associated Press and others. This assumes that economic behavior won't change if taxes go up, meaning federal revenue will increase by the exact amount of the tax increase. Ergo, if Congress prevents the tax hike, that lost revenue adds to the deficit. It's a wrong assumption, demonstrable by the fact that federal revenue actually went up after the Bush tax cuts went into effect.
Meanwhile, Obama was so concerned about the "cost" that he insisted that unemployment benefits be extended for another year. Now that will actually cost nearly $60 billion, and it will cause the unemployment rate to remain higher than it otherwise should. On top of that, Sens. Maria Cantwell (D-WA), Barbara Boxer (D-CA) and Tom Harkin (D-IA) secured various energy subsidies in exchange for their votes, and more pork is almost sure to follow.
The fact that Obama conceded to any deal is notable. The Wall Street Journal concludes, "Obama has implicitly admitted that his economic strategy has flopped. He is acknowledging that tax rates matter to growth, that treating business like robber barons has hurt investment and hiring, and that tax cuts are superior to spending as stimulus. It took 9.8% unemployment and a loss of 63 House seats for this education to sink in, but the country will benefit." The flop is so complete that even former economic adviser Larry Summers warned of a "double dip" recession if taxes go up. John Maynard Keynes, call your office.
Though Obama did accept the deal with the GOP, he proved to be a rather disagreeable compromiser, calling Republicans "hostage takers" and the American people the "hostages." Obama thus not only reneged on an oft-repeated campaign promise to repeal the Bush-era tax cuts "for the rich," he also proved utterly ungracious to those lawmakers with whom he had just struck a deal. "ecause of this agreement, middle-class Americans won't see their taxes go up on January 1st, which is what I promised," he said. "[But] I'm as opposed to the high-end tax cuts today as I've been for years. In the long run, we simply can't afford them. And when they expire in two years, I will fight to end them."
Some conservatives are opposing the bill because of the aded deficit spending. Club for Growth President Chris Chocola said, "The plan would resurrect the Death Tax, grow government, blow a hole in the deficit with unpaid-for spending, and do so without providing the permanent relief and security our economy needs to finally start hiring and growing again."
Yet given that Democrats still control the White House and, until January, both houses of Congress, this deal may be the best we can hope for now. Republicans should fight to resist wasteful spending, but tax hikes must be prevented. If they are, taxpayers will keep billions of their hard-earned dollars over the next two years. With that renewed tax stability for small businesses, unemployment should go down, though not as much as if the rates were permanent. In 2012, Republicans could be in far better position to win a permanent solution.
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y JOHN D. MCKINNON, GARY FIELDS And LAURA SAUNDERS
WASHINGTON—Welcome to the world of the temporary tax code.
The U.S. tax code is slowly being turned into a temporary patchwork of provisions that need to be addressed every year or two, depriving individuals and businesses of the predictability they need for long-range plans. John McKinnon discusses. Also, Brett Arends says not only are the Democrats politically bankrupt and the Republicans morally bankrupt, but that this tax deal will play a big role in America's undoing.
.In the late 1990s, there were typically fewer than a dozen tax provisions that had just a limited lease on life and needed to be renewed every year or so.
Today there are 141.
Now Congress, taking up a deal worked out between the Obama administration and Republican leaders, is poised to turn the whole personal income-tax system into something of a temporary structure. The plan embraces a broad range of provisions—an extension of Bush-era rates, a new estate-tax formula—but for only two years. A payroll-tax cut in the bill is for a single year.
.This means that if the compromise passes largely intact, the U.S. will have no permanent regime governing levies on salaries, capital gains and dividends, the Social Security tax, as well as a slew of targeted breaks for families, students and other groups. This on top of dozens of corporate-tax provisions that already were subject to annual renewal.
The level of uncertainty, unusual for developed nations, complicates planning and discourages hiring and investment, many economists and corporate executives say.
"I haven't seen anything like it, and it's hard historically to find anything like" the current and pending negotiations, says Mortimer Caplin, an Internal Revenue Service commissioner in the Kennedy administration who at 94 is just three years younger than the income tax itself. "This Congress has left an awful lot up in the air."
A vote to pass the tax deal in the Senate is expected on Tuesday or Wednesday; prospects for swift approval in the House remained cloudy but party leaders seem increasingly resigned to the measure clearing Congress intact.
Democrats are predicting that a tax deal will clear a crucial hurdle comfortably in the Senate today, with a margin they hope will add momentum to the deal in the House. Aaron Zitner and Neal Lipschutz discuss. Also, Nick Timiraos discusses worry among economists that the housing market could be headed toward another downdraft as mortgage lenders tighten credit.
.The two-year expiration of the bill's main provisions on individual rates would occur just after the next presidential election, and few in Washington envision a long-term solution being crafted at such a charged time.
At the same time, the possibility of a sweeping tax-system revamp can itself add to the uncertainty, what with politicans increasingly ready to talk about this. President Barack Obama has lately, as has the deficit-reduction panel he appointed, including Republican members such as Rep. Dave Camp, future chairman of the House Ways and Means Committee. The possibility of an overhaul that would put on the table long-established credits and deductions could further uproot predictability.
This year has been something of a test case for tax uncertainty, with concern about what would happen when provisions adopted in 2001 and 2003 expired at year-end.
More
Tax-Cut Bill Draws Wide Support in Senate
Tax-Cut Vote Splits New York Senators
Tax Deal Set to Pass Senate
Pelosi Walks Tax-Deal Tightrope
Wealth Report: Depending on the Rich
.Sales of certain kinds of life insurance rose as families wrestled with the possibility that estate taxes would jump in 2011. With no assurance the 15% rate on dividend income would last past 2010, Kraft Foods Inc., Exelon Corp. and Altria Group Inc. asked their shareholders to contact Congress in opposition to an increase. Stocks of utilities, which traditionally pay high dividends, appeared to factor in the possibility of a rise in the dividend tax rate in 2011, analysts said.
At Incobrasa Industries Ltd., a producer of biodiesel in Gilman, Ill., sales manager Douglas Santos has been waiting to see what happens to an expired tax subsidy for his industry. He is running at 25% capacity, vs. 100% in 2008. Mr. Santos wants Congress to make up its mind one way or the other. "Just do something," he says. The bill before Congress would restore the subsidy.
Economic research has shown businesses tend to be more reluctant to invest when they perceive high levels of uncertainty about various things, including over taxes. The pressure on policy makers to narrow the budget deficit, not merely simplify the tax system, further muddies the waters now, says Massachusetts Institute of Technology tax economist James Poterba, who finds "the crystal ball…particularly unclear at the moment."
Some call the worries exaggerated. "I truly do believe the concerns expressed over tax uncertainty are truly overblown," says Martin Sullivan, an economist with Tax Analysts, a nonprofit tax publisher, who sees today's situation as quite manageable compared with the profound business uncertainty companies faced during the financial crisis.
Important 'Extenders' | Provisions That Need to Be Renewed Regularly
Protection from alternative minimum tax
Enhanced charitable deductions for business
Business research credit
Ethanol subsidies
Biodiesel incentives
Faster depreciation for business investments
Tax deferral of overseas financing income
Expensing of 'brownfields' remediation
Charitable donation of IRA assets
Deductibility of state and local sales taxes
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Bloomberg News
Catherine McGraw, center, waits to check out at a J.C. Penney store in Mentor, Ohio.
.Deductibility for school supplies
View Full Image
Associated Press
Stacey Ressler, a teacher in Wernersville, Pa., organizes classroom supplies she purchased.
.."We're used to [uncertainty] in the tax world," he says. "What's changed in the last few years is the size of the temporary extensions."
Obama administration officials note that the tax code has been through gyrations before, for example in the 1980s, when Congress adopted accelerated depreciation in 1981, only to repeal it five years later. That threw real-estate markets into an uproar and added to problems that contributed to the savings-and-loan collapse.
The White House says the current confusion points to the need for a system that is more stable and simpler. "We've got to have a larger debate about...how is this country going to win the economic competition of the 21st century," President Obama said last week. "That's going to mean looking at the tax code and saying, what's fair, what's efficient? And I don't think anybody thinks the tax code right now is fair or efficient."
Small business is often looked to as a source of job growth. But the latest monthly survey by the National Federation of Independent Business, a small-business advocacy group, found that 75% of owners felt it wasn't a good time to expand, and one in five said the main reason was doubt about policy environment, including taxes.
For smaller companies, tax uncertainty could be an incentive to expand overseas rather than in the U.S., according to Tom Duesterberg, president of the Manufacturers Alliance, a group representing medium-size firms. Companies "can't wait until all these [tax] questions are resolved," he says. "They are not going to wait until all that definitively happens. They have to deploy cash, please their shareholders and expand and grow."
Billy Hoffpauir, a developer in Lafayette, La., says he has been trying to sell some real estate because "with the current uncertainty, I am unable to quantify the risk to make long-term investment decisions." If he finds buyers, he says, he would be likely to plow the cash into "other interests, probably overseas," because some foreign countries have more favorable taxes and regulations. The tax situation is the overwhelming driver in his business decisions, Mr. Hoffpauir says.
Lea Bailes, president of Guier Fence in Blue Springs, Mo., says his plans for next year depend on how the tax debate turns out: "We're looking at acquiring a couple of smaller fence companies. The number we acquire, honestly, will depend on what we have to pay in tax."
The company, which employs about 70, would try to hire two to three new workers for each acquisition, possibly 10 in all. "If everybody our size can add 10 employees, we'd be a lot farther down the road in dealing with the unemployment," Mr. Bailes says.
Guier is in the process of acquiring another firm now, and while Mr. Bailes likes to take time to make such decisions, he worries that concern over a possible rise in capital-gains rates might make the seller push to complete the sale this year. The bill in Congress would keep the current 15% top rate for two years.
One reason unsettled rules on individual income taxes affect planning at small businesses is that many don't pay corporate tax, but pass business income through to the owners for taxation on their personal returns.
Bill Wiygul, whose family owns four auto-repair businesses in northern Virginia, estimates he and his wife would pay at least $20,000 more in various taxes in 2011 if Congress doesn't address parts of the code, including the Alternative Minimum Tax. The AMT snags a growing number of filers each year, and while Congress regularly limits the number affected—and likely will do so again this week or next—this has so far been an AMT "patch," never a permanent fix.
Mr. Wiygul says he would trade an increase in tax rates for greater certainty if the pain was shared by all. "We are petrified," he says. "We would be more actively pursuing expansion opportunities if we felt like the climate was more certain."
Large multinationals are only marginally affected directly by income-tax provisions on the table this year. Yet the stakes might be high for these companies. Executives worry about becoming a target for lawmakers seeking revenue to narrow deficits.
If a broad revision "is a true 'step back, let's take a fresh look,' we would not be frightened by that," says Ken Cohen, a vice president at Exxon Mobil Corp. But if it pits industry versus industry or becomes a hunt for revenue, "that's the process we would have much more apprehension about."
The reasons the tax code has acquired an increasingly temporary cast have to do with deficits, a divided Congress and even the constitutional system.
Political division contributes because of the daunting task of mustering a filibuster-proof 60 votes in the Senate. Legislative shepherds of the Bush cuts resorted to passage under what is called "budget reconciliation," requiring only a majority vote. But a measure passed this way can't be for longer than the budget that authorizes it, in this case 10 years. Hence the provisions expire in 2010.
Such an outcome is less likely in countries with parliamentary systems because these leave the government less subject to having its will thwarted by a large minority. "Very few countries have tax provisions that expire unless legislative action is taken," says Jeffrey Owens, head of tax at the Organization for Economic Cooperation and Development in Paris. "Also, in most OECD countries, it's the government that initiates new legislation, and once proposed the legislation generally passes."
Deficits tempt legislators to give tax provisions a temporary term to disguise their cost. For proponents of a new tax provision, the strategy is to get a foot in the door by passing it for a year or two, at a seemingly affordable cost, intending to renew it regularly.
That is how the number of provisions up for yearly extension has ballooned. Though the provisions are often extended in a bundle, a given provision's inclusion in the bundle is never certain.
Perhaps nowhere has tax uncertainty been felt more intensely this year than in the estate tax, always a controversial matter.
A 2001 law lowered its rate and increased the exemption in steps, with the tax lapsing in 2010 and then, unless Congress acts, returning in 2011 at a 55% top rate on estates of $1 million or more. The unusual hiatus coupled with a far more costly tax as soon as 2010 ended gave "just an unbelievable Alice-in-Wonderland aspect" to planning for certain well-to-do families, says Bruce Stone, a Miami-area estate lawyer.
Sales of a life-insurance policy commonly used for estate planning rose 22% in the first nine months from a year earlier, and their death-benefit coverage was up 30%. Though the policies can also be used for other purposes, part of the jump seemed clearly to be for hedging against the possible estate-tax jump in 2011.
In a few cases, the uncertainty drove people to ponder extreme measures to avoid a tax hit for heirs.
David Drouhard, a Washington-state farmer who is 56, received a diagnosis of advanced kidney cancer 14 months ago and faced a grim set of treatment choices. Most offered little chance of extending his life more than 18 months, although an immunity-boosting drug held out some hope. Mr. Drouhard says he worried that inaction on the estate tax would force his family to sell his wheat and alfalfa farm, now worth about $3 million, to pay taxes if he died in 2011.
After much deliberation, Mr. Drouhard decided to take the immunity-boosting drug, but with a caveat: "I said, 'If we don't see results from the first series [of treatments], I'm going to stop,"' he says. "I try to take care of my family, so why not go ahead and die instead of living another six months." He has responded well to the treatment, but adds: "I think it's wrong that you have to make that kind of decision."
The compromise Congress is weighing this week would set a top estate-tax rate at 35% and the exemption at $5 million.
But this would be for just two years. Just as this year, a failure by Congress to act then would cause the tax to then revert to a top 55% rate and $1 million exemption, in this case in 2013.
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One Third of the projected revenue windfall from the Oregon Millionaires Tax did not materialize! I can't believe these Alinsky technocrats LIED to us.
"...unlike...Cuba, its citizens can still easily vote with their feet"
If these were poor people affected or missing, we would have a new government program to locate, counsel and re-train them. Maybe free housing or healthcare to get them to stay.
Minnesota's new Governor had the same proposal on his platform. He didn't know then that he would be governing with a new Republican state House and state Senate.
http://blog.oregonlive.com/myoregon/2010/12/the_case_of_the_missing_oregon.html
The Case of The Missing Oregon Millionaires
Published: Tuesday, December 21, 2010
Like the plot line straight from an old Agatha Christie novel, about 10,000 Oregon millionaires seem to have gone missing since 2009. And no one, least of all the state, knows where they are.
However, despite the absence of Mssr. Hercule Poirot to investigate, some facts surrounding this case are known. In June 2009, the state legislature enacted Measures 66 & 67 retroactively, effectively raising the tax rate to 10.8% on joint filer income between $250K to $500K and to 11% on income over $500K per year, including capital gains. The only place in the USA with a higher tax rate is New York City.
So when the tax revenues rolled in for 2009, the state expected to collect $180 million on 38,000 high income filers. Alas, only $130 million was collected on 28,000 tax filers. Where did the missing 10,000 Oregon millionaires go with their fifty million in lost tax revenues? I'd start looking as far away as Texas, whose capital gains tax is 0%, and other low tax states.
Of course the legislators in Salem blame the bad economy with its high unemployment, conveniently overlooking the fact that Oregon is one socialist system that can fail, unlike for example Cuba, because its citizens can still easily "vote with their feet".
Kitzhaber can continue this failed socialist scheme, and end up seeing even lower tax revenues collected in 2010 and 2011, or he can wake-up, smell the coffee, and revoke Measures 66 & 67.
The only way Oregon is going to get out of this recession is by encouraging wealthy people and private businesses to move to the state...not leave it.
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http://washingtonexaminer.com/politics/2010/12/census-fast-growth-states-no-income-tax
Census: Fast growth in states with no income tax
"...growth tends to be stronger where taxes are lower. Seven of the nine states that do not levy an income tax grew faster than the national average. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England.
Altogether, 35 percent of the nation's total population growth occurred in these nine non-taxing states, which accounted for just 19 percent of total population at the beginning of the decade."
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Assuming we have Wesbury run the Fed, I would like to have Alan Reynolds as chief economic adviser. More from Reynolds at Cato or find his book 'Income and Wealth': http://books.google.com/books?id=3l_Et2sJm8IC&printsec=frontcover&dq=income+wealth&hl=en&ei=i14XTenAEMO78gaF7f2BDg&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCoQ6AEwAA#v=onepage&q&f=false
People like Krugman and others he names here lie with economic data. Then people like Obama and Schumer and Franken and your local leftist politician and 'neutral' media outlet repeat and spread it. Then we set policy to correct a problem that didn't exist as we make the economy worse for everyone. Our strategy through this whole downturn has been to take what is already wrong (taxes, healthcare, housing, you name it) and make things worse. This debate did not end with the new tax deal according to Pres. Obama or to Valerie Jarrett a couple of hours ago on Meet the Press.
http://online.wsj.com/article/SB10001424052748703581204576033861522959234.html?mod=WSJ_Opinion_LEADTop
(You will need to see the charts to follow this. Read it from the WSJ link.)
Taxes and the Top Percentile Myth
by Alan Reynolds
When President Obama announced a two-year stay of execution for taxpayers on Dec. 7, he made it clear that he intends to spend those two years campaigning for higher marginal tax rates on dividends, capital gains and salaries for couples earning more than $250,000. "I don't see how the Republicans win that argument," said the president.
Despite the deficit commission's call for tax reform with fewer tax credits and lower marginal tax rates, the left wing of the Democratic Party remains passionate about making the U.S. tax system more and more progressive. They claim this is all about payback—that raising the highest tax rates is the fair thing to do because top income groups supposedly received huge windfalls from the Bush tax cuts. As the headline of a Robert Creamer column in the Huffington Post put it: "The Crowd that Had the Party Should Pick up the Tab."
Arguments for these retaliatory tax penalties invariably begin with estimates by economists Thomas Piketty of the Paris School of Economics and Emmanuel Saez of U.C. Berkeley that the wealthiest 1% of U.S. households now take home more than 20% of all household income.
This estimate suffers two obvious and fatal flaws. The first is that the "more than 20%" figure does not refer to "take home" income at all. It refers to income before taxes (including capital gains) as a share of income before transfers. Such figures tell us nothing about whether the top percentile pays too much or too little in income taxes.
In The Journal of Economic Perspectives (Winter 2007), Messrs. Piketty and Saez estimated that "the upper 1% of the income distribution earned 19.6% of total income before tax [in 2004], and paid 41% of the individual federal income tax." No other major country is so dependent on so few taxpayers.
A 2008 study of 24 leading economies by the Organization of Economic Cooperation and Development (OECD) concludes that, "Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. . . . Taxes tend to be least progressive in the Nordic countries (notably, Sweden), France and Switzerland."
The OECD study—titled "Growing Unequal?"—also found that the ratio of taxes paid to income received by the top 10% was by far the highest in the U.S., at 1.35, compared to 1.1 for France, 1.07 for Germany, 1.01 for Japan and 1.0 for Sweden (i.e., the top decile's share of Swedish taxes is the same as their share of income).
A second fatal flaw is that the large share of income reported by the upper 1% is largely a consequence of lower tax rates. In a 2010 paper on top incomes co-authored with Anthony Atkinson of Nuffield College, Messrs. Piketty and Saez note that "higher top marginal tax rates can reduce top reported earnings." They say "all studies" agree that higher "top marginal tax rates do seem to negatively affect top income shares."
What appears to be an increase in top incomes reported on individual tax returns is often just a predictable taxpayer reaction to lower tax rates. That should be readily apparent from the nearby table, which uses data from Messrs. Piketty and Saez to break down the real incomes of the top 1% by source (excluding interest income and rent).
The first column ("salaries") shows average labor income among the top 1% reported on W2 forms—from salaries, bonuses and exercised stock options. A Dec. 13 New York Times article, citing Messrs. Piketty and Saez, claims, "A big reason for the huge gains at the top is the outsize pay of executives, bankers and traders." On the contrary, the table shows that average real pay among the top 1% was no higher at the 2007 peak than it had been in 1999.
In a January 2008 New York Times article, Austan Goolsbee (now chairman of the President's Council of Economic Advisers) claimed that "average real salaries (subtracting inflation) for the top 1% of earners . . . have been growing rapidly regardless of what happened to tax rates." On the contrary, the top 1% did report higher salaries after the mid-2003 reduction in top tax rates, but not by enough to offset losses of the previous three years. By examining the sources of income Mr. Goolsbee chose to ignore—dividends, capital gains and business income—a powerful taxpayer response to changing tax rates becomes quite clear.
Income chart
The second column, for example, shows real capital gains reported in taxable accounts. President Obama proposes raising the capital gains tax to 20% on top incomes after the two-year reprieve is over. Yet the chart shows that the top 1% reported fewer capital gains in the tech-stock euphoria of 1999-2000 (when the tax rate was 20%) than during the middling market of 2006-2007. It is doubtful so many gains would have been reported in 2006-2007 if the tax rate had been 20%. Lower tax rates on capital gains increase the frequency of asset sales and thus result in more taxable capital gains on tax returns.
The third column shows a near tripling of average dividend income from 2002 to 2007. That can only be explained as a behavioral response to the sharp reduction in top tax rates on dividends, to 15% from 38.6%. Raising the dividend tax to 20% could easily yield no additional revenue if it resulted in high-income investors holding fewer dividend- paying stocks and more corporations using stock buybacks rather than dividends to reward stockholders.
The last column of the table shows average business income reported on the top 1% of individual tax returns by subchapter S corporations, partnerships, proprietorships and many limited liability companies. After the individual tax rate was brought down to the level of the corporate tax rate in 2003, business income reported on individual tax returns became quite large. For the Obama team to argue that higher taxes on individual incomes would have little impact on business denies these facts.
If individual tax rates were once again pushed above corporate rates, some firms, farms and professionals would switch to reporting income on corporate tax forms to shelter retained earnings. As with dividends and capital gains, this is another reason that estimated revenues from higher tax rates are unbelievable.
The Piketty and Saez estimates are irrelevant to questions about income distribution because they exclude taxes and transfers. What those figures do show, however, is that if tax rates on high incomes, capital gains and dividends were increased in 2013, the top 1%'s reported share of before-tax income would indeed go way down. That would be partly because of reduced effort, investment and entrepreneurship. Yet simpler ways of reducing reported income can leave the after-tax income about the same (switching from dividend-paying stocks to tax-exempt bonds, or holding stocks for years).
Once higher tax rates cause the top 1% to report less income, then top taxpayers would likely pay a much smaller share of taxes, just as they do in, say, France or Sweden. That would be an ironic consequence of listening to economists and journalists who form strong opinions about tax policy on the basis of an essentially irrelevant statistic about what the top 1%'s share might be if there were not taxes or transfers.
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http://taxprof.typepad.com/taxprof_blog/2010/12/states-taxing.html
States Taxing Themselves to Death
Following up on last week's post: Census Data -- Population Flocks to States Without an Income Tax: New York Post, States Taxing Themselves to Death, by Dick Morris:
NY Post High taxes kill states. There can be no better evidence than the 2010 Census. The states that lost House seats -- because they're shrinking, relative to the nation -- had taxes 27% higher than the ones that gained seats.
Of the seven states that don't have a personal income tax, four (Texas, Florida, Nevada and Washington) account for eight of the 12 seats apportioned to the fastest-growing states.
New York and Ohio lost two more seats. Other losers -- down one each -- are Massachusetts, Missouri, Michigan, New Jersey, Pennsylvania, Illinois, Louisiana and Iowa. What do they all have in common? High taxes. ...
The states that lost seats ranked an average of 24th in taxes and had an average tax burden of $2,267 per capita. ... The states that gained seats ranked an average of 39th in taxes and had an average tax burden (weighted) of $1,788 -- 27% lower than the losing states. ...
The trend is unmistakeable: The "losing" states drove out their high-income citizens (and middle-income jobs) with heavier tax burdens.
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http://washingtonexaminer.com/blogs/beltway-confidential/2011/01/irs-dithers-while-prisoners-file-phony-tax-returns-collect-millio
IRS dithers while prisoners file phony tax returns, collect millions in refunds
By: Byron York 01/04/11 9:33 PM
Chief Political Correspondent
The number of prisoners who file false tax returns with the Internal Revenue Service has more than doubled in the last five years, according to a new Treasury Department report, and the amount of money the IRS has mistakenly refunded to those prisoners has nearly tripled. Meanwhile, the report, from the Department's Inspector General for Tax Administration, accuses the IRS of failing to enforce a law passed by Congress in 2008 to crack down on false returns coming from the nation's prisons.
According to the study, in 2009, prisoners filed 44,944 false tax returns, attempting to claim $295.1 million in refunds. The report says IRS officials caught the fraud in many cases and stopped $256 million of that from being refunded -- but the IRS did mistakenly pay $39.1 million in refunds to prisoners filing fraudulent returns. The report also notes that there is some evidence that fraud is even more widespread than these figures suggest.
Read more at the Washington Examiner: http://washingtonexaminer.com/blogs/beltway-confidential/2011/01/irs-dithers-while-prisoners-file-phony-tax-returns-collect-millio
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Just to deflate the crat rat argument:
I think Republicans should raise taxes on billionaires. How many are there in the US? 100?
Just to stick it back into the faces of the crats who keep going on the tube complaining that the way to bring down the deficit is not to give tax breaks to "billionaires".
OK, so lets raise the rates on all those with a net worth of one billion or more. Let's include Gates and Buffett and Soros.
Willl this then shut the rats up?
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Will raising taxes billionaires satisfy them?
No, it won't and satisfying opponents shouldn't be the goal. Don't pass anything that hurts the economy, hurts employment or moves us anywhere in the wrong direction.
Tax the rich, means tax the rich first, then call the rest of us rich. Their goal as I see it is big, intrusive government, and that will require collecting revenues from every imaginable direction.
Very funny that the President called Gibbs salary 'modest' at 3 1/2 times the median. He means modest for someone nearly as brilliant as himself, but it is a rare acknowledgment that merit plays a valid role in compensation.
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Hussein called Gibbs' salary at 172,000 a year modest, yet he set 200,000 a year as a single filer as being "rich". Where is his line?
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"[Pres. Obama] called Gibbs' salary at 172,000 a year modest, yet he set 200,000 a year as a single filer as being "rich". Where is his line?"
Maybe 172k or 200 is not rich if the cost of living is high around DC and if that type of job requires maintaining a nice home in two places, etc. Same goes for other people and other circumstances. If he acknowledges that regional and circumstantial differences mean that any federal progressive or punitive scheme will not fit all evenly or fairly, the only remedy with fairness is to tax every dollar of income the same no matter who legally earned it, how or where.
The serious answer to the above BTW is that you are rich after you have accumulated enough to pay for everything you and your family will ever need without having to sell off your assets. That is an unknowable number and certainly none of anyone else's business. Nor is it a crime or a sin or a behavior that hurts others unless you did something wrong to earn it.
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http://taxtechcpa.blogspot.com/2011/02/federal-tax-share-by-of-income-over.html
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Additional comments from FB:
Joey Rich Let me get this straight. Ten per cent of taxpayers (not citizens in general, but just taxpayers) pay 70% of all income taxes paid. Right? The top 1% (of taxpayers, not of the general population) looks to pay about 40% of income taxes. ...All the while, the top tax rate has actually dropped.
How many "taxpayers" are there in a given year on average? Has that number increased or decreased significantly over that 30 years?See More
3 hours ago · LikeUnlike.Gene Prescott First Part: Yes, top tax rate, alone, does not generate the most tax. More optimum tax rates produce more tax revenue.
Second Part: Due to population and increase in work force, the number of returns would have increased. Due to tax law ...change, many lower earners, are no longer required to file. I'll try to find stats (apt to be 2008 and before).
I changed narrative to correct error on my blog.See More
2 hours ago · LikeUnlike.Joey Rich Thanks! I'm no accountant (although, I have to admit I'm the son of one...LOL).
2 hours ago · LikeUnlike.Gene Prescott It appears that many assume that the "middle" tier of taxpayers contribute the largest portion of total tax revenue.
about an hour ago · LikeUnlike.Joey Rich I hear that a lot...usually from people who want to "soak the rich." I've seen similar numbers to yours before but usually not as clearly laid out.
I would have no idea where to start but it would be interesting to see the total amount of t...axes paid when you combine income taxes, capital gains taxes and sales taxes with things like corporate taxes, which consumers pay for corporations via increased prices and various government fees, the cost of which companies pass on to consumers as well.See More
53 minutes ago · LikeUnlike.Gene Prescott Scott, who generally produces clear graphs, has posted often over time.
http://scottgrannis.blogspot.com/
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The preceding chart and several more of great interest and clarity are to be found on the most recent entry by Scott Grannis:
http://scottgrannis.blogspot.com/
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President Obama says he wants corporate tax reform but hasn't proposed how to do it. Maybe he should take a look at the states, where as many as 10 new Governors are moving ahead to reform and reduce business taxes. The motive is to attract more businesses and create more jobs, while avoiding the fate of California and New York.
Take Iowa, which has the highest state corporate rate at 12%. Add that to the federal rate of 35%, and the Tax Foundation says the Hawkeye State may have the highest levy in the developed world. Governor Terry Branstad, back for a second stint in Des Moines after 12 years, wants to cut the top corporate rate in half to 6% because "we just can't compete with this high tax rate anymore." Mr. Branstad has been sending letters trying to recruit Illinois businesses, where the small business tax rose by 67% and the corporate rate by 30% to 9.5% in January.
Iowa's corporate tax suffers from the same defects that hobble the federal system. It imposes an onerous rate on those companies that get stuck paying it, but the legislature has carved out so many credits and loopholes for politically favored firms that the tax doesn't raise much revenue. So even though Iowa has the highest statutory rate, it ranks 36th in per capita collections. It's all pain for little gain.
Michigan has led the nation in job losses during this past decade, while former Governor Jennifer Granholm sought to attract businesses with special tax favors. New Republican Governor Rick Snyder and the GOP legislature are trying a different strategy and moving forward on a business tax makeover.
Their plan would replace an unpopular gross receipts tax that forces many small firms to pay inflated tax bills even when they don't record a profit. It would also eliminate big industry exemptions, such as the Hollywood movie maker's credit, and instead install a flat 6% corporate profits tax. That's still too high for our liking and for competitive purposes, but at least it would level the playing field across businesses and save them about $1.5 billion each year.
Florida's Rick Scott is pursuing arguably the most ambitious plan. He promised voters he'd abolish the state's $2 billion a year corporate tax over seven years, and his first budget gets that started. "Once we eliminate the corporate tax, and, remember, we don't have a state income tax, there will be no reason for businesses not to come to Florida," he says. South Carolina's Nikki Haley also campaigned on eliminating her state's $200 million a year corporate tax.
The message from these states is similar: In a global economy you can't attract businesses by extracting an undue share of their profits. Bringing rates down is especially important for competitiveness given that five states—Nevada, South Dakota, Texas, Washington and Wyoming—have no corporate income tax.
Our preference, which is supported by most of the economic evidence, is that cutting personal and small business income tax rates should be the highest tax priority for states. But corporate tax systems are complicated and onerous, while only generating between 5% and 8% of state revenues.
Workers also bear the cost of excessive corporate taxes. A 2009 study by the Federal Reserve Bank of Kansas City examined three decades of data on business taxes and worker pay checks. The study found that "corporate taxes reduce wages and that the magnitude of the negative relationship between the taxes and the wages has increased over the past 30 years." Businesses in high tax states invest less, the study found, and this leads to lower productivity and eventually lower average pay for workers.
These Governors can only do so much because the biggest hurdle to new investment is the federal tax of 35% that is the second highest in the world and far above the international average. The President's own tax commission concluded that this tax sends jobs abroad. What is Mr. Obama's Treasury Department waiting for?
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By JOHN D. MCKINNON
The chairman of the House Ways and Means Committee wants to cut the top U.S. tax rate to 25% for individuals and corporations, and cut or eliminate many popular deductions.
The odds of quick action appear slender. But the move, from Rep. Dave Camp (R., Mich.), is significant as a marker in what will likely be a multiyear debate over revamping the tax code. The plan also provides Republicans with a position to pitch in the 2012 election, a campaign that promises to focus heavily on the economy and jobs.
Mr. Camp told The Wall Street Journal an overhaul of the unwieldy tax code is an essential element in stimulating both economic growth and job formation.
"America needs a tax code that promotes, not prevents, job creation," he said. "Today's code is simply too complex, too costly and too burdensome for families and employers of all sizes to comply with.…We need to set ambitious goals and work toward those, because if we don't try that will be the biggest failure of all."
Mr. Camp's tax overhaul isn't designed to specifically cut the U.S. budget deficit. Overall tax revenues would remain at recent average levels, or about 18% to 19% of gross domestic product, committee aides said.
Some lawmakers want to raise tax revenue as part of a fiscal fix that also includes long-term reductions in entitlement spending growth. A deficit-reduction panel set up by President Barack Obama last year recommended lowering top tax rates to 28%, in one scenario, while increasing federal tax revenue to about 21% of GDP.
Rep. Richard Neal of Massachusetts, a top Ways and Means Democrat, said Mr. Camp's proposal faces difficult going. "As long as tax reform is offered in the abstract, everyone rallies to the cause," Mr. Neal said. "When it becomes specific, people start to fall off."
Current top tax rates for corporations and individuals stand at 35%, although many people and businesses pay lower effective rates due to a range of deductions and other breaks.
Many Democrats also have voiced support for lowering tax rates, particularly for corporations. In his State of the Union address, President Barack Obama expressed support for lowering corporate tax rates while closing loopholes and other special breaks. The president also talked about the need to simplify the individual code. Mr. Obama's budget proposes raising taxes on high-income earners after 2012, however.
White House and Treasury officials have focused on achieving corporate-level reform in the near term. That's a strategy that could spare corporations from some of the pressures of deficit reduction. The White House declined to comment on Mr. Camp's proposal.
Tax experts said lowering tax rates to 25% might require Congress to find $2 trillion in new revenue over a decade if Mr. Camp wants to offset the entire cost, reflecting the magnitude of the rate changes. Aides said the rate reductions would be achieved by reducing or eliminating tax deductions and credits.
Aides didn't specify which ones would be targeted. The largest deductions include those for home-mortgage interest and state and local taxes, and the exclusion of employee health care from income. Big corporate breaks include accelerated depreciation deductions and a tax break for domestic production.
Michael Ettlinger, vice president for economic policy at the liberal Center for American Progress, said the plan would produce unsustainably high deficits because neither political party is able to make spending cuts that would allow the U.S. to function on the tax income Mr. Camp's plan suggests. "There is no way we can provide anywhere near the services that the public demands at those levels of taxes," Mr. Ettlinger said.
Mr. Camp and his Senate counterpart, Finance Committee Chairman Max Baucus (D., Mont.), have ordered studies of some elements of the current tax code, including tax treatment of debt versus equity financing, as well as tax treatment of certain financial derivatives.
A tax overhaul is emerging as an increasingly urgent goal. Businesses complain that federal tax rates are among the highest in the world, following years of reductions in Europe and Asia. That is hurting U.S. multinationals' competitiveness overseas and tamping foreign investment in the U.S., analysts say.
At the same time, policymakers are eager to boost U.S. growth, not only to generate jobs at home but also to increase federal tax receipts and reduce government budget deficits.
The top U.S. tax rate for both individuals and corporations has been 35% for most of the past decade since President George W. Bush pushed through his big tax cut for individuals in 2001. Previously, the top rate for individuals was 39.6%. Mr. Obama proposes to return the rate for individuals to 39.6%.An analysis by the conservative Heritage Foundation concluded that reducing the corporate rate to 25% would help generate more than 500,000 jobs a year over the coming decade.
Write to John D. McKinnon at john.mckinnon@wsj.com
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"...cut the top U.S. tax rate to 25% for individuals and corporations..."
This is a great proposal. Better would be to cap both at 25% in a constitutional amendment. Better still would be a constitutional amendment to cap spending at 18% of GDP. with a supermajority required to approve spending in excess of the limit.
States need to take some action on tax rates as well, particularly state capital gains taxes that tax false inflationary gains as ordinary income. If you want to increase revenues, you need to grow the economy. Blocking capital from flowing to its most productive use does not get you there.
On April 1, if we take no action, the U.S. will have the highest corporate income tax rate in the developed world.
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Another Day in the Life of the IRS
from Cato @ Liberty by Daniel J. Mitchell
By Daniel J. Mitchell
A previous post of mine at International Liberty addressed the debate over whether Republicans should trim the IRS's budget. The following case study should convince everyone that the answer is a resounding yes.
First, some background from a Joe Nocera column in the New York Times. The federal government made a rather troubling decision a few years ago to investigate, prosecute, and ultimately imprison a random home-loan borrower named Charlie Engle for the crime of mortgage fraud.
Mr. Engle is far from blameless in this saga, but I noted in another post that it was rather odd that the government would target a nobody while letting all the big fish swim away. This episode certainly paints a picture of a government that has one set of rules for ordinary people, but an entirely different set of rules for the political elite and those who make big campaign contributions to that ruling class.
But I also noted that I'm not a lawyer or legal expert and was unsure about the degree to which the big players actually broke laws, or whether they simply made stupid business decisions (often encouraged by bad government policy).
The most upsetting part of the story, though, is how the government wound up targeting Mr. Engle. It turns out that an IRS agent, Robert Norlander, must have been competing for the IRS's Bully-of-the-Year Award because here are some of the things he did:
Norlander decided to snoop into Engle's affairs because he saw a film about him training for a marathon. In other words, there was no probable cause, no reasonable suspicion, nothing. Just the perverse decision of an IRS bully to go after someone.
Norlander admitted a pattern of thuggish behavior, stating that he will snoop into someone's private life simply because that person drives an expensive car.
Norlander continued to investigate and persecute Engle, subjecting him to undercover surveillance, even though his tax returns showed no wrongdoing.
Norlander even engaged in "dumpster dives" to look for evidence of wrongdoing in Mr. Engle's garbage. Keep in mind that there is no probable cause, no reasonable suspicion, and Engle's tax returns were legit.
Norlander used a sleazy KGB tactic by sending an attractive woman to flirt with Mr. Engle in hopes of getting him to somehow admit to a crime.
Norlander failed to find any evidence of a tax crime. He couldn't even hit Engle with a money-laundering offense. But the undercover agent who was part of the "honey trap" was wearing a wire and supposedly got Engle to admit to mortgage fraud and Norlander used that extremely flimsy evidence to justify a Justice Department case against Engle.
In other words, this whole thing has a terrible stench. Assuming the details in the story are accurate, we have an IRS agent engaging in a random vendetta against someone, and then apparently justifying his jihad by figuring out how to nail the guy on a very weak charge of mortgage fraud. I would describe Norlander as a "rogue agent," but apparently this behavior is business-as-usual at the IRS.
Here are the relevant passages from Nocera's column:
Mr. Engle received $30,000 for his participation. The film, “Running the Sahara,” was released in the fall of 2008. Eventually, it caught the attention of Robert W. Nordlander, a special agent for the Internal Revenue Service. As Mr. Nordlander later told the grand jury, “Being the special agent that I am, I was wondering, how does a guy train for this because most people have to work from nine to five and it’s very difficult to train for this part-time.” (He also told the grand jurors that sometimes, when he sees somebody driving a Ferrari, he’ll check to see if they make enough money to afford it. When I called Mr. Nordlander and others at the I.R.S. to ask whether this was an appropriate way to choose subjects for criminal tax investigations, my questions were met with a stone wall of silence.) Mr. Engle’s tax records showed that while his actual income was substantial, his taxable income was quite small, in part because he had a large tax-loss carry forward, due to a business deal he’d been involved in several years earlier. (Mr. Nordlander would later inform the grand jury only of his much lower taxable income, which made it seem more suspicious.) Still convinced that Mr. Engle must be hiding income, Mr. Nordlander did undercover surveillance and took “Dumpster dives” into Mr. Engle’s garbage. He mainly discovered that Mr. Engle lived modestly. In March 2009, still unsatisfied, Mr. Nordlander persuaded his superiors to send an attractive female undercover agent, Ellen Burrows, to meet Mr. Engle and see if she could get him to say something incriminating. In the course of several flirtatious encounters, she asked him about his investments. ...Unbeknownst to Mr. Engle, Ms. Burrows was wearing a wire. ...No tax charges were ever brought, even though that was Mr. Nordlander’s original rationale. Money laundering, the suspicion of which was needed to justify the undercover sting, was a nonissue as well. As for that “confession” to Ms. Burrows, take a closer look. It really isn’t a confession at all. Mr. Engle is confessing to his mortgage broker’s sins, not his own.
Stories like this explain why I'm a libertarian.
As George Washington supposedly said, "Government is not reason; it is not eloquence; it is force. Like fire, it is a dangerous servant and a fearful master." Unfortunately, thanks to bad laws and thuggish bureaucrats, government is definitely now our master and no longer just a servant. The IRS is a grim example of this phenomenon. President Obama, not surprisingly, wants to increase their budget.
Another Day in the Life of the IRS is a post from Cato @ Liberty - Cato Institute Blog
http://www.cato-at-liberty.org/another-day-in-the-life-of-the-irs/
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Governor Pat Quinn recently added to his reputation as America's most taxing politician by signing a law applying the state's 6.25% sales tax to Internet purchases made in Illinois. Within hours, Amazon, the online book and merchandise seller, announced it would discontinue using any of its 9,000 Illinois small business affiliates to avoid having to collect the tax. Congratulations, Governor.
The issue of whether and how states should tax Internet sales is back as one of the hottest in state legislatures. Colorado, New York, North Carolina and Rhode Island already impose some version of what has become known as the "Amazon tax," and at least a dozen other deficit-plagued states are advancing similar bills. This political brawl unites liberals with brick-and-mortar retailers, such as Wal-Mart, Best Buy and Target, against taxpayers and such online retailers as Amazon and Overstock. Internet sales reached $165 billion last year and have been growing by nearly 15% annually.
The first issue is whether the Amazon tax is constitutional. New York's law is now being challenged in court as a violation of the Supreme Court's landmark 1992 Quill decision. In that case the High Court ruled that a state cannot impose a tax on a company if it does not have a physical presence in that state.
This decision originally applied to mail order sales, but the same principle applies to firms that sell over the Internet. If the company does not have an office, store or warehouse inside a state, the state cannot compel the firm to collect sales tax. Illinois and others are trying to broaden the concept of physical presence to include doing business with any affiliate inside the state's borders, such as online advertisers.
View Full Image
Associated Press
Illinois Gov. Pat Quinn
.The Quill standard may be the last line of defense against what would become a raid by governments at all levels on interstate online commerce. One virtue of the U.S. federal system is that it allows states to compete on tax policies. The courts should insure that a firm has a genuine physical presence in the state—not merely an online presence—to impose its taxing power. States retain the right to collect a "use tax" from their residents who make purchases from out-of-state companies or over the Internet.
Even if the courts rule against online sellers, states are fantasizing if they believe this tax will raise as much money as they hope. As in Illinois, Amazon has announced that it will cease doing any business with affiliates in any state that imposes this tax, and the firm hasn't been bluffing. So far it has closed its affiliate program in every state with the tax, except New York (where the law is under challenge).
Paul Dion, head of Rhode Island's revenue analysis office, says that "To date nobody has come forward to remit sales tax to us under that [online sales tax] statute." North Carolina's tax office reports that the state had raised all of $4.6 million as of January from the new tax, a small fraction of what legislators predicted. A study by the Tax Foundation has found that because of the retaliatory steps taken by Amazon, Rhode Island and North Carolina may have lost money because online marketing companies have closed down, or relocated outside the state.
Retailers are understandably worried about competition from online sellers, and there is no doubt that sales taxes influence where and how people make purchases. One irony of this fight is that the same liberals who claim that taxes don't affect behavior are telling state legislators to tax Internet sales or people will buy everything online or outside the state to avoid paying taxes.
The big retailers say that imposing state sales tax on e-commerce will level the playing field. But Internet firms don't use government services in the way that retailers do. If Amazon's headquarters in Seattle catches fire, no Illinois fire fighter is going to put it out. It also seems an undue burden to require Internet firms to comply with 8,000 separate sales tax jurisdictions around the country. The retailers have tried for years to get Congress to approve a "streamlined sales tax" compact among the states as a way to collect Internet taxes, but this seems unlikely to pass and many states would refuse to join in any case.
The best outcome would be for states to begin to rethink their tax policies in this new era of e-commerce. For states to impose sales taxes as high as 8% or even 10% may no longer be feasible, much as a U.S. corporate tax rate of 35% is no longer competitive with the rest of the world.
Smart states are rethinking their spending commitments, and they will also have to adapt by broadening their sales tax base and lowering rates. Many states exempt about half of their consumption base from sales tax, including groceries, barbers, drugs, legal services, hospitals and more. States could broaden the base and cut their rates in half.
The biggest false claim is that e-commerce will bankrupt states. This is what retailers and state legislatures said after the Quill decision, but sales tax receipts soared in the decade afterward. The most important influence on state tax receipts is economic growth, and revenues in some states are already returning to their pre-recession peaks.
If Governor Quinn weren't so busy driving business out of Illinois, he might not have to pretend he can raise revenue from taxing the Internet.
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[youtube]http://www.youtube.com/watch?v=kPVVoqDkLHw&feature=player_embedded[/youtube]
How to finish our economy off.
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Yes. this is more what I am talking about. Getting a bit warmer:
Jewish World Review April 15, 2011
The grand compromise
By Charles Krauthammer
http://www.JewishWorldReview.com | The most serious charge against Rep. Paul Ryan's budget is not the risible claim, made most prominently by President Obama in his George Washington University address, that it would "sacrifice the America we believe in." The serious charge is that the Ryan plan fails by its own standards: Because it only cuts spending without raising taxes, it accumulates trillions in debt and doesn't balance the budget until the 2030s. If the debt is such a national emergency, the critics say, Ryan never really gets you there from here.
But they miss the point. You can't get there from here without Ryan's plan. It's the essential element. Of course Ryan is not going to propose tax increases. You don't need Republicans for that. That's what Democrats do. The president's speech was a prose poem to higher taxes - with every allusion to spending cuts guarded by a phalanx of impenetrable caveats.
Ryan reduces federal spending by $6 trillion over 10 years - from the current 24 percent of gross domestic product to the historical post-World War II average of about 20 percent.
Now, the historical average for revenue over the past 40 years is between 18 percent and 19 percent of GDP. As we return to that level with the economic recovery (we're now at about 15 percent), Ryan would still leave us with an annual deficit in 2021 of 1.6 percent of GDP.
The critics are right to focus on that gap. But it is bridgeable. And the mechanism for doing so is in plain sight: tax reform.
Real tax reform strips out exclusions, deductions, credits and the innumerable loopholes that have accumulated since the last tax reform of 1986. The Simpson-Bowles commission, for example, identifies $1.1 trillion of such revenue-robbers. In one scenario, it strips them all out and thus is able to lower rates for everyone to three brackets of 8 percent, 14 percent and 23 percent.
The commission does recommend that, on average, about $100 billion annually of that $1.1 trillion be kept by the Treasury (rather than going back to the taxpayer) to reduce the deficit. This is a slight deviation from revenue neutrality, but it still yields a major cut for the top rate from the current 35 percent to 23 percent. The overall result is so reasonable and multiply beneficial that it rightly gained the concurrence of even the impeccably conservative (commission member) Sen. Tom Coburn.
That's the beauty of tax reform: It is both transparent and flexible. That flexibility and transparency can be applied to the Ryan plan. If you need a bit more deficit reduction to bridge the 1.6 percent GDP gap that remains after 10 years, you can get there by slightly raising the final rates.
Ryan's tax reform envisions a top rate of 25 percent. There's nothing sacred about that number. In principle, you could raise all the rates slightly with the top rate going to, say, 28 percent - the top rate that came out of Ronald Reagan's 1986 tax reform. You're still much lower than the current 35 percent. And yet that final boost could bring you closer to a fully balanced federal budget at roughly 20 percent of GDP.
Nor would any great conservative principle be violated. The historical average of revenue - 18 percent to 19 percent of GDP - could be raised one point or so on the perfectly reasonable grounds that we are a slightly older society, and that we wish to avail ourselves of the extraordinary but expensive medical technology that can increase both the quality and length of life.
This one concession would yield a fully balanced budget more quickly than Ryan's plan and would reduce the debt/GDP ratio even more steeply (because GDP would be growing, while debt would not). The effect on America's financial standing in the world would be dramatic: Restored confidence in U.S. fiscal health would reduce interest rates, which would lower the overall debt burden, which could allow lower taxes, which could stimulate yet more economic growth. A virtuous circle.
That's the finish line. But it starts with spending cuts. Serious cuts, as Ryan suggests - not the smoke and mirrors the Obama speech shamelessly presented as a plan.
Given the Democrats' instinctive resort to granny-in-the-snow demagoguery, the Republicans are right not to budge on taxes until serious spending cuts are in place. At which point, the grand compromise awaits. And grand it would be. Saving the welfare state from insolvency is no small achievement.
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He is a friend of a friend and a true blue great American, so how do I say this nicely... Walter Mondale became the only human in earth's history to lose a statewide contest in all 50 states when he lost the senate race in his home state, the only state he carried against Reagan. Ironically he has never lost though in the District of Columbia. Mondale economically has learned nothing since serving with Jimmy Carter and then running to his left. Government is too small; taxes are too low. There is never a bad time to raise them back up, at least on the rich: http://www.washingtonpost.com/opinions/walter-mondale-as-in-1984-we-again-need-the-courage-to-raise-taxes/2011/04/14/AFxVSSkD_story.html
BTW, I disagree with him.
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A caller pointed out on a cable show Obama says the rich don't pay their fair share. Yet 50% who pay no taxes are not either. Why the 400 highest payers are paying only 16%, much lower than me is something I am FINALLY hearing some Republicans discussing. If The repubics want to really get the attention and support of the middle roaders they could really go after fixing the tax code. Make it simpler and truly fair. Getting the bribery out of politics, making oportunity really fair in the US and not tilted to those with the power and money is never going to happen. But at least having a Repubic address these issues would be incredibly refreshing. I am not holding my breath:
By STEPHEN OHLEMACHER, Associated Press Stephen Ohlemacher, Associated Press – Sun Apr 17, 4:02 pm ET
WASHINGTON – As millions of procrastinators scramble to meet Monday's tax filing deadline, ponder this: The super rich pay a lot less taxes than they did a couple of decades ago, and nearly half of U.S. households pay no income taxes at all.
The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.
Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.
The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation's tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.
There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.
"It's the fact that we are using the tax code both to collect revenue, which is its primary purpose, and to deliver these spending benefits that we run into the situation where so many people are paying no taxes," said Roberton Williams, a senior fellow at the center, which generated the estimate of people who pay no income taxes.
The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.
President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing. Obama's proposal would result in $1 trillion in tax increases over the next 12 years. Neither proposal included many details, putting off hard choices about which tax breaks to eliminate.
In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS.
More than half of the nation's tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes.
Obama wants the wealthy to pay so "the amount of taxes you pay isn't determined by what kind of accountant you can afford."
Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called United for a Fair Economy. Their goal: Raise taxes on rich people like themselves.
Shoenberg, who now teaches a business class at Columbia University, said his income is usually "north of half a million a year." But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than $2,000.
"I simply point out to people, `Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?'" Schoenberg said.
Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said he has a solution for rich people who want to pay more in taxes: Write a check to the IRS. There's nothing stopping you.
"There's still time before the filing deadline for them to give Uncle Sam some more money," Hatch said.
Schoenberg said Hatch's suggestion misses the point.
"This voluntary idea clearly represents a mindset that basically pretends there's no such things as collective goods that we produce," Schoenberg said. "Are you going to let people volunteer to build the road system? Are you going to let them volunteer to pay for education?"
The law is packed with tax breaks that help narrow special interests. But many of the biggest tax breaks benefit millions of American families at just about every income level, making them difficult for politicians to touch.
The vast majority of those who escape federal income taxes have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes.
The share of people paying no federal income tax has dropped slightly the past two years. It was 47 percent for 2009. The main difference for 2010 was the expiration of a tax break that exempted the first $2,400 of unemployment benefits from taxation, Williams said.
In 2009, nearly 35 million taxpayers got a tax break for paying interest on their home mortgages, and nearly 36 million taxpayers took the $1,000-per-child tax credit. About 41 million households reduced their federal income taxes by deducting state and local income and sales taxes from their taxable income.
About 36 million families cut their taxes by nearly $35 billion by deducting charitable donations, and 28 million taxpayers saved a total of $24 billion because their income from Social Security and railroad pensions was untaxed.
"As a matter of policy, there would be a lot of ways to save money and actually make these things work better," said Leonard Burman, a public affairs professor at Syracuse University. "As a matter of politics, it's really, really difficult."
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Online:
Tax Policy Center: http://www.taxpolicycenter.org
National Taxpayer Advocate: http://www.irs.gov/advocate
United for a Fair Economy: http://www.faireconomy.org
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12,340 CommentsShow: Newest FirstOldest FirstHighest RatedMost Replied Post a Comment Comments 1 - 10 of 12340FirstPrevNextLast2501 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 100 users disliked this commentGlenn Sun Apr 17, 2011 02:57 am PDT Report Abuse It seems most of our 'tax loopholes' are written/passed by our congress-people at the urgence of lobbiest (Who pays for the lobby and helps put a 'spin' on these laws to try to make them palatable?) Of course the same congressionals are benefitted at the same time. Why is it that reelection is more important than helping to save our nation? The answer is our human nature toward greed! If for some unknown reason you think someone in Washington is there to help you. . .God help you!
Replies (60)
2353 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 94 users disliked this commentBobby Sun Apr 17, 2011 09:10 am PDT Report Abuse Politicians are the only people in the world who create problems and
then campaign against them.
Have you ever wondered, if both the Democrats and the Republicans are
against deficits, WHY do we have deficits?
Have you ever wondered, if all the politicians are against inflation
and high taxes, WHY do we have inflation and high taxes?
You and I don't propose a federal budget. The President does.
You and I don't have the Constitutional authority to vote on
appropriations. The House of Representatives does.
You and I don't write the tax code, Congress does.
You and I don't set fiscal policy, Congress does.
You and I don't control monetary policy, the Federal Reserve Bank does.
One hundred senators, 435 congressmen, one President, and nine Supreme
Court justices equates to 545 human beings out of the 300 million are
directly, legally, morally, and individually responsible for the
domestic problems that plague this country.
I excluded the members of the Federal Reserve Board because that
problem was created by the Congress. In 1913, Congress delegated its
Constitutional duty to provide a sound currency to a federally
chartered, but private, central bank.
I excluded all the special interests and lobbyists for a sound reason.
They have no legal authority. They have no ability to coerce a senator,
a congressman, or a President to do one cotton-picking thing. I don't
care if they offer a politician $1 million dollars in cash. The
politician has the power to accept or reject it. No matter what the
lobbyist promises, it is the legislator's responsibility to determine
how he votes.
Those 545 human beings spend much of their energy convincing you that
what they did is not their fault. They cooperate in this common con
regardless of party.
What separates a politician from a normal human being is an excessive
amount of gall. No normal human being would have the gall of a Speaker,
who stood up and criticized the President for creating deficits. The
President can only propose a budget. He cannot force the Congress to
accept it.
The Constitution, which is the supreme law of the land, gives sole
responsibility to the House of Representatives for originating and
approving appropriations and taxes. Who is the speaker of the House?
John Boehner. He is the leader of the majority party. He and fellow
House members, not the President, can approve any budget they want. If
the President vetoes it, they can pass it over his veto if they agree
to.
It seems inconceivable to me that a nation of 300 million cannot
replace 545 people who stand convicted -- by present facts -- of
incompetence and irresponsibility. I can't think of a single domestic
problem that is not traceable directly to those 545 people. When you
fully grasp the plain truth that 545 people exercise the power of the
federal government, then it must follow that what exists is what they
want to exist.
If the tax code is unfair, it's because they want it unfair.
If the budget is in the red, it's because they want it in the red.
If the Army & Marines are in Iraq and Afghanistan it's because they
want them in Iraq and Afghanistan ....
If they do not receive social security but are on an elite retirement
plan not available to the people, it's because they want it that way.
There are no insoluble government problems.
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"Don't tax you. Don't tax me. Tax that fellow behind the tree."
the late Cong. Everett Dirksen?
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"An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." --John Marshall, McCullough v. Maryland, 1819
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Moving to the tax thread.....
GM: interesting article about cigarettes and the black market, but I think you are missing the point.
CA (I don't agree since I smoke cigars) raised taxed to dissuade people from smoking; higher prices....
It seems cigarettes are elastic.
As for you other comments, China raised the floor subject to taxation. I suppose that is a tax decrease,
but then it primarily affects the poor and lower middle class. I am sure Obama would agree.
Did you read the article; I love the title "Tax Cuts Don't Boost Revenue".
It went on to succinctly say that nearly all economists agree. Yet you don't? :?
Tax cuts may have other benefits, but in and of themselves, they do not boost revenue.
Better as CCP has pointed out; don't raise taxes, but simply take away all the ridiculous deductions
that the rich enjoy and that the poor and middle class are unable to participate. Simply be fair; everyone benefits.
I like CCP's platform. It's fair for all. And it focuses on the middle class. Work hard and you will be rewarded. It is salable.
Add a little practicality on immigration (pick up some Latino vote), a little compassion for the poor, and the Republicans might win.
God bless them. Even Democrats and Independents like me are worried about the deficit. Something needs to be done, but be fair.
Nothing wrong with addressing the issue of Social Security and Medicare; ease it in; people will listen and I think people
will understand. Take the lead. The people you want to attract, the people who understand there is no free lunch, will understand.
Instead the Republicans simply beat each other up and keep moving further and further to the right or spend their energy
on irrelevant topics. It won't work. Unless the Republicans get it together, be reasonable, I mean keep your principles as
Doug says, but be reasonable, or I'm putting my money on Obama for another four years.
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"GM: interesting article about cigarettes and the black market, but I think you are missing the point.
CA (I don't agree since I smoke cigars) raised taxed to dissuade people from smoking; higher prices....
It seems cigarettes are elastic."
I'm am not a "Big L" Libertarian. I wouldn't be opposed to a "sin tax" on tobacco products to (1. Discourage tobacco use and (2. Raise some revenue for a state. However, let's apply the Laffer Curve to the issue. If there were no taxes on tobacco, there would obviously be no revenue collected, however if you placed an outrageous tax of 1000 dollars per cigar, maybe only Ah-nold and a very small, wealthy group would actually pay those taxes, probably not enough to balance out the costs to the state of CA to collect those taxes.
Between those two extremes, is the point at the curve where the maximum number of person who would quit rather than pay the taxes is reached. There is also a position on the curve where otherwise law abiding citizens say "screw it" and buy from the net, buy from neighboring states, Reservations and blackmarketeers. At a certain point, the costs of enforcing the tobacco taxes far outweigh the actual income generated from those taxes, though that's probably not a consideration for most Californians, judging by the horrific state of California's budget and who was just elected governor.
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So let's go back to this:
The BOE also created a computer model of the cigarette market. This was a custom software program that could use survey data about smokers and historical sales data from the tobacco manufacturers, wholesalers and retailers to produce estimates of supply, demand and tax evasion. In 1999, the BOE's first computer estimates showed that 11 years earlier, the 1988 tax hike had boosted smuggling substantially. The estimates were approximate, but even under conservative estimates, the numbers were staggering. During the 1990 fiscal year (July 1, 1989 - June 30, 1990), between 183 million and 377 million packs of cigarettes had illegally entered California. That is about four tractor-trailers full each day, and in revenue terms, the state lost between $64 million and $132 million in one year.
Soon other states raised their cigarette taxes, making them more attractive to smugglers than California was. By fiscal 1993, the BOE estimated that tax evasion had dropped 13.2 percent in three years. California's 2-cent per-pack tax increase on Jan. 1, 1994, temporarily reversed this trend slightly, but by 1998, BOE estimates showed that cigarette tax evasion had fallen 26.2 percent since 1990. Even with smuggling on the decline, the estimated volumes were still considerable: Between 135 million and 278 million packs of cigarettes were estimated to have illegally entered California in fiscal year 1998, representing between $50 million and $103 million in potential excise tax revenue.[199]
The moderate decline in illicit smuggling that lasted 10 years between 1988 and 1998 ended when California voters raised the cigarette tax by 50 cents per pack, from 37 cents to 87 cents, by approving Proposition 10 in November 1998. That same month, California signed the national Master Settlement Agreement, which raised cigarette prices by about 45 cents per pack. That created yet another slice of potential profit that smugglers could realize when bringing cigarettes in from abroad. Not only could they avoid 87 cents per pack in state taxes, but they could also avoid the 45-cent MSA payment and the 24-cent federal tax.[200]
That meant smugglers could possibly earn hundreds of thousands in evaded taxes on every shipping container of cigarettes smuggled into the state. And indeed, the BOE model showed evasion surging 12 percent after 1998. Police and BOE inspectors came across more and more cigarettes smuggled from abroad, and the U.S. General Accounting Office found that seizures of counterfeit cigarettes at the ports of Los Angeles and Long Beach increased dramatically in the years following the tax hike.[201]
The point being: California raised taxes to the point where they made tax evasion profitable and reduced the state's income from those taxes. Yes?
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(http://www.heritage.org/research/reports/2007/01/~/media/Images/Reports/2007/bg2001/chart2_lg.ashx)
http://www.heritage.org/research/reports/2007/01/~/media/Images/Reports/2007/bg2001/chart2_lg.ashx
Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.
As previously stated, whether a tax cut pays for itself depends on how much people alter their behavior in response to the policy. Investors have been shown to be the most sensitive to tax policy, because capital gains tax cuts encourage enough new investment to more than offset the lower tax rate.
In 2003, capital gains tax rates were reduced from 20 percent and 10 percent (depending on income) to 15 percent and 5 percent. Rather than expand by 36 percent from the current $50 billion level to $68 billion in 2006 as the CBO projected before the tax cut, capital gains revenues more than doubled to $103 billion.[10] (See Chart 2.) Past capital gains tax cuts have shown similar results.
So, if the Laffer Curve didn't work in the case above, what was the mechanism that made the reduction in tax rates bring in more revenue? Who you gonna believe, the economic theorists or your own lyin' eyes? :evil:
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Frankly, I am against "sin taxes". Where do we stop? I smoke cigars, just had a beer, but I'm thin. Maybe we should tax obese people? Sounds fair to me! (not really).
CA is not looking to make a great profit on tobacco products; rather they want you to quit. I'm sure, since most tobacco products are bought in a local store, that revenue
equals or exceeds collection cost.
Changing the subject, a little, I find taxes on a fixed product, tobacco, gasoline, etc. to be different than income taxes. Expensive enough, I will give up my cigar at the end
of the day, or maybe even drive less, but I can't give up my job, i.e. I will pay income taxes. What is my choice?
As a side note, no denying CA does have a horrific budget problem; but Jerry Brown doesn't seem to be doing a bad job so far. But then what do I know; I didn't think Arnold was
that bad either (remember he was a Republican); it was the legislature that couldn't get it together. People need to come to the table
and solve the problem; forget their partisan bickering. I miss the old days; lots of cigars, booze, dark rooms; Republicans and Democrats horse trading, but eventually
finding a solution. Now they just talk a lot and do nothing...
As to your most recent post, tax evasion is always profitable if you don't get caught. So is robbing a bank.
It's hard to keep up with your posts. I admit you are fast! :-)
I repeat, almost no economist believes that lowering tax rates boosts revenue. These are not ivory tower theorists, many work for banks or mutual funds, etc.
It just doesn't work; sorry....
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Frankly, I am against "sin taxes". Where do we stop? I smoke cigars, just had a beer, but I'm thin. Maybe we should tax obese people? Sounds fair to me! (not really).
Can you imagine what a logistical nightmare it would be to try such a thing? Only a police state like the NorKs could attempt such a thing and their citizens are too busy starving to death to stand in line to be measured.
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(http://www.heritage.org/research/reports/2007/01/~/media/Images/Reports/2007/bg2001/chart2_lg.ashx)
http://www.heritage.org/research/reports/2007/01/~/media/Images/Reports/2007/bg2001/chart2_lg.ashx
Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.
As previously stated, whether a tax cut pays for itself depends on how much people alter their behavior in response to the policy. Investors have been shown to be the most sensitive to tax policy, because capital gains tax cuts encourage enough new investment to more than offset the lower tax rate.
In 2003, capital gains tax rates were reduced from 20 percent and 10 percent (depending on income) to 15 percent and 5 percent. Rather than expand by 36 percent from the current $50 billion level to $68 billion in 2006 as the CBO projected before the tax cut, capital gains revenues more than doubled to $103 billion.[10] (See Chart 2.) Past capital gains tax cuts have shown similar results.
So, if the Laffer Curve didn't work in the case above, what was the mechanism that made the reduction in tax rates bring in more revenue? Who you gonna believe, the economic theorists or your own lyin' eyes? :evil:
I repeat, almost no economist believes that lowering tax rates boosts revenue. These are not ivory tower theorists, many work for banks or mutual funds, etc.
It just doesn't work; sorry.... If it doesn't work, what happened above and every other time in US history where reduced tax rates have increased actual revenues collected?
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The state of New Mexico seems to think so. Are they wrong?
http://www.nmfilm.com/locals/downloads/nmfilmCreditImpactAnalysis.pdf
Executive Summary
New Mexico has provided tax incentives to film productions since the film production tax credit
was adopted in 2002. The program has attracted more than 115 major film productions to New
Mexico since its adoption in 2002, including 22 films that were assisted through the State
Investment Council’s loan participation program. In 2007, 30 films were produced in New
Mexico generating $253 million of spending benefiting the New Mexico economy and generating
higher state and local tax collections. This study presents the estimated economic and fiscal
impact of the film production tax credit program.
• The benefits of New Mexico’s film production tax credit program extend beyond the direct
and indirect economic impacts of film production activities qualifying for tax credits. In
addition to the film spending, New Mexico’s economy also benefits from capital investment
to support the film industry’s growth in the state and additional film-related tourism.
• Film production activities in New Mexico created 2,220 direct jobs in 2007. This
employment impact includes approximately 1,670 below the line employees earning
$49,500 annually and 550 actors, directors, and producers working in New Mexico. These
2,220 direct jobs created 1,609 additional jobs in other industries, resulting in a total
employment impact of 3,829 jobs.
• Film-related capital expenditures and projected film tourism spending attributable to 2007
productions generated an estimated 3,769 direct jobs and 1,612 indirect jobs, resulting in
5,380 total jobs attributable to capital expenditures and film tourism.
• Combining the 2,220 direct jobs from film productions with the 3,769 jobs from capital
expenditures and film tourism results in 5,989 total direct jobs attributable to the film
production tax credit. These direct jobs create a total of 3,221 indirect jobs, resulting in a
total employment impact of nearly 9,210 jobs.
• The economic activity created by the film production tax credit program also results in higher
state and local tax collections. State tax collections resulting from film production activities
in 2007 totaled $22.6 million. Additional state tax impacts from capital expenditures in 2007
and film tourism during 2008-2011 are estimated to total $21.5 million in 2007 dollars,
resulting in a total state tax impact of $44.1 million.
• Film production expenditures in 2007 qualified for $49.4 million of state film production tax
credits to be paid in 2008. Expressed in 2007 dollars, these film credits total $47.1 million.
Based on the 2007 value of present and future year tax receipts and the 2007 value of state
film production tax credits, the program earns $0.94 in additional tax revenue for each $1.00
that is paid out in incentives. Local governments in New Mexico earn $0.56 for each dollar
of state credits, resulting in combined state and local tax collections of $1.50 for each $1.00
of state credits.
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[youtube]http://www.youtube.com/watch?v=fmuTTeESEs4[/youtube]
http://www.youtube.com/watch?v=fmuTTeESEs4
Note: Many places have massive amounts of natural resources, yet are dirt poor. Mexico and sub-sarahan Africa spring to mind. Why?
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I finished my beer; I'm now working on the wine. So bear with me. :-)
Perhaps we agree; I mean I agree if you lower taxes, therefore more people will probably smoke, so yes you will raise revenue.
Lower taxes on gasoline, more people will buy gas guzzlers.
Probably if you lowed the tax, i.e. the price on my favorite Scotch I might buy more.
And this has what to do with Federal Income tax?
And if you lower taxes for film production, more people might shoot in your state. My neighbor in
in the semiconductor business. I suppose if New Mexico lowered taxes for all semi conductor businesses,
he too would move. Heck, I bet all his competitors would move as well. New Mexico would love it. CA
might hate them.... CA looses revenue. It's a zero sum game.
But I thought we were talking about FEDERAL Taxes? One for all....
Your analogy is not applicable.
As a side note, I am usually against industry specific or corporate specific tax incentives. They seem to come back and bite you
in the end.
PPS Gosh you post fast; you even delete fast! :-D I'm glad you figured out I was joking about a fat tax?
As for your second post since I've been typing, I don't know a thing about sub sahara Africa, but I attribute Mexico's problems to exactly what
CCP has been saying; no middle class. They have a small, but very wealthy class, and a huge poor class. Something's wrong.
And lowering taxes for the rich will not solve the problem. They already pay minimal tax.
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"Perhaps we agree; I mean I agree if you lower taxes, therefore more people will probably smoke, so yes you will raise revenue."
I doubt there are many people who would start smoking if there was a meaningful reduction in tobacco taxes. What would happen is you would reduce the incentive to seek black market sources for the tobacco products for those currently consuming tobacco. This would then increase legitimate tax revenue and reduce the profit potential for black marketeers.
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"Lower taxes on gasoline, more people will buy gas guzzlers."
Maybe. More people might travel, airlines would be able to reduce fares, more business activity might spur more hiring, transportation costs for consumer goods would fall, allowing the poorest in society to enjoys a higher standard of living.
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Probably if you lowed the tax, i.e. the price on my favorite Scotch I might buy more.
And this has what to do with Federal Income tax?
The more Scotch you buy, the more economic activity there is as people exchange goods, which offers the potential for growth, which means the potential for more new jobs to be created. How does this apply to federal income taxes? Just as "sin taxes" reduce your desire/ability to purchase "sinful" things, income taxes discourage income, especially among the wealthy. Why care if the wealthy get hammered by taxes if you aren't wealthy? Because they create jobs for the not-wealthy. Either directly though hiring employees and patronizing businesses that cater to them or by investments (Most rich people don't keep their money in huge vaults and swim through it like Scrooge McDuck, they have the money in banks and investments that again create jobs for the rest of us).
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In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country's own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.
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JDN:
If I understand you correctly, you are saying that people/business can and will respond to differences in state tax policies, but that this does not apply to federal taxes because federal taxes reach everywhere?
If this is what you are saying I would point out that businesses can and do leave/invest elsewhere quite regularly, and given that the US now has the highest (or second after Japan?) business corp rates in the world (perhaps excluding third world irrelevancies) as we discuss this they are investing/creating jobs etc. elsewhere instead of here.
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Businesses can and do invest elsewhere, but few companies are leaving America to set up and HQ somewhere else. However, they will move between states, change locations in a heartbeat for the
right incentive, be it a zoning, building, tax, or whatever incentive is foolishly offered. Why not, as long as they are they are still in the United States of America?
Yes, we do have a high gross corporate tax rate, but thanks to generous adjustments and deductions, few if any pay the maximum. Look at GE.
As we have discussed in other posts, the supposed gross tax rate among the affluent and knowledgable rarely reflects their final rate paid; that's why top lawyers and
accountants are paid so well.
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"However, they will move between states, change locations in a heartbeat for the
right incentive, be it a zoning, building, tax, or whatever incentive is foolishly offered."
Why is it foolish for NM to get films made in NM by offering incentives, as an example?
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JDN: "It's a zero sum game."
Of course that is not true. From the example it assumes a producer would produce the same amount in the high tax state as he would under lower disincentive conditions. Simply not true.
One consideration you might add to your thinking also is velocity of money and the affect increasing it has on GDP, employment, revenues, etc. Right now is the model for an economy producing at a standstill. Companies already laid off everyone they can do without and look at uncertainty in every direction and just freeze on the idea of new expansions. Change that to an environment where optimism and confidence In the case of capital gains, lower taxation per gain or per transaction allows capital to move more freely to its most valuable use. That makes labor more productive, not just capital. It also increases tax revenues.
For CCP and JDN, I would replace 'trickle down' visualization of the economy with a vision or model of 'interconnectness'. Not quite as catchy for a straw man, but far more accurate. Let's say we are a small business selling a piece of productivity enhancing business equipment and have identified 5000 customers and prospects in my area where we are trying to make inroads. Now let's say pro-growth business conditions improve as greater optimism, incentive and confidence sets in for all the companies buying from us or that we are trying to sell to, the rising tide. How does that affect our business? The answer is that it helps us far more than just the minor change in our own tax rate, and that is because of the interconnectedness with all the other players now performing better. It isn't trickle down, which is a mockery for the false idea that money will just fall on your head in a better economy. You still have to hustle and innovate, persuade and produce and win sales and keep delivery promises etc, but the point is that if we will be selling to a more active and prosperous customer population. There is a multiplier effect that goes far beyond our own tax rate.
Or take the opposite direction. We promise all investors that any gains made in the future will be taxed at a higher rate tomorrow and we won't tell you what that rate is so that you can't make plans or best/worst case analysis with any confidence. We ban production of energy etc, over-regulate, and watch everything from manufacturing to tourism to beer prices suffer. If the policies hurt our customer base, they hurt us. Disincentives and uncertainty slow the movement of money, hurt sales and diminish the revenues to the Treasury.
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Looking forward to those examples of pro-growth policies failing to grow the economy.
I think you have the tax rate vs. revenue argument exactly upside down. What economists have said is that we seem to take in the same percentage of revenues to the Treasury (something like 18% of GDP) no matter what the marginal rates are. If that is true, why shouldn't we choose the lowest marginal rates that can still get us to that same percentage, and maximize GDP and revenues to the Treasury? Meanwhile, we could pass a constitutional amendment limiting all federal spending to the known limitations of the taxation people will pay and end the deficits, if that was what anybody wanted.
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Crafty, Japan lowered its corporate tax rate on April 1, 2011 to 36%, and corporations in the US also get taxed at the state level for a combined average of 40%. If the argument is that everyone gets around the high rate, why the mindset of keeping the highest rate, forcing businesses to dodge and dance instead of produce full speed ahead and pay a reasonable and certain tax.
I wonder what portion of the smartest brainpower in GE much less America as a whole are dedicated to weaving a business plan through our ever-changing and worsening tax and regulatory schemes? The defensive strategies are a huge cost on the economy not measured in the actual tax collected. I wonder what amazing things would be accomplished if those resources were turned toward innovative and productive purposes.
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Doug,
Your examples are somewhat hard for me to understand in real terms. Please don't misundertand me. I am for growth. I am for laying off the successful. I do not want to increase taxes in anyway for the successful. I do want the lower end to pay something. Even if $100 a year.
I want to stop the endless doles and nanny state stuff now.
Your arguments whether correct or not are not going to be understood or believed by those in the middle. Even I here on this board find the numbers mindboggling and convoluted.
I want what you want. GM and Republicans in general. But the game at the top is rigged. Not fair. But rigged. It always will be. Money can buy anything and anybody. I learned and watched this first hand. Our leaders have to raise phenomenal amounts of cash. Of course they can all be bribed. And most probably are. This will never change. But we need regulations that exist to be *enforced* to everyone equally. And I do not believe they are. No one on Main street does. A Republican with a real mouthpiece with a vision of real justice and opportunity for all with minimal but necessary regulatory oversight (that is not does not get rigged) and free markets, low taxation - this is a winner strategy.
If we cut taxes for all at the top, middle and limit or eliminate all deductions, so that people wind up paying less net taxes I think is a winner. For those free loaders (I know this is a totally politically incorrect description - some are truly needy but many ARE free loaders) at the bottom they either don't vote or will always vote for the Dem0crats so make them pay a nominal sum to the treasury like the rest of us. They cannot just sit there and vote for others to pay up while they take home cash.
I hope this helps explain my vision. I hear my middle class, many blue collar class patients come in every day. It is a mixed bag of opinions but I really think many are not for bigger government but they don't want to be taken advantage of by the rich. And if anyone does not think the rich are taking advantage of us then I think they are niave (which I know you are not).
I am really worried as are all Republicans that Bamster could carry the day again in 2012. I know it is early. But I don not know if any in the field on the right have a message that will pick up "market share" from those who are always the ones who decide elections - the independents. That is what I am trying to do. Tailor the message to appeal to those in the middle as well as to those on the right.
The fact that Bamster is even still in the game in the polls tells me we need a better message. This guy should be at rock bottom in the polls. He is showing us the door to ruin.
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ccp,
What of the idea of adopting Hong Kong's tax system? 200 pages vs. our tax laws and rules that no one can agree on interpreting correctly.
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"What of the idea of adopting Hong Kong's tax system? 200 pages vs. our tax laws and rules that no one can agree on interpreting correctly."
GM,
Yes, absolutely! I think it is doable if everyone can see they would be better off.
I admit the mortage deduction and charitable deductions would be tough sell.
But even these should be done away with.
Why are taxpayers indirectly subsidizing the charitable contributions of others?
If tax rates are lowered enough I think this could be "sold".
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Earlier this week the Heritage Foundation, along with the Wall Street Journal, released its 17th annual economic freedom index. Hong Kong, once again, ranked number one. The United States, however, slid down to number nine. So what’s Hong Kong doing right?
According to Anthony Kim, a policy analyst at the Center for International Trade and Economics at Heritage, the difference between the U.S. and Hong Kong lies in tax rates, spending, free trade, and regulatory burdens.
The late economist Milton Friedman supposedly once described Hong Kong as the world’s greatest experiment in laissez-faire capitalism. The city state, technically a special administration region of China, has the sixth-largest stock exchange in the world, has almost no public debt, and has a Gross Domestic Product (GDP) that grows just about every year.
That’s a far cry from the U.S. economy today.
Hong Kong’s corporate tax rate, at 16.5 percent, is among the lowest in the world. The U.S. has a tax system that goes as high as 35 percent, and according to Kim, it’s been that high for at least a decade, even though average rates for the 20 largest economies in the world is 27 percent.
“U.S. tax rates are increasingly uncompetitive compared to other countries,” Kim told The Daily Caller. “The U.S. corporate tax rate is roughly double that of Hong Kong, but we collect less as a percentage of GDP than Hong Kong.” (Hey JDN, it looks like Hong Kong doesn't know that "the experts" say the Laffer Curve doesn't work. Magic!)
Kim also said Hong Kong’s tax system is more transparent, and the low rate provides “better incentives for long-term investment.”
In Hong Kong, it’s easier to start a business because there’s less regulatory uncertainty — and fewer regulations overall. The U.S. is hemorrhaging businesses overseas, which Kim attributes that to “ongoing regulator changes that hurts investment.”
“Hong Kong is free from those uncertainties,” said Kim. “Their regulatory process is very straightforward.” Those uncertainties, said Kim, are cause by ongoing regulatory changes as a result of the stimulus spending, health-care reform, and the Dodd-Frank Act. The regulations that resulted from Dodd-Frank, in fact, are still being written.
The two countries also responded differently to the global financial collapse. Because of Hong Kong’s devotion to non-interventionist economic policies, the city state largely did nothing and let the market correct itself.
The U.S. not only bailed out automakers and banks, but it spent billions of dollars on a stimulus package, then Congress passed an overhaul of the financial system with Dodd-Frank.
Then there is the lack of leadership on free trade. The U.S. still has yet to ratify three pending free-trade agreements with Colombia, Panama and South Korea.
So what should the U.S. do in the coming year to increase its standing in the economic freedom index? According to Kim, Congress needs to tackle timely tax reform, cut down on the ongoing regulatory uncertainty, and rein in government spending.
“We have to tame government spending in an urgent and effective way,” he told TheDC. “If we don’t, the U.S. could fall farther behind.”
“This is not just a political point, this is an economic reality” Kim added.
Read more: http://dailycaller.com/2011/01/16/why-chinese-controlled-hong-kong-beats-the-united-states-on-economic-freedom/
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JDN:
I understand that many businesses do not actually pay the top rate (hat tip to Doug for pointing out the matter of State corporate tax rates on top of federal corp tax rates-- I had missed this in my thinking) but what I think you miss is that this is precisely how fascist economics works-- the state directs privately owned means of production. The economy becomes increasingly less free and less efficient and the political culture more corrupt as businesses buy politicians and politicians extort and blackmail businesses.
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CCP, I am with you 100% in the proposal to remove all tax credits and all deductions that are direct, legitimate business expenses incurred to produce the revenue, and we should reduce the rates accordingly - personal and corporate. There should be no social engineering whatsoever in the tax code. In this time of deficits, debts, dollar crisis and 3 wars, not counting a potential world war with China or Russia, our system raising federal revenues shouldn't look like a grocery store coupon book. Limit spending to the amount we collect and them let the people argue within a constitutional framework what programs and projects to fund at what level.
I hear you when you complain about rich having disproportionate power with certain things. The only solution I know is to simply move the system away from being for sale and negotiable toward dispensing special favors, and toward a system of equal protection where all private enterprises in all industries are treated evenly by a limited government. We aren't exactly headed in that direction.
Where I don't follow you and where you don't follow the left and won't vote with them is that there is no way prevent obscene amounts of income and obscene uses of wealth at the top without messing up the system, the incentives and mechanisms for producing wealth. Instead am willing to concede that what they make is none of my business as long as it is all legally earned and taxed the same as mine and I see you as still struggling to find a harmless way of 'solving' that.
I understand that my descriptions of the mechanisms of a free market are difficult to write and clumsy to read. Very few have the ability to articulate economic freedom with a broad brush. Reagan had that ability and Marco Rubio seems to have it. Whether we follow it completely or are not able to articulate it, there is a central denial on the other side that individual freedom is not preferable to central planning and control, even though it works every time and every place that it is tried. When we hear from the bully pulpit that we need to do something, people need to remember where in our system things get done. The great advances don't come from congressional staffers or the bowels of the bureaucracies.
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Another attempt at an example: Let's say you are a family physician in a private market (I know, it's purely hypothetical!). Maybe you make more in income than many of your patients or maybe you don't, but let's say we implement a set of policies that benefits all of your patients financially. My point is that helps your business, by far more than just the change to your own tax rate. You will be better able to sell your services, more people can afford you and your collection rate should improve etc. From the boost in business and income and take home earnings, you buy better equipment etc. for the office and invest and spend more on your own, energizing back the population that energized your practice - the great, interconnected circle of economic life. That is not trickle down; it is more like trickle up and back and all the way through in every direction touching everyone whose economic activities touch yours. The lying left contend that only the rich benefit from across the board improvements, but increased activity and prosperity benefits everyone who is participating. I don't know how to explain it any better, but will keep trying.
You aren't worth a fixed value as a service provider, it depends on the economic health of the people who need and procure your services. If your patients are average typical in the Republic of the Congo (the worst business climate and poorest country), your income for servicing that market with the same training, skills and hard work would likely be 1/1000th of what it is where you are now based on their ability to pay, and your tax contribution to the Treasury would be roughly a thousand times lower as well, no matter the rate.
It is not tax rates alone, it is the whole package of unleashing the freedom to conduct and expand a business and to pursue and keep a reward for doing that.
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Doug, I think I am close to making my position clear and perhaps you, GM, and others can see how I think restructuring the Repubs/tea party message can help gain voter "market share".
"I hear you when you complain about rich having disproportionate power with certain things. The only solution I know is to simply move the system away from being for sale and negotiable toward dispensing special favors, and toward a system of equal protection where all private enterprises in all industries are treated evenly by a limited government. We aren't exactly headed in that direction."
The Tea Party is emphasizing limited government. But they are not emphasizing the system for sale, special favors, equal protection.
And that in a nutshell IS the problem as I see it.
"Where I don't follow you and where you don't follow the left and won't vote with them is that there is no way prevent obscene amounts of income and obscene uses of wealth at the top without messing up the system, the incentives and mechanisms for producing wealth."
I am not against obscene amounts of wealth. As Reagan said (and was derided by the libs for saying) one of the great things about America is one CAN get rich! I agree with this. I do not begrudge those who are a success. Good for them - if they obtain it honestly. I cannot quite begrudge them for gaming the system. What I do begrudge is that the system can be gamed. That politicians cannot it seems stop this so the wealthy make their wealth honestly and reasonable fairly and not by cheating, lying, stealing, tricking, bribing, extorting, etc.
I am convinced if we can get a candidate to address this philosophy - we can drive Bamster and his crazy backers out of town.
I guess one analogy is every election cycle we here about the candidate who is the outsider who is going to clean up Washington.
Yet we all know it never happens. I was impressed by Newt speaking about the bankers and the bail out government pols and beaurocrats needing to be investigated. I as equally impressed by hearing Spitzer (who as those on this board know I generally have a distaste for) discuss how Goldman Sachs ripped everyone off during the financial crises and how the evidence is really quite compelling and convicning but he admits the JD will not go near them because of their wealth and political influence.
If this kind of crap could at least be addressed, and a real man (Schwartenegger), or real girl (Palin) would run on this promise I really think those getting squeezed in the middle (most of us) would jump on board.
The suspicion is still the cans are the party for the rich and the crats are the party of poo'. Just speaking about free markets but not admitting or recognizing they are not totally free is met with disbelief and a grimace to those of us who are old enough to know better.
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Unless I am missing something, there is a pears and apples problem comparing the 62% and the 70% number of the pre-Reagan years in that the former includes other taxes and the latter does not, but the fundamental point about the cumulative effect of the various taxes, current and proposed, in the present environment is profound.
By STEPHEN MOORE
Media reports in recent weeks say that Senate Democrats are considering a 3% surtax on income over $1 million to raise federal revenues. This would come on top of the higher income tax rates that President Obama has already proposed through the cancellation of the Bush era tax-rate reductions.
If the Democrats' millionaire surtax were to happen—and were added to other tax increases already enacted last year and other leading tax hike ideas on the table this year—this could leave the U.S. with a combined federal and state top tax rate on earnings of 62%. That's more than double the highest federal marginal rate of 28% when President Reagan left office in 1989. Welcome back to the 1970s.
Here's the math behind that depressing calculation. Today's top federal income tax rate is 35%. Almost all Democrats in Washington want to repeal the Bush tax cuts on those who make more than $250,000 and phase out certain deductions, so the effective income tax rate would rise to about 41.5%. The 3% millionaire surtax raises that rate to 44.5%.
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.But payroll taxes, which are income taxes on wages and salaries, must also be included in the equation. So we have to add about 2.5 percentage points for the payroll tax for Medicare (employee and employer share after business deductions), which was applied to all income without a ceiling in 1993 as part of the Clinton tax hike. I am including in this analysis the employer share of all payroll taxes because it is a direct tax on a worker's salary and most economists agree that though employers are responsible for collecting this tax, it is ultimately borne by the employee. That brings the tax rate to 47%.
Then last year, as part of the down payment for ObamaCare, Congress snuck in an extra 0.9% Medicare surtax on "high-income earners," meaning any individual earning more than $200,000 or couples earning more than $250,000. This brings the total tax rate to 47.9%.
But that's not all. Several weeks ago, Mr. Obama raised the possibility of eliminating the income ceiling on the Social Security tax, now capped at $106,800 of earnings a year. (Never mind that the program was designed to operate as an insurance system, with each individual's payment tied to the benefits paid out at retirement.) Subjecting all wage and salary income to Social Security taxes would add roughly 10.1 percentage points to the top tax rate. This takes the grand total tax rate on each additional dollar earned in America to about 58%.
Then we have to factor in state income taxes, which on average add after the deductions from the federal income tax roughly another four percentage points to the tax burden. So now on average we are at a tax rate of close to 62%.
Democrats have repeatedly stated they only intend to restore the tax rates that existed during the Clinton years. But after all these taxes on the "rich," we're headed back to the taxes that prevailed under Jimmy Carter, when the highest tax rate was 70%.
Taxes on investment income are also headed way up. Suspending the Bush tax cuts, which is favored by nearly every congressional Democrat, plus a 3.8% investment tax in the ObamaCare bill (which starts in 2014) brings the capital gains tax rate to 23.8% from 15%. The dividend tax would potentially climb to 45% from the current rate of 15%.
Now let's consider how our tax system today compares with the system that was in place in the late 1980s—when the deficit was only about one-quarter as large as a share of GDP as it is now. After the landmark Tax Reform Act of 1986, which closed special-interest loopholes in exchange for top marginal rates of 28%, the highest combined federal-state marginal tax rate was about 33%. Now we may be headed to 62%. You don't have to be Jack Kemp or Arthur Laffer to understand that a 29 percentage point rise in top marginal rates would make America a highly uncompetitive place.
What is particularly worrisome about this trend is the deterioration of the U.S. tax position relative to the rest of our economic rivals. In 1990, the highest individual income tax rate of our major economic trading partners was 51%, while the U.S. was much lower at 33%. It's no wonder that during the 1980s and '90s the U.S. created more than twice as many new jobs as Japan and Western Europe combined.
It's true that the economy was able to absorb the Bush 41 and Clinton tax hikes and still grow at a very rapid pace. But what the soak-the-rich lobby ignores is how different the world is today versus the early 1990s. According to the Organization for Economic Cooperation and Development, over the past two decades the average highest tax rate among the 20 major industrial nations has fallen to about 45%. Yet the highest U.S. tax rate would rise to more than 48% under the Obama/Democratic tax hikes. To make matters worse, if we include the average personal income tax rates of developing countries like India and China, the average tax rate around the world is closer to 30%, according to a new study by KPMG.
What all this means is that in the late 1980s, the U.S. was nearly the lowest taxed nation in the world, and a quarter century later we're nearly the highest.
Despite all of this, the refrain from Treasury Secretary Tim Geithner and most of the Democrats in Congress is our fiscal mess is a result of "tax cuts for the rich." When? Where? Who? The Tax Foundation recently noted that in 2009 the U.S. collected a higher share of income and payroll taxes (45%) from the richest 10% of tax filers than any other nation, including such socialist welfare states as Sweden (27%), France (28%) and Germany (31%). And this was before the rate hikes that Democrats are now endorsing.
Perhaps there can still be a happy ending to this sad tale of U.S. decline. If there were ever a right time to trade in the junk heap of our federal tax code for a pro-growth Steve Forbes-style flat tax, now's the time.
Mr. Moore is a member of the The Journal's editorial board.
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Crafty, Your discrepancy point is right, but so is this point of yours: "the fundamental point about the cumulative effect of the various taxes, current and proposed, in the present environment is profound."
First off, I think the regulatory environment is even worse than the taxes coming, but let's stay with taxes here. The pre-Reagan / Stagflation top tax rate was 70% federal PLUS the state rates. Almost no one paid at that rate as they would rather sit on their cash, adjust behavior, buy munis or buy gold, rather than give most of all gains to the government.
Stephen Moore in the piece shows how the federal rate under existing proposals will hit 58% (not 62% or 70%), then he figures 4% for the average state and local tax rates. You and I live in places where 4% doesn't come close to covering the highest state tax rates that are coming. Here we are having the same surcharge the rich argument simultaneous with the federal argument so that combined figure will easily get to 70% if the tax hikers prevail at both levels.
Still we are comparing an apple with ...most of an apple. We are not at Jimmy Carter's 70% federal tax rate, but we also aren't competing in a 1970s global economy either. These rates coming might be more harmful than Carter's rates were then. Capital and labor are for more mobile today. Jobs and plants pick up and move often and easily, and tax rates elsewhere have gotten far more competitive in response to the Reagan revolution.
Not lecturing to you Crafty who already knows all this, but to anyone who will listen... 70% tax either for total rate or at the federal level alone is a major disincentive to produce. Robert Mundell, architect of the Reagan plan, called the existing marginal tax rates then: "asphyxiating" (to kill or make unconscious through inadequate oxygen). Maybe worse now. Think of it as a tax per mile for driving. The exact rate doesn't matter after you get past the point where nobody is going anywhere.
I mentioned previously a friend who has started 3 successful companies from scratch and sold the latest one, with a thousand employees, for an amazing sum recently. We were having the tax-the-rich conversation with friends who also know him while our new governor is trying to put another 3% surcharge onto the rich at the state level. One friend (not even a liberal) said, what the hell difference does it make to so and so if he has to pay a little more (while sitting on untold millions)(the focus is always on the difference, not the total). I said back that while he is pointing to the direct tax cost, he is ignoring the much more damaging disincentive effect. There aren't that many people who are ready, willing andable to build a new thousand person, billion dollar company from scratch, and everyone there knows this guy is capable of it and young enough to do it again. Why would he and why should he do it again as we throw ever increasing barriers, roadblocks and regulations at him and then, if it should succeed in spite of all that, we let him keep very little of the reward for the capital risked and the enormous burden undertaken. At some point in the disincentives of taxation and regulation he will choose the status quo and make do very comfortably with what he has, as most investors are already doing. Who loses in that scenario? Not him, he is set. Who loses is the next thousand people whose jobs never get created and the chain affect that has on our region and on our economy with each of those people who would have lived more affluently, spent more, hired their own help and invested more in the economy.
I don't know how to get this through the resistance of a liberal, a moderate or even about half of the conservatives, but you can not design a tax on the rich that is not a tax on yourself, on your own family and neighbors and on the economy as a whole. It is all interconnected. That tax on the rich is really levied on all of us, not just the rich, and the damage is impossible to measure when the effect of it is to cause something extremely positive not to happen that otherwise would have occurred, including amazing wealth creation and thousands of jobs in one case and literally tens of millions of jobs across the economy.
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Exactly so.
BTW Hillary's amazing futures trading profits :wink: were a commodity straddle scheme which made sense only under the 70% rates of the late 70s. When rates came down under Reagan to 30% major amounts of money that had been hiding in tax shelters (real estate with accelerated depreciation was ideal for this) no longer had reason to do so and allowed itself to be exposed to taxation. This led to an amazing statistical increase in the numbers of millionaires which liberals decried as an increasing concentration of wealth :roll: when really it meant a higher taxation on the cash flow previously hidden by the non-cash expenditures of accelerated depreciation.
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I can't access the whole piece from where I am, but this sentence posits the apparent cognitive dissonance rather pithiy:
Tim Pawlenty's call for an economic-growth plan built on tax cuts has raised concerns among Republicans in Congress who worry the presidential candidate's message could muddy their immediate quest to slash spending and curb the deficit.
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Here is more of what Crafty posted. I would like to come back to this to discuss. I watched Chris Wallace grill him today. He might as well have gone on Bill Maher's show to explain it.
I would ask his opponents like Obama how they will balance the budget without growing the economy, or how they will grow the economy without improving the investment/employment climate. We can argue over the details, but something like this or at least part way in this direction will be required to snap out our current morass. Pundits can't seem to say the word, but he is mostly trying to cut double and quadruple taxation.
http://online.wsj.com/article/SB10001424052702304778304576377852605207830.html?mod=googlenews_wsj
Tim Pawlenty's call for an economic-growth plan built on tax cuts has raised concerns among Republicans in Congress who worry the presidential candidate's message could muddy their immediate quest to slash spending and curb the deficit.
The proposal from the former Minnesota governor, put forth Tuesday in Chicago, comes as Republicans and Democrats in Congress battle over ways to slash the federal deficit as part of a deal to raise the national debt limit. The Treasury says it will run out of ways to stave off a default Aug. 2.
That standoff has focused attention on cutting government spending, with some Democrats saying higher taxes are needed. Less immediately germane, Republicans say, are immediate calls for steep tax cuts.
Tim Pawlenty's call for steep tax cuts is causing unease among Republican Party lawmakers in Congress whose most immediate interest is focusing on deficit-cutting negotiations with the White House. Neil King explains.
Mr. Pawlenty's proposal "is different from where most of us are focusing our attention now," said freshman Utah Sen. Mike Lee. "We see this as a spending problem, not a revenue problem."
Mr. Lee, who said he applauded the spirit of the Pawlenty plan, cautioned against pushing deep tax cuts "in the midst of a significant economic downturn."
The lukewarm response to Mr. Pawlenty's plan stems as much from differing immediate priorities as significant policy splits, with 2012 candidates seeking to lay out a long-range philosophy while lawmakers tackle budget talks with the White House.
Pawlenty spokesman Alex Conant said the governor has proposed a long-term plan, not one designed to address the immediate fight over the debt ceiling.
Democrats, including aides to President Barack Obama, blasted the plan as unrealistic and called it a reprise of the Bush-era tax cuts that swelled the deficit but did little to create jobs or boost growth.
Mr. Pawlenty won praise from some conservatives with his plan to cut corporate and individual taxes and permanently end capital-gains taxes and taxes on savings and inheritances. The plan envisions average annual economic growth of 5% over 10 years, compared with 1.7% during the past decade and 3.42% during the 1990s.
Under current projections, Pawlenty aides say, tax cuts would reduce federal revenue by $2 trillion over 10 years. But Mr. Pawlenty envisions largely unspecified spending cuts of at least double that sum, and a balanced budget within a decade.
Rep. Paul Ryan (R., Wis.), the House Budget Committee chairman, has led a House GOP push for 25% top tax rates. He said he was "excited" that Republican presidential candidates were taking up the cause. Even the bipartisan fiscal commission appointed by President Obama last year recommended top rates as low as the mid-20s, Mr. Ryan said.
"What is happening is a center-right coalition is developing here, joined by moderate Democrats, and it's calling for lower rates…and a broader base," Mr. Ryan said. "I'm a party to that, I agree with that."
If Republicans can succeed in taking back the Senate and the White House, "I think we'll get that," he added.
Other Republicans gave the plan qualified praise, while also expressing worries about diverging from a sharp anti-spending, anti-deficit platform going into the 2012 election. The GOP regained control of the House last year on promises to curb government spending and amid dire warnings over the swelling national debt.
Sen. Lindsey Graham of South Carolina said he supported "entrepreneurial tax plans" like the Pawlenty proposal, but added: "If you don't have some spending [control] mechanism, it's not going to work."
Sen. Orrin Hatch of Utah, the top Republican on the Finance Committee, called the plan "feasible," but said "we'd have to do a lot of other things as well." Mr. Pawlenty wants all corporate taxes slashed to 15%, from 35% now. Sen. Hatch said 25% is "probably more achievable."
Douglas Holtz-Eakin, a former director of the Congressional Budget Office and former adviser to John McCain's 2008 presidential campaign, said his biggest concern with the Pawlenty plan was its suggestion that 5% growth is possible for a decade.
"Five percent for 10 years is just outside the realm of historical experience," he said. "Ambitious is the least of the words…to describe it."
The 5% growth figure is aspirational but not out of reach, said Mr. Conant, the Pawlenty spokesman.
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http://taxprof.typepad.com/taxprof_blog/2011/06/zelinsky-nys-.html
Zelinsky: New York's Irrational Income Taxation of Nonresidents
Edward A. Zelinsky (Cardozo), NY’s Irrational Income Taxation of Nonresidents: The Barker Decision (Oxford University Press Blog):
As a law professor, I routinely commute from my home in New Haven, Connecticut to Manhattan where I teach my classes at the Cardozo Law School of Yeshiva University. On most days when I don’t teach, I work at home. Modern technology (e.g., the internet, email, legal databases like Lexis and Westlaw) allows me to research and write at my residence in Connecticut while staying in touch electronically with my Cardozo students and colleagues. Given its obvious benefits, such “telecommuting” is blossoming.
On days when telecommuting nonresidents like me work at our out-of-state homes, New York takes the irrational position that we are really working in the Empire State, though in fact we are outside New York’s borders. By the legal fiction known as the “convenience of the employer” doctrine, New York assesses income taxes for nonresident telecommuters’ work-at-home days – even though we do not set foot in New York on those out-of-state days. New York’s convenience of the employer doctrine typically results in double taxation on the days nonresident telecommuters work at their out-of-state homes.
When I challenged New York’s convenience of the employer rule as unconstitutional, I found myself in a prolonged and public controversy over New York’s irrational taxation of nonresident telecommuters. I ultimately lost my case in New York’s highest court.
John J. Barker of New Canaan, Connecticut now finds himself enmeshed in an equally convoluted controversy about New York’s self-destructive tax policies vis-a-vis nonresidents of the Empire State. Mr. Barker was an investment manager who commuted regularly from his home in New Canaan to his office in Manhattan. ... New York concedes that the Barkers were domiciled in Connecticut from 2002 through 2004. Nevertheless, New York insists that the Barkers were New York residents and owe a second, New York income tax on their investment income by virtue of the modest beach house the Barkers owned in Napeague, New York. The Barkers used this house for short, sporadic vacations. In 2002, for example, the Barkers used their small New York beach house five times for a total of only nineteen days. ...
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Herman Cain was interviewd this weekend on the WSJ Editorial Report (or something like that) on FOX.
A VERY strong interview. The man owns the topic on a level I have not before seen.
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"The man owns the topic on a level I have not before seen."
Did he make a convincing case, in a climate of 48% Obama support and 53 Dem Senators that we are on the verge of getting 80% for REPEALING the income tax altogether by constitutional amendment - in time to save the republic?
Currently we are arguing to the point of almost civil war over when the rich should be raised from 35% to 39% and you believe we can get 80% support for zero direct tax on all income earned by the rich?
Another candidate just suggested ending a couple examples of double taxation on certain incomes and the world of centric politics and punditry has gone berserk.
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http://online.wsj.com/article/SB10001424052702303848104576381912799752004.html?mod=WSJ_Opinion_RIGHTBelowPepperandSalt
Gigot: Welcome to "The Journal Editorial Report." I'm Paul Gigot.
First up this week, the FAIR Tax. It's the proposal to replace all federal taxes, including income and payroll taxes, with a 23% national sales tax. Presidential candidates have run on it and lost in the past, most notably Gov. Mike Huckabee in 2008. And this time around, it's businessman Herman Cain who has picked up the FAIR Tax issue.
I spoke to Cain earlier this week and asked the GOP hopeful if he really thinks he can win the nomination by proposing a 23% tax on everything that Americans buy.
Cain: The answer is yes, for the following reasons. First of all, it replaces the federal income tax. It replaces the FICA tax that's currently being taken out. And we'll still raise the same amount of money. Secondly, the FAIR Tax moves taxation from a decision by the government on your income to a decision made by the consumer based upon that purchase behavior. And so that's one of the big advantages. Now, the other big advantage is that we'll raise the same amount of revenue with that 23%, because the consumption base is bigger than the income base.
Gigot: But the Bush tax commission, when they looked at it--
Cain: Yes.
Gigot: --in the last decade, said actually, the tax rate you'd have to have to raise the same amount of revenue is probably about 34%.
Cain: That's because they changed the assumptions in the bill. Here's what they did: They went back and tried to create a hybrid of trying to save the mortgage interest deduction because they think that that's like, you know, a pacifier for consumers. No.
Gigot: And you'd get rid of that? Get rid of all of it?
Cain: All of that would be gone. So you--and they changed the assumptions,. That's why they came up with that number. That's why they--because they tried to create a hybrid. If you look at HR 25 and go by the assumptions--
Gigot: That's the proposal in the House.
Cain: That's the proposal in the House. It's been introduced there since 1999, and it's still there. Look at what's in the actual legislation, and don't change the rules. The 23% would raise the same amount of money.
Gigot: But here's the problem a lot of conservatives have, which is a political problem. You've got the 16th Amendment, which said you could have the income tax.
Cain: Yes.
Gigot: In order to get rid of the income tax, you probably have to repeal the 16th Amendment.
Cain: Correct.
Gigot: So if you offer a national sales tax without repealing the 16th Amendment, aren't you going to get both?
Cain: No. In the legislation there is a clause that says that the FAIR Tax cannot go into effect until the 16th Amendment is repealed. So that puts pressure on the states and on Congress to repeal the 16th Amendment before the FAIR Tax, the national consumption tax, can go into affect.
Gigot: What makes you think that the American public is ready to hear a candidate, support a candidate, who supports what, let's face it, is a very radical change? Because you throw it the entire tax system. When other Republican candidates at the federal level, like Jim DeMint in South Carolina--
Cain: Right.
Gigot: --or certain Congress--congressional candidates have supported it, the Democrats have gone after it and said, "They want to raise the price of everything you buy--your home, your car--by 23%," and it's hurt them. How would you counter that argument?
Cain: The difference is, I can defend all of the lies, all of the misperceptions and all of the distortions about the FAIR Tax, and I'm willing to take that battle on. That's the reason why. Because what has happened--it does get demagogued. But then when you explain to the American people that it not only eliminates the withholding tax for both FICA as well as the payroll tax, but that it also eliminates the IRS and the costs that we have there, it--we will only need to spend 10% of what we spend on the IRS--you know, those people that abuse us and harass us?
Gigot: Right.
Cain: Well, they go away. They have to find new jobs. And trust me, they're smart enough to find new jobs.
Gigot: I guess the other concern that people have is, if you impose a tax that size on everything you buy, a lot of people are going to say, "You know what, I don't want to pay another 23%, 25% on my car."
Cain: It's--
Gigot: "Let's do it on the black market." And you drive a lot of those sales underground, and you'll still need somebody like the IRS for enforcement, won't you?
Cain: No. Here's why. First of all, the 23% is on new goods. So it's not on used cars and used homes or used goods. Yes, but you're going to pay it on everything else. Now, it could cause some people to try and buy it on the black market to get around it.
Gigot: Sure.
Cain: What's happening today? We have probably more underground activity going on today because illegals, who do everything on a cash basis, they are not paying taxes. People who come here to visit and do Christmas shopping from overseas, they are not paying any taxes. You've got the illegal activity that goes on in this country, that's money being left on the table.
And here's one of the big ones right here. What we spend collectively just to comply and file with the current tax code: $430 billion a year. That works out to the cost--to pay a dollar in taxes, that works out, according to analysis by Art Laffer, 30 cents to pay that dollar. The American people could keep that 30 cents.
Gigot: But Art Laffer long believed in a flatter system, a flat tax.
Cain: Yes, yes.
Gigot: A lot of Republicans have proposed that in the past, and some are now. Why--and, you know, go for, say, a top rate of 25% and then a lower rate, say, of 10%. You could fiddle with the rates, but something like that. Why not play it more politically safe and go for that, because you don't have to make the case that you have to repeal the 16th Amendment, which you know is very, very difficult to do?
Cain: The reason is, if you go with something that's still going to be taxed on income and you keep the 16th Amendment, the bureaucrats and politicians can't help themselves, it's going to grow back again. Remember, Reagan reduced down the number of brackets and all of that. Look what it did. It grew right back. Why?
Gigot: But couldn't you also raise--the politicians will raise the size of the sales tax.
Cain: Yes. That's a possibility, but here is the safeguard. In the legislation, HR 25, it requires a supermajority vote of the United States Senate in order to raise it. And I think if they tried to do that and sneak it past the American people, they won't be able to sneak it past, so that's another safeguard. The American people would know. Right now, Paul, lobbyists are able to get tax favors in the bills, and the American people never know about it. The current tax code allows politicians to select winners and losers. We need to get rid of that. And once we get rid of the tax code, we're going to eliminate 50% of the lobbyists who are trying to get those favors in the tax code.
Gigot: And you think you can sell this to the Republican primary electorate when Mike Huckabee couldn't do it successfully in 2008. He ran on the FAIR Tax.
Cain: Yes, he did.
Gigot: And he didn't win the nomination.
Cain: Here's the difference.
Gigot: Why is it going to be different?
Cain: Here's the difference. First of all, this is Herman Cain. All right, let's start there. I'm proposing a two-phase boost to our economy. Phase 1 is what we need to do to get things going while I educate and inform the public about the nuances and the advantages of the FAIR Tax. I'm not going to try to do that right away. Phase 1--
Gigot: Will be a tax cut.
Cain: --will be tax cuts. It'll be suspending the tax on foreign profits. It'll be a real payroll tax holiday. And then make those--make those--other than the tax holiday, make them permanent so we can remove this uncertainty. So we'll do that in order to boost the economy and then educate the public.
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Thank you for the transcript Doug.
IMH one of the things we need to look for in a candidate is the ability to stay calm, affable, unflappable, and centered when tornados of calumny are aimed at him/her while expressing in pithy distilled simplicity the reasons for what he/she is saying.
In his demeanor I saw the potential for this in Cain durng this interview. The point is not the polling numbers right now. The point is the man has the courage to stand by his convictions and IMHO to bring many people over to his side and earn the respect of nearly all in so doing In contrast, I think Romney's make-up is to whither under hateful race and class warfare of the progressives and their running dogs in the Pravdas :-D
This is a man who has the courage to be a black Tea Partier. This is a man who has the courage to take on the liberal fascists to their faces, with a smile:
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Gigot: What makes you think that the American public is ready to hear a candidate, support a candidate, who supports what, let's face it, is a very radical change? Because you throw it the entire tax system. When other Republican candidates at the federal level, like Jim DeMint in South Carolina--
Cain: Right.
Gigot: --or certain Congress--congressional candidates have supported it, the Democrats have gone after it and said, "They want to raise the price of everything you buy--your home, your car--by 23%," and it's hurt them. How would you counter that argument?
Cain: The difference is, I can defend all of the lies, all of the misperceptions and all of the distortions about the FAIR Tax, and I'm willing to take that battle on. That's the reason why. Because what has happened--it does get demagogued. But then when you explain to the American people that it not only eliminates the withholding tax for both FICA as well as the payroll tax, but that it also eliminates the IRS and the costs that we have there, it--we will only need to spend 10% of what we spend on the IRS--you know, those people that abuse us and harass us?
, , ,
Gigot: And you think you can sell this to the Republican primary electorate when Mike Huckabee couldn't do it successfully in 2008. He ran on the FAIR Tax.
Cain: Yes, he did.
Gigot: And he didn't win the nomination.
Cain: Here's the difference.
Gigot: Why is it going to be different?
Cain: Here's the difference. First of all, this is Herman Cain.
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Reagan had a calm center. Maybe Herman Cain does too.
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I like people in leadership positions that have real life experience, including having made hard decisions and struggling through tough times. Everything I know about Cain says this is true of him. I very much doubt he's got any c*ck pics floating around the net, which is a plus as well. Bolton would fill the foreign policy gap he's demonstrated.
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As much as I like reading and listening to Bolton, he completely lacks in political experience-- including experience in persuading folks of his hard lines views without falling into the warmonger traps of the Pravdas.
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As much as I like reading and listening to Bolton, he completely lacks in political experience-- including experience in persuading folks of his hard lines views without falling into the warmonger traps of the Pravdas.
I don't know that "warmonger" has much sting in the wake of the left's newfound love of targeted assasination and kinetic military activity.
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Unemployment insurance is primarily the charge of state governments, but lately it has developed into an unhealthy relationship with Washington that has become unaffordable. To restore some balance, Republicans in Congress are proposing to give states more flexibility in how they spend federal unemployment dollars. Democrats call the plan an end to federal unemployment subsidies as most people know them. If only.
In the 1930s the federal government established a loose framework for jobless insurance that gives states leeway to determine their own tax rates, eligibility and benefits. Most states provide 26 weeks of benefits, which are funded by state payroll taxes on employers. During periods of high unemployment, states are required by federal law to extend benefits by another 13 weeks. The federal government typically funds half of these extended benefits.
As part of the 2009 stimulus bill—the source of so much fiscal mayhem—Congress agreed to subsidize all 13 weeks of extended benefits and gave states $7 billion to expand their eligibility. That was a Faustian bargain because states will have to pay more benefits over the long run for all of the new individuals that they've added to their rolls.
Congress has since funded an additional 60 weeks of "emergency" benefits, for a total of 99 weeks. The most Congress had previously extended benefits was up to 33 weeks during the early 1990s. The catch is that states now can't reduce their weekly benefit amounts or eligibility. So the only real options for states whose unemployment trust funds are running dry is to take out loans or raise taxes on employers. Roughly 30 states have done the former, but the way that the unemployment system works has made higher taxes nearly inevitable.
If states don't pay down the principal on their loans within about two years of their loan's origination—which is this year for most states—the system requires the feds to raise employer payroll taxes by 0.3% each year that a state's loan is left outstanding. Employers in 22 states will likely see their taxes rise this year, which means less incentive to hire even as the jobless rate is still 9.1%.
That's where the GOP's Jobs Act would help. The bill would let states use the remaining $31 billion of the $56 billion in unemployment benefits that Congress appropriated last year for other purposes like paying off their federal loans or reducing employer taxes. Imagine that—a jobs bill that actually promotes jobs. States with high unemployment could continue to spend the funds on benefits, but they would no longer be required to do so.
Meanwhile, more evidence has arrived that jobless subsidies are a disincentive work. A recent report by Chicago Federal Reserve economists Luojia Hu and Shani Schechter indicates that benefit extensions account for a roughly 1% increase in the unemployment rate. They calculate that between 10% and 25% of the recent decline in unemployment is due to people exhausting their benefits. Allowing the extended emergency benefits to expire, they conclude, could help reverse their adverse effects on employment.
The jobless subsidies for this year have already been appropriated, so the best Republicans can do is let extended benefits sunset at the end of this year and let states put the appropriated money to more productive uses. Then get on with the task of stopping job-killing government policies.
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WSJ
By ALAN REYNOLDS
The intelligentsia of the Democratic Party is growing increasingly enthusiastic about raising the highest federal income tax rates to 70% or more. Former Labor Secretary Robert Reich took the lead in February, proposing on his blog "a 70 percent marginal tax rate on the rich." After all, he noted, "between the late 1940s and 1980 America's highest marginal rate averaged above 70 percent. Under Republican President Dwight Eisenhower it was 91 percent. Not until the 1980s did Ronald Reagan slash it to 28 percent."
That helped set the stage for Rep. Jan Schakowsky (D., Ill.) and nine other House members to introduce the Fairness in Taxation Act in March. That bill would add five tax brackets between 45% and 49% on incomes above $1 million and tax capital gains and dividends at those same high rates. The academic left of the Democratic Party finds this much too timid, and would rather see income tax rates on the "rich" at Mr. Reich's suggested levels—or higher.
This new fascination with tax rates of 70% or more is ostensibly intended to raise gobs of new revenue, so federal spending could supposedly remain well above 24% of gross domestic product (GDP) rather than be scaled back toward the 19% average of 1997-2007.
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...All this nostalgia about the good old days of 70% tax rates makes it sound as though only the highest incomes would face higher tax rates. In reality, there were a dozen tax rates between 48% and 70% during the 1970s. Moreover—and this is what Mr. Reich and his friends always fail to mention—the individual income tax actually brought in less revenue when the highest tax rate was 70% to 91% than it did when the highest tax rate was 28%.
When the highest tax rate ranged from 91% to 92% (1951-63), even the lowest rate was quite high—20% or 22%. As the nearby chart shows, however, those super-high tax rates at all income levels brought in revenue of only 7.7% of GDP, according to U.S. budget historical data.
President John F. Kennedy's across-the-board tax cuts reduced the lowest and highest tax rates to 14% and 70% respectively after 1964, yet revenues (after excluding the 5%-10% surtaxes of 1969-70) rose to 8% of GDP. President Reagan's across-the-board tax cuts further reduced the lowest and highest tax rates to 11% and 50%, yet revenues rose again to 8.3% of GDP. The 1986 tax reform slashed the top tax rate to 28%, yet revenues dipped trivially to 8.1% of GDP.
What about those increases in top tax rates in 1990 and 1993? The top statutory rate was raised to 31% in 1991, but it was really closer to 35% because exemptions and deductions were phased-out as incomes increased. The economy quickly slipped into recession—as it did during the surtaxes of 1969-70 and the "bracket creep" of 1980-81, which pushed many middle-income families into higher tax brackets. Revenues fell to 7.8% of GDP.
The 1993 law added two higher tax brackets and, importantly, raised the taxable portion of Social Security benefits to 85% from 50%. At just 8% of GDP, however, individual income tax receipts were surprisingly low during President Bill Clinton's first term.
The Internet/telecom boom of 1998-2000 was the only time individual income tax revenues remained higher than 9% of GDP for more than one year without the economy slipping into recession (as it did when the tax topped 9% in 1969, 1981 and 2001).
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Getty Images
Former Labor Secretary Robert Reich
.But that was an unrepeatable windfall resulting from the quintupling of Nasdaq stocks—combined with (1) the proliferation of nonqualified stock options that have since been thwarted by the Financial Accounting Standards Board, and (2) the 1997 cut in the capital gains tax to 20%. Realized capital gains rose to 4.6% of GDP from 1997 to 2002—up from 2.5% of GDP from 1987 to 1996 when the capital gains tax was 28%.
Suppose the Congress let all of the Bush tax cuts expire in 2013, which is the current trajectory. That would bring us back to the tax regime of 1993-96 when the individual income tax brought in no more revenue (8% of GDP) than it did in 2006-08 (8.1% of GDP).
It is true that President Obama proposes raising the capital gains tax to 23.8%, which could raise more revenue than the 28% rate of 1993-96. But a 23.8% tax on capital gains and dividends would nevertheless be high enough to depress stock prices and related tax revenues.
Still, pundits cling to the myth that lower tax rates mean lower revenues. "You do probably get a modest boost to GDP from tax cuts," concedes the Atlantic's Megan McCardle. "But you also get falling tax revenue. It can't be said too often—and there you are, I've said it again."
Yet the chart nearby clearly shows that reductions in U.S. marginal tax rates did not cause "falling tax revenue." It is not necessary to argue that tax rate reduction paid for itself by increasing economic growth. Lowering top marginal tax rates in stages from 91% to 28% paid for itself regardless of what happened to GDP.
It is particularly remarkable that individual tax revenues did not fall as a percentage of GDP because changes in tax law, most notably those of 1986 and 2003, greatly expanded refundable tax credits, personal exemptions and standard deductions. As a result, the Joint Committee on Taxation recently reported that 51% of Americans no longer pay federal income tax.
Since the era of 70% tax rates, the U.S. income tax system has become far more "progressive." Congressional Budget Office estimates show that from 1979 to 2007 average income tax rates fell by 110% to minus 0.4% from 4.1% for the second-poorest quintile of taxpayers. Average tax rates fell by 56% for the middle quintile and 39% for the fourth, but only 8% at the top. Despite these massive tax cuts for the bottom 80%, overall federal revenues were the same 18.5% share of GDP in 2007 as they were in 1979 and individual tax revenues were nearly the same—8.7% of GDP in 1979 versus 8.4% in 2007.
In short, reductions in top tax rates under Presidents Kennedy and Reagan, and reductions in capital gains tax rates under Presidents Clinton and George W. Bush, not only "paid for themselves" but also provided enough extra revenue to finance negative income taxes for the bottom 40% and record-low income taxes at middle incomes.
Mr. Reynolds is a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press 2006).
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Kudos to Crafty for posting the Alan Reynolds piece. I was too busy during the week to go through it carefully. This is a very significant piece IMO. I would like to draw attention to the points made. Economic writing backed up with convincing numeric and mathematical evidence doesn't easily write or read well. I would ask people to go slowly and more than once through the key points, because you are being told or implied the opposite by most of the people who govern us.
Seems that Reynolds does more research and posts less often than most. The details of his work I find to be very original and always worthwhile.
In this case, he is understating his case. He is saying besides the growth in GDP, the lowering of rates over the 60 year period studied did not cost the Treasury revenue.
Think about it this way, if tax rates were 90% and people effectively were paying 7.7%, no one hardly was paying 90%. If rates were dropped to about 10% across the board no exceptions, maybe people would willingly pay 10% - and run with it.
Again: http://online.wsj.com/article/SB10001424052702304259304576375951025762400.html?mod=djemEditorialPage_h
(http://si.wsj.net/public/resources/images/ED-AN743D_Reyno_G_20110615184205.jpg)
...
"Since the era of 70% tax rates, the U.S. income tax system has become far more "progressive." Congressional Budget Office estimates show that:
- From 1979 to 2007 average income tax rates fell by 110% to minus 0.4% from 4.1% for the second-poorest quintile of taxpayers.
- Average tax rates fell by 56% for the middle quintile and 39% for the fourth,
- Only fell 8% at the top.
(This does not match what class warfare and disparity alarmists are telling you!)
Despite these massive tax cuts for the bottom 80%, overall federal revenues were the same 18.5% share of GDP in 2007 as they were in 1979 and individual tax revenues were nearly the same—8.7% of GDP in 1979 versus 8.4% in 2007. "
'Read it all'
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President Obama was right about his audacity, if not always the hope. Six months after he agreed to a bipartisan extension of current tax rates, he is now insisting on tax increases as part of the debt-ceiling talks. At his press conference yesterday he repeated this demand, as well as his recent talking point that taxes are lower than they've been in generations. Let's examine that claim because it explains Washington's real revenue problem—slow economic growth.
Mr. Obama has a point that tax receipts are near historic lows, but the cause isn't tax rates that are too low. As the nearby table shows, as recently as 2007 the current tax structure raised 18.5% of GDP in revenue, which is slightly above the modern historical average. Even in 2008, when the economy grew not at all, federal tax receipts still came in at 17.5% of the economy.
Today's revenue problem is the result of the mediocre economic recovery. Tax collections in 2009 fell below 15% of GDP, the lowest level since 1950. But remarkably, tax receipts stayed that low even in the recovery year of 2010. So far this fiscal year tax receipts are growing at a healthy 10% clip, so the Congressional Budget Office (CBO) January estimate of 14.8% of GDP is probably low. We suspect revenues will be closer to 16%, but even that would be the weakest revenue rebound from any recession in 50 years, and far below the average tax take since 1970 of 18.2%.
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...But what about the liberal claim, repeated constantly, that the Bush tax cuts of 2001 and 2003 caused today's deficits? CBO has shown this to be demonstrably false. On May 12, the budget arm of Congress examined the changes in its baseline projections from 2001 through 2011. In 2001, it had predicted a surplus in 2011 of $889 billion. Instead, it expects a deficit of $1.4 trillion.
What explains that $2.29 trillion budget reversal? Well, the direct revenue loss from the combination of the 2001 and 2003 Bush tax cuts contributed roughly $216 billion, or only about 9.5% of the $2.29 trillion. And keep in mind that even this low figure is based on a static revenue model that assumes almost no gains from faster economic growth.
After the Bush investment tax cuts of 2003, tax revenues were $786 billion higher in 2007 ($2.568 trillion) than they were in 2003 ($1.782 trillion), the biggest four-year increase in U.S. history. So as flawed as it is, the current tax code with a top personal income tax rate of 35% is clearly capable of generating big revenue gains.
CBO's data show that by far the biggest change in its deficit forecast is the spending bonanza, with outlays in 2011 that are $1.135 trillion higher than the budget office estimated a decade ago. One-third of that is higher interest payments on the national debt, notwithstanding record low interest rates. But $523 billion is due to domestic spending increases, including defense, education, Medicaid and the Obama stimulus. Mr. Bush's Medicare drug plan accounts for $53 billion of this unanticipated spending in 2011.
The other big revenue reductions come from the "temporary" tax changes of the Obama stimulus and 2010 bipartisan tax deal. CBO says the December tax deal—which includes the one-year payroll tax cut and the annual fix on the alternative minimum tax—will reduce revenues by $196 billion this year. The temporary speedup in business expensing will cost another $55 billion.
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Editorial Board Member Steve Moore on the president's press conference.
..The payroll tax cut was sold in the name of stimulating growth and hiring, yet the economy has grown more slowly this year than in last year's fourth quarter. As we've long argued, the "temporary, targeted and timely" tax cuts favored by Keynesians and the White House don't do much for growth because they don't permanently change incentives to save and invest. Mr. Obama was hawking more of those yesterday, even as he wants to raise taxes overall.
Republicans—notably George W. Bush in 2001 and 2008—have sometimes fallen for this same tax cut gimmickry. But perhaps they're learning their lesson. Republicans have reacted with little enthusiasm to the White House trial balloon to extend the payroll tax cuts for another year. The lesson is that when it comes to growth, not all tax cuts are created equal. The tax cuts with the biggest bang for the buck are permanent, take effect immediately, and hit at the next dollar of marginal income.
All of which makes the White House debt-ceiling strategy a policy contradiction. On the one hand, Mr. Obama is saying Republicans must agree to raise taxes on business and high incomes, though he knows even many Democrats won't vote for that. On the other hand, Mr. Obama says he wants another payroll tax cut because he is worried about slow growth.
Even orthodox Keynesian policy doesn't recommend a tax increase with growth under 2% and the jobless rate at 9.1%. The White House game here can only be an attempt to see if he can use the prospect of a debt-limit financial panic to scare Republicans into voting to raise taxes. We doubt the GOP is this dumb.
Republicans should stick to their plan of insisting on spending cuts in return for a debt-ceiling vote. Every dollar in lower spending means one less dollar taken from the private economy in borrowing or future tax increases. As for revenues, they will increase when the economy shakes its lethargy caused by Mr. Obama's policies. A tax increase won't help growth—or revenues.
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Paraphrasing Sec. Geithner, we NEED to increase the burden on businesses who hire. Otherwise that burden would fall onto our lean, already cash-strapped federal government. "There is really no alternative to doing it."
http://dogbrothers.com/phpBB2/index.php?topic=2123.msg51038#msg51038 (Decline and Fall thread)
http://www.youtube.com/watch?feature=player_embedded&v=H4bYNkXu5qs#at=14
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This will never fly, but at least someone out there (Steven Hayward) poses the question about raises taxes on those in this country who are not paying their fair share:
"if the broad middle class of Americans are made to pay for all of the government they get, they may well start to demand less of it, quickly."
Is There a Conservative Case for Higher Taxes?
http://www.powerlineblog.com/archives/2011/07/is-there-conservative-case-for-higher-taxes.php
No doubt this will set off an explosion of indignation, but my answer to the question posed here is—Yes. (I can hear it now: What! Are you trying to get yourself kicked off Power Line?)
Maybe it will help if I qualify this by saying that I think taxes should be raised sharply on the middle class and the poor, many of whom currently pay almost no federal income tax at all, while cutting the capital gains tax, the corporate income tax, and the highest marginal income tax rates. Feel a little better? I thought not.
But here’s the case: one problem with our current tax policy is that at the moment the American people as a whole are receiving a dollar of government for the price of only 60 cents. (I don’t say a “dollar’s worth of government,” but let’s leave that snark for another time.) Any time you can get a dollar of something at a 40 percent discount, you are going to demand more of it. My theory is simple: if the broad middle class of Americans are made to pay for all of the government they get, they may well start to demand less of it, quickly.
There’s corollary point to this. Back in the Reagan years, there was a vigorous internal debate about whether to resist tax increases because “starving the beast” would hold down spending. But evidence is now in: this strategy doesn’t work. My witness on this point is the Cato Institute’s chairman, William Niskanen (who was chairman of Reagan’s Council of Economic Advisers at one point, and a person whose libertarian credentials are hard to beat). Niskanen noted this striking finding in a Cato Policy Report a while ago:
In a professional paper published in 2002, I presented evidence that the relative level of federal spending over the period 1981 through 2000 was coincident with the relative level of the federal tax burden in the opposite direction; in other words, there was a strong negative relation between the relative level of federal spending and tax revenues. Controlling for the unemployment rate, federal spending increased by about one-half percent of GDP for each one percentage point decline in the relative level of federal tax revenues. . . One implication of this relation is that a tax increase may be the most effective policy to reduce the relative level of federal spending.
Other economists have reached the same conclusion. In other words, if you want to limit government spending, instead of starving the beast, serve the check. (Well, I can hear everyone now, there’s goes your invitation to Grover Norquist’s Wednesday meetings! True that.) Right now the anti-tax bias of the right has the effect of shifting costs onto future generations who do not vote in today’s elections, and enables liberals to defend against spending restraints very cheaply. Time to end the free ride.
A debate on how to raise taxes might actually be fun to have with liberals, because their only idea—eat tax the rich—doesn’t produce anywhere near enough revenue to fund their programs. Of course, the “tax the rich” slogan is just a cover so they can raise taxes on everyone, but why not smoke them out on this by agreeing?
But more to the point, the argument should be cast in terms of a creating pro-growth tax reform. Froma Harrop of the Providence Journal has a typically idiotic column out today saying Americans want higher taxes. It is not even worth the bother of debunking. There is one highly useable sentence in it: “Today, high-tax Sweden has only 7 percent unemployment, while ours is 9 percent. How come? Before the 2008 economic meltdown, Sweden prudently maintained a budget surplus equal to 3.6 percent of its economy.” Never mind that Sweden isn’t exactly putting its shoulder to the wheel in the fight against terrorists (or anything else), and just focus your mind on one fact: yes, it is a high tax country, but its corporate income tax rate is one-third lower than the U.S. rate (26% for Sweden; 39% for the U.S.). So, my opening bid is—yes. By all means let’s emulate Sweden’s tax rates, starting with a one-third cut in our corporate income tax rate, and a hike in middle class income tax rates. Deal? I didn’t think so.
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If Democrats think it is a national priority to raise taxes to lower the deficit, why don't they take a stand in the Senate and do it?
Democrats hold a 53-47 majority in the Senate, so Majority Leader Harry Reid shouldn't need a single Republican vote to move his tax agenda forward. A budget resolution requires only 51 votes, which means Democrats could vote today to pass a budget resolution on a $1 trillion tax increase as President Obama has endorsed, or the $2 trillion that Senate Budget Chairman Kent Conrad has proposed.
Instead, Mr. Reid continues to put any Democratic budget with tax increases in the deep freeze even as the party keeps saying the polls show that Americans support a tax hike as part of a debt plan. Why not go for it?
The answer is Senator Reid can't rally his own caucus to get anywhere near 51 votes for a big tax increase. Even as President Obama and Mr. Reid continue to push for a closed-door bipartisan agreement to raise taxes, the only bipartisan consensus in the Senate on taxes right now is . . . against raising them. Here's a sampling:
Ben Nelson of Nebraska, up for re-election in November 2012: "Raising taxes at a time when our economy remains fragile takes us in the wrong direction." He adds: "If we start with plans to raise taxes, pretty soon spending cuts will fall by the wayside."
Joe Manchin of West Virginia, also up for re-election next year, told us: "Make no mistake, I don't believe in tax hikes, I believe in tax fairness." This means closing "unnecessary loopholes."
Virginia's Jim Webb, who is retiring at the end of next year: "During my time in the Senate, I have consistently opposed the notion of increasing revenues through raising taxes on ordinary, earned income—those amounts, whether large or small, that Americans take home as part of their every-day work and their basic compensation packages." He said he advocates raising taxes "by other means," including "ending costly subsidies and tax loopholes or by adjusting such measures as capital gains."
Joe Lieberman, the independent from Connecticut, told the Connecticut Mirror he has a lot of "unanswered questions" about the Democratic budget plan, and that the $2 trillion to come from tax hikes could be too "high" for him to accept. "For 50% to come from tax increases is a lot."
Specific tax-hike proposals also hit a wall of opposition in the Democratic caucus. An increase on the oil and gas industry, a top priority for the White House, has firm opposition from three energy-state Democrats—Mary Landrieu of Louisiana, Mark Begich of Alaska and Mr. Nelson of Nebraska. Ms. Landrieu cites bipartisan opposition to the idea.
Bill Nelson of Florida and Mr. Begich have expressed reservations about another populist Democratic revenue raiser: a millionaire surtax.
One of the most unjustified tax loopholes is the ethanol subsidy. But 13 Senate Democrats voted against a measure earlier this year to kill it, including Iowa liberal Tom Harkin.
The White House and Harry Reid may think Americans favor reducing debt with a big tax increase. But first they need to convince the antitax Democrats in their own caucus.
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Voters overwhelmingly appear to favor raising some taxes as part of a deal to raise the debt ceiling, two new polls show.
"voters, 67% to 25%, prefer a deficit-reduction deal that includes both spending cuts and higher taxes on the wealthy and corporations rather than only cuts spending."
http://blogs.wsj.com/washwire/2011/07/14/polls-voters-want-debt-limit-deal-to-cut-spending-and-raise-taxes/
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JDN, I have seen those polls go both ways depending on how asked. Also those national polls don't help Ben Nelson in Nebraska, etc.
More importantly, do YOU want tax rate increases (on job creators) with the spending cuts. Are higher taxes than we have now really balanced policy or centrism?
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Assuming our shutdown ending deal goes through in MN without the new Gov's increases, the resulting combined tax rate will be 66% instead of 69%. You can keep 34 cents on your next dollar earned with the government's current blessing. If you spend it that is another 7% so you're down to keeping/spending 27 cents?
The calculation on the federal side 58% come from Steven Hayes of the WSJ and they include the cut expirations coming as well the increases already passed in Obamacare: http://online.wsj.com/article/SB10001424052702304066504576343611464445594.html
There are other taxes as well. My property taxes alone are already greater than my take-home income.
If you push-polled with taxes already going to 62%, corporate rates highest in the world and unemployment caused by overtaxing and over-regulating, you will not get 67% support for more tax hike support - in Nebraska, IMO.
People who want BIG tax increases are already getting their way. No need to ask again and no need to vote again.
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Actually Doug, I do want slightly higher taxes on the very wealthy. I"m not wealthy by any means, but I have friends who are and even they don't seem to object. Further,
I think some deductions favored by the rich should go by the wayside. I suppose that is a tax increase too. However, I truly don't think (maybe I am wrong) that raising
rates 2% or something on those making above $250K, taking away the deduction for private jets, deductions for second homes, heck, there are a lot of deductions that
should be taken away - including in my opinion the mortgage deduction above $500K and these will all raise revenue, without noticeably impact the work force.
Frankly, I truly doubt in the long run if this would affect jobs at all. Those who are rich and are working hard and hiring people; well I doubt if 2% or so will make a difference. And for
those rich sitting at home clipping coupons and/or are supported by their investments and therefore who really don't create many jobs, well, it won't make much difference to them either.
From what I've read, Obama will not be raising, actually he will be lowering taxes on the middle class - the group that as a country I am most worried about.
And in exchange for small tax increases and elimination of deductions, there will be significant and necessary cuts in the budget. I personally think this two pronged approach, as I think most
Americans do, is the best approach to solving the problem.
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Thanks JDN. Oddly most of my liberal friends are rich too. Poor people are too busy to concoct serious class warfare arguments. The damage done by marginal rates is to the want-to-be-rich people more than to the already-rich. Our Dem Gov. is rich (from a successful Republican family) married a Rockefeller (now divorced), keeps his trust fund in South Dakota (no income tax), got his biggest contribution from the ex-wife (not a Minnesotan) and favors big surcharges on the rich, on their incomes and on their homes. Meanwhile he has no clue how wealth is created or how damn tough it was to build a retail chain that is now Macy's here, Target and the world's (former) best seller of books. (My uncle ran their company when the adults determined there weren't any more competent family members to take over.)
Yes you (and I) have friends that are rich and liberal and being rich and liberal today means saying you are willing to pay higher taxes. Do they really mean higher than 58% + 9.3% state (Calif), double taxed on corporate income components plus sales tax, property tax and on and on? Marginal rates already to be greater than 70% and still want higher? Do they show any other behaviors, sending extra money to the government (keep the change, lol), not taking advantage of moves, deductions, preferences available to indicate they want to pay more than they do now? - I didn't think so.
It's all rhetorical. People like that, your friends and mine, are people I seek to defeat not persuade. I favor efficient taxation, not punitive, redistributive or emotional taxation.
On the other point, that small tax rate increases don't affect business openings, hirings, expansions... it is empirically false whether you feel that way or not. The increase you mention is small, but it is on top of everything else in terms of other taxes, strangulating regs and other costs driven up by overblown government policies. Yes, it ALL matters.
The idea of slimming down on deductions only pulls even more money out of the private economy - a contractionary policy - unless that is combined with using the loophole closures to lower the marginal rates - the primary disincentive to produce.
Most of those alleged "loopholes" like corp jet owners are proposing to take away 5 year depreciations and make them 7 year when the incentive in the first place was part of Obama's big stimulus. Big f'ing deal. The change would have no real affect on those who already have their jet and deducted it, but would kill those who play a part in building jets. We've tried stuff like that before. The right answer is to depreciate the jet by the amount that it depreciated (imagine that?) which like a car is a huge amount the moment you drive it off the showroom floor. Don't they have a Kelley Blue Book for aircraft? Another way is cash basis accounting. Deduct the expense, then 1099 the income when you sell. The only rationale in the current or proposed plan is demagoguery-based depreciation. Why is 7 years right and 5 years wrong. It is all arbitrary and the same people that did it blame me for supporting a rich guy who takes a deduction that THEY concocted in government-based economics. If the tax rate wasn't astronomical, the depreciation schedule wouldn't be so crucial.
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Hey Doug, a lot of my conservative friends are rich too. :-) Not just my liberal friends. I'm the only "poor" one in the group.
Just a few thoughts; while it's nice to have a personal "conversation" I think my points (and yours) apply in general.
You reference the tax rates. My best friend, he's English/Welsh (now American) is actually quite conservative. Cambridge graduate, a partner for years at PWC, an entrepreneur, he is quite financially comfortable. We had this discussion a few weeks ago over beer after golf. He suggested a small increase
is not a big deal. Further, regarding your high tax rates quote (you have posted before on this issue), my accountant friend laughed; his quote was "who pays that?" My friend was in charge of entertainment accounting (now that's creative) so it seems everyone showed a "loss" on the books; for many years although it's a hit move/tv show. "It's all a number's game. My point is I really don't worry about the "big boys"; it's the middle class that is important to me. Let me repeat this mantra, "it's the middle class that's important."
A long time ago I lived for a year in London. Taxes were absurd at that time. But the true "players" didn't care. They literally deducted everything. Or they did deals in cash or offshore. Again, the middle class filing the short form are the only ones who suffer.
As far as eliminating deductions and lowering the tax rate, I see no problem. It's just that I hate favoritism; especially for the rich who don't need it,
but usually get it. They don't want an "efficient" tax system because they can beat the current system. Personally, I agree with you; accounting is all smoke and mirrors.
So don't worry about the truly rich; liberal or conservative; they always find a way to take care of themselves.
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"Further, regarding your high tax rates quote , , , my accountant friend laughed; his quote was "who pays that?""
JDN, I think you miss a key point here. OF COURSE few people actually pay that!!! The reason is that they jump through the tax code's inducements to invest in the places to which the government wishes them to invest a.k.a. their special interest friends. THIS is one of the meanings of "public-private partnership" so often blathered about. This is one of the faces of economic fascism.
The net result is malinvestment and is an insidious and invidious destructive force acting upon the American economy.
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JDN,
I'm not worried that Warren Buffet will have to sell plasma to scrape by or that'll I'll see Bill Gates with a "will work for food" sign at a freeway overpass. When they get hit, they cut jobs for the "little people". Remember when the dems wanted to sock it to the yacht owners? Well, the rich still buy yachts, but the dems managed to kill off family owned ship building businesses in New England.
Obama's jihad on private planes and other new taxes would provide a whopping 10 days of tax revenue for the federal gov't. At the expense of how many jobs in the private sector?
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By MICHAEL J. BOSKIN
President Obama has been using the debt-ceiling debate and bipartisan calls for deficit reduction to demand higher taxes. With unemployment stuck at 9.2% and a vigorous economic "recovery" appearing more and more elusive, his timing couldn't be worse.
Two problems arise when marginal tax rates are raised. First, as college students learn in Econ 101, higher marginal rates cause real economic harm. The combined marginal rate from all taxes is a vital metric, since it heavily influences incentives in the economy—workers and employers, savers and investors base decisions on after-tax returns. Thus tax rates need to be kept as low as possible, on the broadest possible base, consistent with financing necessary government spending.
Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy. That is where U.S. tax rates are headed if we do not control spending soon.
The current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers' share is ultimately shifted to workers in the form of lower wages.
But there are also state income taxes that need to be kept in mind. They contribute to the burden. The top state personal rate in California, for example, is now about 10.5%. Thus the marginal tax rate paid on wages combining all these taxes is 44.1%. (This is a net figure because state income taxes paid are deducted from federal income.)
So, for a family in high-cost California taxed at the top federal rate, the expiration of the Bush tax cuts in 2013, the 0.9% increase in payroll taxes to fund ObamaCare, and the president's proposal to eventually uncap Social Security payroll taxes would lift its combined marginal tax rate to a stunning 58.4%.
But wait, things get worse. As Milton Friedman taught decades ago, the true burden on taxpayers today is government spending; government borrowing requires future interest payments out of future taxes. To cover the Congressional Budget Office projection of Mr. Obama's $841 billion deficit in 2016 requires a 31.7% increase in all income tax rates (and that's assuming the Social Security income cap is removed). This raises the top rate to 52.2% and brings the total combined marginal tax rate to 68.8%. Government, in short, would take over two-thirds of any incremental earnings.
Many Democrats demand no changes to Social Security and Medicare spending. But these programs are projected to run ever-growing deficits totaling tens of trillions of dollars in coming decades, primarily from rising real benefits per beneficiary. To cover these projected deficits would require continually higher income and payroll taxes for Social Security and Medicare on all taxpayers that would drive the combined marginal tax rate on labor income to more than 70% by 2035 and 80% by 2050. And that's before accounting for the Laffer effect, likely future interest costs, state deficits and the rising ratio of voters receiving government payments to those paying income taxes.
It would be a huge mistake to imagine that the cumulative, cascading burden of many tax rates on the same income will leave the middle class untouched. Take a teacher in California earning $60,000. A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%. The income tax increases to cover the CBO's projected federal deficit in 2016 raises that to 52%. Covering future Social Security and Medicare deficits brings the combined marginal tax rate on that middle-income taxpayer to an astounding 71%. That teacher working a summer job would keep just 29% of her wages. At the margin, virtually everyone would be working primarily for the government, reduced to a minority partner in their own labor.
Nobody—rich, middle-income or poor—can afford to have the economy so burdened. Higher tax rates are the major reason why European per-capita income, according to the Organization for Economic Cooperation and Development, is about 30% lower than in the United States—a permanent difference many times the temporary decline in the recent recession and anemic recovery.
Some argue the U.S. economy can easily bear higher pre-Reagan tax rates. They point to the 1930s-1950s, when top marginal rates were between 79% and 94%, or the Carter-era 1970s, when the top rate was about 70%. But those rates applied to a much smaller fraction of taxpayers and kicked in at much higher income levels relative to today.
There were also greater opportunities for sheltering income from the income tax. The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.
There is only one solution to this growth-destroying, confiscatory tax-rate future: Control spending growth, especially of entitlements. Meaningful tax reform—not with higher rates as Mr. Obama proposes, but with lower rates on a broader base of economic activity and people—can be an especially effective complement to spending control. But without increased spending discipline, even the best tax reforms are doomed to be undone.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
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"Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands." --Thomas Jefferson, letter to James Madison, 1784
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Federal taxes of 1794 would be great. How about a return to the fundamentals that FDR started with social security, a 1% old age insurance tax with the payout age set 7 years beyond worker life expectancy. These days he would be called a tea party terrorist, though he was far more extreme.
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Federal taxes of 1794 would be great. How about a return to the fundamentals that FDR started with social security, a 1% old age insurance tax with the payout age set 7 years beyond worker life expectancy. These days he would be called a tea party terrorist, though he was far more extreme.
I'm confused. It seems to me FDR started the age 65 payout date.
Also, how can you set a payout date 7 years BEYOND worker's life expectancy? Only a few, the few who lived more than 7 years beyond their life expectancy,
would collect any money. This is rather extreme. :?
http://www.ssa.gov/history/35actii.html
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I can't tell if you are disagreeing with my characterization or his policy.
I took that from the SSA life expectancy page;the majority of workers were men at that time. I'm sure there are plenty of other ways to look at it, like yesterday's revelation that oral surgeons clean teeth. Life expectancy of your teeth, BTW, in the 1930s was less than 58 years. Do you disagree with the 1% tax too? Is there any difference in terms of productive disincentives between that (1%) and now, a self employment tax of 15.3% ? http://www.irs.gov/businesses/small/article/0,,id=98846,00.html When you are done quibbling, the point remains that we are nowhere near the insure-against-outliving-your-ability-to-work vision that FDR first articulated. People retire very often early, healthy and generally far wealthier than the younger workers who labor to help support them, instead of investing in their own challenges and opportunities. It is a Ponzi scheme, not a lockbox, an insurance policy, or a savings plan.
Life Expectancy for Social Security
If we look at life expectancy statistics from the 1930s we might come to the conclusion that the Social Security program was designed in such a way that people would work for many years paying in taxes, but would not live long enough to collect benefits. Life expectancy at birth in 1930 was indeed only 58 for men and 62 for women, and the retirement age was 65.
http://www.ssa.gov/history/lifeexpect.html
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http://blogs.forbes.com/deanzarras/2011/03/11/why-social-security-is-a-ponzi-scheme/
Why Social Security is a Ponzi Scheme
Mar. 11 2011 - 5:09 pm
By DEAN ZARRAS
Want a recipe for ruckus? Merely suggest that Social Security might be a “Ponzi scheme”. You might even end up on Drudge Report. Yet the facts bear out the thesis, as we shall see…
For starters, let’s be clear on what a Ponzi scheme is.
Charles Ponzi -- Image via Wikipedia
Say you’re in a scheming kind of mood and looking to get rich off it. Say you’re Bernie Madoff! You start by convincing a small group of people, say five of them, to each give you some money, say $1,000, with the promise that each month thereafter, you’re going to give them $50 back. That works out to $600 over the year, or a 60% rate of return. Not too shabby! These people are a little skeptical at first, but the promised 60% rate of return seems worth the risk. So you collect $5,000, but pay out $600 to each of these five people, $3,000 in total, leaving you ahead by $2000 at year end. So far so good — stick with me…
Here’s how you’ll fund the $3,000 you’re going to pay to those five people.
Not long after the first five, you find ten other people to also give you $1000, with the promise that they, too, will get $50 back each month thereafter. You take in $10,000, and over the course of the year, you pay back the $3,000 to the first group of five people, leaving you with $7,000 from the group of ten, plus the full $5,000 from the group of five, for a total of $12,000. But you still owe the group of ten $6,000. That’s OK, because after you pay them, you’re still ahead by $6,000.
You can repeat the same funding mechanism to pay back that group of ten. Find another ten people, or ideally, more than ten, promise each of them $50 a month, and pay them by using the incoming cash from yet another group of people. Keep this going for a while and all the people earning 60% a year on their money might even turn you on to their friends. It almost seems like a virtuous circle.
All the math for this will work out great provided you play by some simple rules. You absolutely must keep finding more people to pay in. You might need to start promising a lower return to new “investors”, just to help the math. Oh, and you’ll want to keep everyone in the dark about what’s really going on.
But eventually there just aren’t enough people in the world to solicit. And eventually some smart cookies begin to suspect too much of a good thing, and start asking pesky questions.
Now let’s examine Social Security.
Image via Wikipedia
When Social Security was started in 1935, workers paid 2% of their first $3,000 earned, or a maximum of $60. Of course, only those aged 65 and older could collect anything, and many of those collectors conveniently died not long thereafter. So even without full participation by every wage earner, the number of people paying in dwarfed those being paid out, and money began to pile up in what became known as the “Social Security Trust Fund”.
As trends (and thankfully, lifespans) have changed, the payer/payee relationship has not stayed constant. Michael Tanner of the Cato Institute documents some of the demographics as follows:
In 1950, there were 16 workers paying taxes into the system for every retiree who was taking benefits out of it. Today, there are a little more than three. By the time the baby boomers retire, there will be just two workers who will have to pay all the taxes to support every one retiree.
- “Social Security: Follow the Math”, Michael Tanner, 1/14/2005
Think Cato’s some radical right-wing organization? Ok then, let’s see what the official Social Security Online website has to say in their 2010 summary:
Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084.
So there’s your admission that this scheme has run its course, and even an admission that without legislative changes, people will be getting less than they thought.
Some people say, “There’s no problem here – just raise taxes further until we get the money that we need.” But what started at 2% has now become 12.4% when both the employee’s and the employer’s portions are considered. And keep in mind that the half paid by the employer represents monies that by definition can’t be paid to the employees or investors in the form of additional wages and/or returns. As the saying goes, corporations don’t pay taxes. People pay taxes.
Furthermore, the idea that we can just raise taxes and hit some projected revenue increase is fatally flawed by static analysis — the idea that people don’t respond to incentives and penalties. Tax increases routinely fail to yield the originally projected revenue. Lastly, you have to be willing to legislatively seize a lot of property that just doesn’t belong to you (regardless of what Michael Moore might say).
It’s not as if Franklin D. Roosevelt set out to create a Ponzi scheme. To this day, the nature of the system is fully disclosed, although now things are so scary that most people don’t want to look. Even when a few people are asked to look, like the recent commission headed by Alan Simpson and Erskine Bowles, the very President doing the asking looks away. In the meantime, people who do know that the scheme is mathematically unsustainable are drafting battle plans against those who might, horrors!, try to give some control over the situation back to individuals.
Like so many government programs, Social Security started off with great intentions, but morphed into something else. Some people refute the Ponzi scheme comparison largely on the grounds that unlike a traditional Ponzi scheme, Social Security is completely disclosed, was never sold to as a way to make anyone rich, and that it has good intentions rooted in compassion for the poor.
Hold on to your wallets. Just because a fraud is being perpetuated in full view doesn’t mean it’s not a fraud. It simply means people are either not paying attention, or don’t understand what they’re looking at. Regarding not trying to make anyone rich, that’s precisely correct, if only ironically. The creation of Social Security probably did incalculable damage by disincentivizing saving and investing. It ratcheted up moral hazard big time, and nudged untold millions of people into looking towards government for solutions, rather than to themselves and the private sector. And as for good intentions, isn’t that what a certain road to a certain nasty place is paved with? Or at the minimum, The Road to Serfdom?
What’s that saying about walking and talking like a duck?
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I was merely pointing out that SS started under FDR at age 65. Further, it is an actuarial fallacy to say "that people would work for many years paying in taxes, but would not live long enough to collect benefits. Life expectancy at birth in 1930 was indeed only 58 for men and 62 for women, and the retirement age was 65." but this is life expectancy at birth, not life expectancy once one has achieved working age. Frankly, the age differences of people once they have achieved working age (21) compared to today is not that great. Read your own reference source.
What has happened is that SS has been amended and severely expanded over and over. Wrong or right, I am not sure, but that's why it's a Ponzi scheme.
However, I do know that without a base Social Security plan many old people would be destitute. A "voluntary" plan simply won't work. People always have expenses and will pay bills today rather than save for the future. But tomorrow does come...
On the other hand, I see nothing wrong with gradually raising the beginning age from 65 to 67, maybe even 70. We need a bipartisan decision,
otherwise no party unless they are suicidal will cut SS benefits.
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"On the other hand, I see nothing wrong with gradually raising the beginning age from 65 to 67, maybe even 70. We need a bipartisan decision,
otherwise no party unless they are suicidal will cut SS benefits."
Um, we are beyond broke. There is no magic money tree to create the money needed to pay for the promised SS bennies for the baby boomers. Maybe raising the age to 100 might work....
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[youtube]http://www.youtube.com/watch?v=kETGgP-Pq5s[/youtube]
With a moment of lucidity from Ron Paul, as a bonus!
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New CNN Poll: Majority want tax increase for wealthy and deep spending cuts
Washington (CNN) - Most Americans want a special congressional committee tasked with drafting a long-term solution to the nation's mounting federal deficits to include tax hikes for the wealthy and businesses and deep cuts in domestic spending, according to a new national survey.
A CNN/ORC International Poll released Wednesday also indicates that the public doesn't want the super committee to propose major changes to Social Security and Medicare or increase taxes on middle class and lower-income Americans.
Read full results (PDF).
Under the debt ceiling deal passed by Congress and signed by President Barack Obama last week, a panel of 12 legislators - six Democrats and six Republicans, equally divided between the House and Senate - will be created to try to work out $1.5 trillion in deficit reduction after an initial round of more than $900 billion in spending cuts.
If the committee fails to reach agreement or Congress fails to pass whatever package it recommends, a trigger mechanism will enact further across-the-board cuts in government spending, including for the military.
According to the poll, 63 percent say the super committee should call for increased taxes on higher-income Americans and businesses, with 36 percent disagreeing. And by a 57 to 40 percent margin they say the committee's deficit reduction proposal should include major cuts in domestic spending.
But cuts in defense spending get a mixed review: Forty-seven percent would like the committee to include major cuts in military spending, with 53 percent saying no to such cuts.
Nearly two-thirds say no to major changes to Social Security and Medicare. And nearly nine in ten don't want any increase in taxes on middle class and lower income Americans.
"Republicans and Democrats disagree on the need for cuts in domestic and military spending, as well as tax increases for higher-income Americans, but they do agree that the committee should stay away from tax hikes for the middle class and major changes to Social Security and Medicare," says CNN Polling Director Keating Holland.
According to the survey, only a third say that taxes on wealthy people should be kept low because higher-income Americans help create jobs, with 62 percent saying that taxes on the wealthy should be high so the government can use the money for programs to help lower-income Americans.
"That sentiment has changed little since the 1990s," adds Holland.
The CNN poll was conducted by ORC International on August 5-7, with 1,008 adult Americans questioned by telephone. The survey was conducted both before and after Friday night's downgrading of the country's credit rating by Standard and Poor's. The poll's overall sampling error is plus or minus three percentage points.
http://politicalticker.blogs.cnn.com/2011/08/10/new-cnn-poll-majority-want-tax-increase-for-wealthy-and-deep-spending-cuts/?hpt=hp_t1
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Even though I don't really trust CNN and thus wonder if the numbers are exaggerated, I can't say that I doubt them being in the right direction. There is a reason one of the Ten Commandments is about not coveting they neighbor's stuff-- envy and the politics of envy come as easily to human nature as they are destructive.
The Republicans and the Tea Party are going to need to man up on this and frontally attack on the basis of exposing just how dishonest the numbers the Progressives are and just how bad the Truth is and how little even 100% taxes would actually accomplish. Congressman Ryan is the best I have seen at this.
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Billionaire investor Warren Buffett, saying he doesn't want to be "coddled" by Congress, says that wealthier Americans should pay higher taxes, and that higher taxes do not dampen job growth.
Buffett, chief executive of Berkshire Hathaway (BRKA, Fortune 500), wrote in an op-ed piece published Monday in The New York Times that taxes should be raised on Americans who make at least $1 million per year.
"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks," wrote Buffett, who has mentioned in past interviews that the rich should pay higher taxes.
The philanthropist said that his 2010 federal tax bill, including income and payroll taxes, was $6,938,744.
"That sounds like a lot of money," wrote the Omaha, Neb.-based billionaire. "But what I paid was only 17.4% of my taxable income - and that's actually a lower percentage than was paid by any of the other 20 people in our office."
He added that some investment managers were taxed only 15% on billions of dollars in income. He compared that to the middle class, with its income tax bracket of up to 25%.
He said that 40 million jobs were created between 1980 and 2000, when the tax rate for the rich was higher than it is now. "You know what's happened since then: lower tax rates and far lower job creation," he wrote.
Buffett proposed that Congress impose a higher tax rate on millionaires, and an even higher tax rate on those making at least $10 million per year.
"My friends and I have been coddled long enough by a billionaire-friendly Congress," he wrote. "It's time for our government to get serious about shared sacrifice."
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Dear Warren,
Whip out the checkbook and write out one for 5 billion to the US Treasury.
Until then, STFU.
Thanks!
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Dear Warren,
Whip out the checkbook and write out one for 5 billion to the US Treasury.
Until then, STFU.
Thanks!
How do you make a contribution to reduce the debt?
There are two ways for you to make a contribution to reduce the debt:
•You can make a contribution online either by credit card, checking or savings account at Pay.gov
•You can write a check payable to the Bureau of the Public Debt, and in the memo section, notate that it's a Gift to reduce the Debt Held by the Public. Mail your check to:
Attn Dept G
Bureau of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188
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http://www.youtube.com/watch?v=MqoGORXAv2o&feature=player_embedded
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By ERNEST S. CHRISTIAN
AND GARY A. ROBBINS
President Obama is now talking about a "balanced approach" to deficit reduction that includes a "revenue component" achieved by "tax reform."
Among the tax reforms getting attention is a value-added tax, or VAT. Similar to a sales tax (more about this below), the value-added tax has become a significant part of the revenue systems of Europe and also has been adopted by over 100 other nations. The VAT is believed to be a magical device that can stuff government coffers with money without untoward economic political consequences. It is no such thing.
In the first place, increasing taxes will reduce economic growth. This is irrational and self-defeating policy. If the point of the current debt-ceiling exercise is to make the American people better off, the smart thing is to restore long-term fiscal integrity and economic growth with a balanced combination of spending reductions and tax cuts.
On the other hand, a VAT is the ideal choice for those whose goal is to refinance government sufficiently to allow it not only to continue "business as usual" but also to expand on a grand scale.
We estimate that each percentage point of a U.S. VAT would provide Washington over 10 years with approximately $981 billion with which to launch new spending. So even a small VAT might help reduce the debt-to-GDP ratio. But by making reforms to entitlement spending less likely, VAT revenues would also lead to a permanent increase in spending to 24% or more of GDP (compared to the historic average of 20%).
View Full Image
Martin Kozlowski
.Total federal taxes would almost certainly increase to at least 24% of GDP (a 25% rise compared to the historic average). As a result of the drag of taxes on growth, we estimate that long-run output would permanently be nearly 3% lower than currently forecast. And, as has occurred in Europe, the VAT rate and revenues would over time inexorably increase—and so would the damage to private-sector jobs and incomes.
We estimate that each additional $1 trillion of revenue to the government from a VAT would cost the private economy at least $2 trillion, composed of $1 trillion of taxes and $1 trillion of lost GDP. This loss of GDP is less than what other economists (such as Martin Feldstein and Gregory Mankiw) have estimated would be the case for the income tax. A VAT thus appears less damaging at the outset, and some academics suggest that a small VAT be used to "buy" a reduction in the top income tax rate. But it is naïve to believe that the VAT rate would remain low, or that the income tax rate would not shoot back up.
In Europe, the VAT rate started out in the single digits in France in the 1950s. But because the VAT funds Europe's ever-expanding welfare state, the rates now range from a minimum of 15% to a high of 25%, and they are heading upward.
In Europe, the VAT on top of the income tax is a crushing burden. In France, where the VAT rate is 19.6%, total tax as a percentage of GDP is 46%, versus 30% in the United States. Britain now has a 20% VAT in addition to a 50% top rate on its personal income tax, a 26% corporate tax and a host of other taxes. Even if a U.S. VAT remained in the midrange of rates compared to Europe, it could easily push the total tax burden up to 40% of GDP.
In addition to its voracious appetite, the value-added tax is a master of disguise. Because it is levied on the sale of a product at each stage of production—whenever value is added—and at the final sale, the VAT is portrayed as a tax on consumption. The French once illustrated the VAT with an example: The farmer passes the tax to the miller, the miller passes it to the baker and the baker includes it in the price of bread. Ever since, the VAT has for political purposes been viewed as a burden on the consumer, thereby providing politicians with an excuse for "compensating" large numbers of favored voters with disproportionately large cash subsidies or exemptions.
Offsetting consumer subsidies would occur in spades in America, where the tax system has traditionally been preoccupied with "progressivity" and used to redistribute income.
The VAT isn't really a consumption tax, however. The truth is that the base of the VAT is the output of labor and capital—and, therefore, the economic burden of the VAT is, like that of the income tax, borne mostly by those who work, invest and produce the most output.
It is disturbing to consider a value-added tax sneaking into our current tax code disguised as tax reform. The outcome will be more spending, a higher combined income tax and VAT tax burden concentrated on a minority of voters, and a spate of special redistributional subsidies and exemptions that would mean higher rates. These higher rates would increase the economic output losses and continue the ongoing transfer of income and capital from the private sector to the government.
If Republicans get sucker-punched by a VAT, America will forever lose the opportunity to reduce spending, cut taxes, grow the private economy, and restore the country's long-term fiscal integrity.
Mr. Christian is co-author of "The Value Added Tax: Orthodoxy and New Thinking" (Kluwer, 1989) and director of the Center for Strategic Tax Ref
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WSJ:
For a guy who spends a lot of time advocating for higher taxes, Warren Buffett does a remarkably good job of minimizing his own corporate tax bill. This is all to the good for Mr. Buffett and his fellow Berkshire Hathaway shareholders, who no doubt can invest the money more wisely than the federal government is likely to do.
Mr. Buffett's recent decision to invest in Bank of America represents another tax-avoidance triumph for the Berkshire chief executive. U.S. corporations are subject to a top federal income tax rate of 35%, the second highest in the world. But the Journal's Erik Holm notes that Mr. Buffett and the Berkshire bunch won't pay anything close to that on their investment in BofA preferred shares.
That's because corporations can exclude from taxation 70% of the dividends they receive from an investment in another corporation. This exclusion is intended to prevent double- or even triple-taxation as money is earned by one company, paid to another company and then ultimately paid out to shareholders. The policy makes sense; we only wonder why the exclusion isn't 100%.
With the 70% exclusion for Mr. Buffett and his fellow shareholders, Berkshire will enjoy an effective tax rate of 10.5% on the $300 million in dividends it will receive each year from Bank of America.
We're tempted to suggest that Mr. Buffett should do what he might call the patriotic thing and volunteer Berkshire to pay the full 35% rate as a good corporate citizen. But even if Mr. Buffett won't say it, most Americans know that more jobs will be created if the money is deployed by the Berkshire bunch than by the Beltway boys.
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"Lets take that to the Tax thread please." (from 'Glibness')
The mortgage deduction and charitable contributions will be the last two to go. In theory, I prefer very low rates and no deductions with no social engineering, but the home mortgage deduction was a very long institution of encouraging home ownership, neighborhoods, stability that people have long relied on. This is not a great time in housing to make things dramatically worse, nor does that save us money, see housing thread. If we did, a multi-year phase out does less damage. Don't we already cap and limit the mortgage deduction?
The point is IMO, is get the garbage out of the tax code, get the rates down to what a rich person with options would be willing to pay and you will get more growth and more tax collections.
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By ARTHUR LAFFER
Some people actually believe government can create jobs by taxing and borrowing from people with jobs and then giving that money to people without jobs. They call this demand stimulus. To make matters worse, other people think these demand-stimulus ideas warrant a serious response.
Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won't speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don't work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.
I'm beginning to think that Irving Kristol was correct when he wrote, "It takes a Ph.D. in economics not to be able to understand the obvious." It shouldn't surprise anyone why the economy isn't getting better.
If the U.S. wants prosperity, government doesn't need to do something, it needs to undo much of what it already has done. Here is one area where, in the spirit of the late Congressman Jack Kemp, President Obama and I could agree.
African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn't even take into account "discouraged" workers, "involuntary" part-time workers and "underemployed" workers. But even these numbers don't tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time.
Enlarge Image
Close...Behind these numbers are millions of lives discouraged and despondent. People who've lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he's living on handouts from Uncle Sam. We as a nation can't wait until 2013 to address this issue.
Whether President Obama's base finds supply-side economics appealing or not, he should immediately join with all members of Congress from both parties to develop a full program for enterprise zones. And while enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico.
Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment. The policies applicable to enterprise zones should include:
A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer's portion of the payroll tax. The locus of employment does have to be in the enterprise zone.
Don't for a moment think that this will be a budget buster. Right now there aren't many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won't need welfare. The best form of welfare is still a good job.
B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren't worth hiring. That is why they are unemployed.
Enlarge Image
CloseAssociated Press
A job seeker fills out an application with Coca-Cola at a jobs fair hosted by the Congressional Black Caucus in Miami.
.Even for teenagers who are in school, a summer job is an enormous benefit for a future productive career. This summer and last summer only 30% of all teens worked—all-time lows. We need to break this vicious cycle right now by getting rid of the youth minimum wage in our enterprise zones.
C) In the enterprise zones the government should do an expedited review of all building codes, regulations, restrictions and requirements to make sure that they don't unjustifiably impede economic growth. For example, mandated union membership rules should be voided in enterprise zones as should all prevailing wage provisions and the like.
When I lived in Chicago I reviewed a number of rules and regulations and restrictions whose primary impact was to impede our inner cities from ever achieving prosperity. I'll bet they're even worse now.
D) Profits generated by companies operating and employing people within the enterprise zone should only be taxed at one-third the regular tax rate. No matter how many fewer regulations a company faces, those companies still quite rightly respond to profits for their shareholders.
Businesses don't move their plant facilities as a matter of social conscience. They do it to make profits for their shareholders. If you want more jobs in our most depressed areas, make those areas more profitable for companies to relocate there. It's as simple as that.
I guarantee Mr. Obama that he will receive the support necessary to carry the day in Congress. And once he sees how this plan works for our most depressed areas of America, he can then extend enterprise zones to cover the whole country.
Mr. Laffer, chairman of Laffer Associates, is co-author, with Stephen Moore, of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
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Art Laffer is perhaps my favorite on policy but on enterprise zones I think he is half right.
He ends with: "he can then extend enterprise zones to cover the whole country", but that is the whole point. The USA needs to become one large enterprise zone and entice the able mind and bodied who are unproductive among us to join in.
Our ex-Gov. here (Pawlenty) had a program like this, and as Laffer is suggesting, it is a way of letting a little freedom out of the gate in a leftist-run electorate. But it still extends and validates the piecemeal, left-Dem strategy of targeting this and targeting that instead of applying all laws evenly to everyone.
He is right about these dysfunctional inner city zones in America where enterprise is dead and gone. In local political arguments I challenge liberals to name one profit seeking competitive enterprise who has started, relocated, expanded, hired, built anything that is unsubsidized in left ruled North Minneapolis and the same could be said for the south side of Chicago, east L.A., most of Detroit etc. Why can't these locations produce and compete? The question is complicated but waiving all rules and all taxes is just a better form of selective subsidy and unequal treatment that plagues our tax code already.
Laffer's idea is what Obama as a liberal should have chosen instead of more tax and spend. Our side should be designing and articulating a realistic and sustainable framework for the entire nation. And our side should be calling for implementation now, not in 2013, and pin the obstructionism on their side.
To go from a culture where people don't work and get paid anyway to a culture where people work but don't have to pay in what the rest of us do is a continuation of what is fundamentally wrong IMHO.
It reminds me of a similar error made by Pres. Reagan. His tax cuts were not only across the board but would remove million of taxpayers off the rolls altogether, he bragged. That helped to sell his program to the Dem votes he needed and I'm glad it passed, but that aspect of it in hindsight was shortsighted.
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It turns out that the super secret jobs program that waited for the vacation but couldn't that couldn't wait until Thursday or until the second part was written, that we have to pass and was only half introduced at the over-hyped session, to be paid for later, was tax increases on job creators that already failed in congress and spread the wealth measures to Democrat core constituent groups. This WSJ Editorial recognizes that the incentive measures are temporary and the tax hikes are permanent. Who knew?
Obviously, this whole thing is a congress trap. President Obama has no intention of getting this snake oil passed. Just looking for an issue and a scapegoat.
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http://online.wsj.com/article/SB10001424053111904353504576567460396287134.html?mod=WSJ_Opinion_LEADTop
* SEPTEMBER 14, 2011, Review and Outlook
The 2013 Tax Cliff
Business had better enjoy the next 16 months.
President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.
Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.
What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let's call the expensive roll:
• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.
• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama's new jobs program. This would mean a tax hit of $240 billion on small business and workers. That's the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.
So even if the White House is right that its latest stimulus plan will create "millions of jobs" through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.
• January 2013 is also the same month that Mr. Obama wants the Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress's Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.
The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.
• Also starting in 2013 are two of ObamaCare's biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.
The White House's economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.
Cato Institute economist Dan Mitchell on President Obama's proposed tax hikes and the increase in the poverty rate.
The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.
All of this assumes that American business owners aren't smart enough to look beyond the next few months. They can surely see the new burdens they'll face in 2013, and they aren't about to load up on new employees or take new large risks if they aren't sure what their costs will be in 16 months. They can also reasonably wonder whether Mr. Obama's tax hike will hurt the overall economy in 2013—another reason to be cautious now.
For the White House, the policy calendar is dictated above all by the political necessities of the 2012 election. Mr. Obama will take his chances on 2013 if he can cajole the private economy to create enough new jobs over the next year to win re-election, even if those jobs and growth are temporary. Business owners and workers who would prefer to prosper beyond Election Day aren't likely to share Mr. Obama's enthusiasm once they see the great tax cliff approaching. Look out below.
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Tax the job creators to create jobs.
Brilliant.
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http://online.wsj.com/article/SB10001424053111904353504576567460396287134.html?mod=djemEditorialPage_h
President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.
Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.
What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let's call the expensive roll:
• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.
• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama's new jobs program. This would mean a tax hit of $240 billion on small business and workers. That's the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.
So even if the White House is right that its latest stimulus plan will create "millions of jobs" through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.
• January 2013 is also the same month that Mr. Obama wants the
Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress's Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.
The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.
• Also starting in 2013 are two of ObamaCare's biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.
The White House's economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.
Related Video
WSJ Editorial board member Steve Moore on President Obama's plan to pay for temporary tax cuts by hiking income and business taxes over the long haul.
..
The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.
All of this assumes that American business owners aren't smart enough to look beyond the next few months. They can surely see the new burdens they'll face in 2013, and they aren't about to load up on new employees or take new large risks if they aren't sure what their costs will be in 16 months. They can also reasonably wonder whether Mr. Obama's tax hike will hurt the overall economy in 2013—another reason to be cautious now.
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The final three sentences contain some highly objectionable hyperbole, but the content of the piece is most worthy of attention.
==========================
The Attack on Accidental Americans
by Wendy McElroy on September 21, 2011
When Julie Veilleux discovered she was American, she went to the nearest US embassy to renounce her citizenship. Having lived in Canada since she was a young child, the 48-year-old had no idea she carried the burden of dual citizenship. But the renunciation will not clear away the past ten years of penalties with the Internal Revenue Service (IRS).[1]
Born to American parents living in Canada, Kerry Knoll's two teenaged daughters had no clue they became dual citizens at birth. (An American parent confers such status on Canadian-born children.[2] ) Now the IRS wants to grab at money they earned in Canada from summer jobs; the girls had hoped to use their RESPs (registered education savings plans) for college.[3]
The IRS is making a worldwide push to squeeze money from Americans living abroad and from anyone who holds dual citizenship, whether they know it or not. It doesn't matter if the "duals" want US status, have never set foot on US soil, or never conducted business with an American. It doesn't matter if those targeted owe a single cent to the IRS. Unlike almost every other nation in the world, the United States requires citizens living abroad to file tax forms on the money they do not owe as well as to report foreign bank accounts or holdings such as stocks or RSSPs. The possible penalty for not reporting is $10,000 per "disclosed asset" per year.
Thus, Americans and dual citizens living in Canada (or elsewhere) who do not disclose their local checking account — now labeled by the IRS as "an illegal offshore account" — are liable for fines that stretch back ten years and might amount to $100,000. A family, like the Knolls, in which there are two American parents and two dual-citizen children, might be collectively liable for $400,000.
Approximately 7 million Americans live abroad. According to the IRS, they received upwards of 400,000 tax returns from expatriates last year — a compliance rate of approximately 6 percent. Presumably the compliance of dual-citizen children is far lower. Customs and Immigration is now sharing information with the IRS and, should any of 94 percent expats or their accidentally American offspring set foot on US soil, they are vulnerable to arrest.
Why Now?
As of 8:30 a.m. EST, September 20, the US National debt was $14,744,278,404,668. That is over $47,000 per American citizen, over $131,000 per taxpayer. America is bankrupt and desperate to grab at any loose dollar within its reach. Having reaped the easy pickings within its own borders, America is extending its reach.
So far, the IRS push into foreign territory has been a rousing success by their own standards. In 2009, the IRS offered "amnesty" — that is, lessened but still hefty penalties — to whoever stepped forward to disclose foreign bank accounts. According to FOX Business News, the 2009 program netted
the government $2.2 billion in tax revenues … and $500 million in interest from the 2011 program, for a total of $2.7 billion.… Moreover, the IRS says it has yet to reap penalties from these evaders, which could rake in hundreds of millions more.
IRS Commissioner Doug Shulman stated,
we are in the middle of an unprecedented period for our global international tax enforcement efforts. We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.[4]
Going after the college money earned by children born and raised in Canada (or elsewhere) is just one part of the international enforcement effort. The entire package is called the Foreign Account Tax Compliance Act or FATCA; it was a revenue-raising provision that was slipped into one of Obama's disastrous stimulus bills. Starting in 2013 — or 2014 if an exemption is granted — every bank in the world will be required to report to the IRS all accounts held by current and former US citizens. If account holders refuse to provide verification of their non-US citizenship, the banks will be required to impose a 30 percent tax of all payments or transfers to the account on behalf of the IRS. Banks that do not comply will "face withholding on U.S.-source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-through payments."[5]
Australia and Japan have already declared their refusal to comply. Canada's Finance Minister Jim Flaherty has publicly stated that the proposed American legislation "has far-reaching extraterritorial implications. It would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians."[6]
According to the Financial Post,
Toronto-Dominion Bank is putting up a fight against a new U.S. regulation that would compel foreign banks to sort through billions of dollars of deposits to find U.S. citizens who might be hiding money.… TD has complained that the proposed IRS rule is unreasonable because it would require the bank to make US$100-million investment in new software and staff. Other lenders resisting the effort include Allianz SE of Germany, Aegon NV of the Netherlands and Commonwealth Bank of Australia.… Now the Canadian Bankers association has joined the fray. In an emailed statement the CBA called the requirement "highly complex" and "very difficult and costly for Canadian banks to comply with."[7]
The Financial Times reports,
- ne of Asia's largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds? Their motive has nothing to do with the outlook for the dollar.… Instead, what is worrying this particular Asian financial group is tax. In January 2013, the US will implement a new law called the Foreign Account Tax Compliance Act.… [T]he new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore.… mplementing these measures is likely to be costly; in jurisdictions such as Singapore or Hong Kong, the IRS rules appear to contravene local privacy laws.… Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore Fatca by creating subsidiaries that never touch US assets at all. "This is complete madness for the US — America needs global investors to buy its bonds," fumes one bank manager. "But not holding US assets might turn out to be the easiest thing for us to do."[8]
Meanwhile, banking will become more difficult within the United States. FATCA will hold banks liable for any "improper" transfer of money to outside the United States. The Wealth Report, a financial analysis site, states,
US banks will be desperately trying to cover their liability by checking the exact purpose of the payment, to make sure it doesn't come within the scope of the legislation. The burden of proof will naturally pass to the account holder who is trying to transfer money, to demonstrate that the transaction is not subject to the new withholding tax. If the sending bank in the USA has any doubt at all about the purpose of the transaction, they will be forced to deduct 30 percent tax. Net result? It is going to be darned difficult for anyone to transfer money out of the USA. If that isn't a form of currency control, then I don't know what is! (emphasis original)
Returning to the Little Guy and Gal
Expat Americans and children — a.k.a. dual citizens — will be caught in the indiscriminate steel net that the IRS wants to throw around the globe. Their innocence or ignorance will not matter. The IRS wants money. If expats and duals do not owe money from their earnings, then the IRS will pursue obscure reporting requirements and apply them to people who did not even know they were American. It will try to yank their college funds and drain their parents' retirement savings.
They can renounce their American citizenship but that is an imperfect solution. For one thing, it does not immunize them from the past ten years of nonreporting. For another, following the United States' "exit" sign takes many people directly through the Treasury Department where they may be required to pay a brutal one-time exit tax. Basically, for those with more than $2 million dollars in assets, the tax comes to $600,000.
Moreover, renunciation is a difficult process. The Globe and Mail is one of many Canadian newspapers now explaining to readers how they can renounce American citizenship. G&M states,
Renouncing your U.S. citizenship starts with a hefty fee — $450 (U.S.), just for the chance to appear in front of a consular official. Need it done in a hurry? Forget about it. It can take about two years to get an appointment.[9]
$25.00 $18.00
The true hope lies in a worldwide refusal to comply. The only power strong enough to rein in the United States is the world itself. There is hope that this will happen. Reutersdeclared,
A U.S. law meant to snuff out billions of dollars in offshore tax evasion has drawn the criticism of the world's banks and business people, who dismiss it as imperialist and "the neutron bomb of the global financial system." … A senior American finance executive at the Hong Kong branch of a major investment house [declared] that FATCA was "America's most imperialist act since it invaded the Philippine Islands in 1899." The regulation … was "engendering a profound and growing anti-American sentiment abroad."[10]
How long can America maintain that people "hate us for our freedom?" People fear and hate America for its totalitarianism. And among those people filled with fear are American citizens.
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Please be sure to see the first post of the morning as well:
==============
By ALAN REYNOLDS
The president's "Plan for Economic Growth and Deficit Reduction" mainly hinges on persuading Congress to trade $447 billion in temporary payroll tax cuts and spending increases—the "jobs plan"—for permanent income-tax increases of $150 billion a year. Mr. Obama also calls on the 12-member congressional super committee to undertake "comprehensive tax reform," which he defines in peculiar fashion as trading lower deductions for higher rates.
According to the Sept. 19 White House fact sheet, "The President calls on [the super committee] to undertake comprehensive tax reform, and lays out five principles for it to follow: 1) lower tax rates; 2) cut wasteful loopholes and tax breaks; 3) reduce the deficit by $1.5 trillion; 4) boost job creation and growth; and 5) comport with the "Buffett Rule" that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."
But the administration's tax plan violates these principles. It raises rather than lowers tax rates, shrinks tax deductions to pay for more spending, makes no believable contribution to economic growth, has nothing specific to say about the Buffett Rule, and allocates a third of the proposed $1.5 trillion tax increase over the next decade to such miscellany as the temporary payroll tax break, more subsidies for state and local government jobs, and prolonged unemployment benefits.
Enlarge Image
CloseCorbis
.Nearly all of Mr. Obama's new tax increases are identical to those in his failed budgets of 2011 and 2012. But the repackaging of stale ideas is partly concealed by intermingling the phasing-out of deductions and exemptions with allowing the Bush tax rates to expire, thus increasing the top two tax rates to 36% and 39.6% from 33% and 35%. This intermingling gives the false impression that $866 billion in projected additional revenue comes from raising the top tax rates alone.
The Treasury Department's more candid explanation of these same proposals in the 2011 budget estimated that raising the top two tax rates would bring in only an extra $36.4 billion a year from 2011 to 2020, which adds up to little more than $400 billion from 2012 to 2021. The administration's 2011 proposal to raise the tax rate on capital gains and dividends to 20% from 15% on upper incomes was estimated to raise an even punier $10.5 billion a year. But the 3.8% surtax in ObamaCare already raised those tax rates to 18.8% to finance health-insurance subsidies, leaving no meaningful revenue from that source.
In other words, most of that large, $866 billion 10-year tax hike comes from phasing out personal exemptions and deductions. These are not "tax breaks that small businesses and middle-class families don't get," as the president claimed on Monday in his Rose Garden remarks. The phase-outs apply to the same exemptions and deductions enjoyed by those earning less than $250,000, including deductions for mortgage interest, charitable contributions, and state income taxes.
Mr. Obama's second biggest tax increase, supposedly worth $410 billion over 10 years according to the fact sheet, comes from further reducing "the value of itemized deductions and other tax preferences to 28% for those with high income." The phasing out itemized deductions for upper-income taxpayers would shrink those deductions by as much as 80%, so this additional cap would limit any remaining deductions to 28 cents on the dollar. The combination would be severe. Ask any charity.
As for corporate taxes, Mr. Obama said in the Rose Garden that "We can lower the corporate rate if we get rid of all these special deals." But his plan does not include a lower corporate rate. Instead it earmarks the revenue from eliminating any loopholes and "special deals" to pay for the $447 billion jobs bill.
This brings us to the president's puzzling remarks about "the Buffett Plan," which has no clear connection to anything in his own plan. Mr. Obama has said that anyone who thinks "somebody who's making $50 million a year in the financial markets [i.e., Warren Buffett] should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that" should "have to defend that unfairness. . . . They ought to have to answer for it."
Related Video
Editorial board member Steve Moore on why some Democrats are opposing Obama's deficit plan.
..Warren Buffett's large capital gains (mostly unrealized) and token $100,000 salary are by no means typical. IRS statistics show those earning more than $1 million paid 28.9% in federal income taxes in 2009, compared with 24.6% for those earning from $200,000 to $500,000 and 11.6% for those earning from $50,000 to $75,000.
However, if Mr. Obama is seriously suggesting that marginal tax rates should be the same for the working teacher's salary as for the retired teacher's capital gain, then he may be flirting with a rerun of George McGovern's 1972 presidential campaign theme that, "Money made by money should be taxed at the same rate as money made by men."
Unlike Mr. McGovern, though, Mr. Obama has not yet proposed a capital gains or dividend tax higher than 20%. If the rhetorical Buffett Rule has any meaning at all, it appears to be nothing more than a presidential hint to the congressional super committee that he would like them to propose (as he has not) that incomes above $1 million face a 28% tax on capital gains and dividends.
The trouble is that such a Buffett Rule would quite certainly reduce rather than enlarge federal revenue. That's because we know from experience that a 28% tax on selling stock or property greatly reduces the amount offered for sale. Wealthy people then sit on more unrealized capital gains rather than subjecting themselves to a stiff tax penalty on selling those assets. The 28% tax on long-term capital gains brought in only $36.9 billion a year from 1987 to 1997, according to the Treasury Department, while the 15% tax brought in $96.8 billion a year from 2004 to 2007.
Putting aside the seemingly empty threat of a Buffett Plan tax on capital gains, the president's new-old plan to raise income taxes on families and small businesses earning more than $250,000—to pay for temporary tax gimmicks and extra spending—is just stale wine in a new bottle.
Any plan that would impose permanently higher tax rates on income to pay for temporarily lower tax rates on payrolls is no stimulus or jobs plan under any sort of economics. Neither is a tax-financed extension of unemployment benefits. It's a tax-and-spend plan, and a bad one.
Mr. Reynolds, a senior fellow with the Cato Institute, is the author of "Income and Wealth" (Greenwood, Press 2006).
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"There is no part of the administration of government that requires extensive information and a thorough knowledge of the principles of political economy, so much as the business of taxation. The man who understands those principles best will be least likely to resort to oppressive expedients, or sacrifice any particular class of citizens to the procurement of revenue." --Alexander Hamilton, Federalist No. 35, 1788
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Pres. Obama accidentally stepped in it.
Steve Forbes: "You know it ends all this crony capitalism in Washington. From now on, if Obama invites you to the White House, you'd know it's because he really loves you."
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The Wall Street Journal
OPINION
SEPTEMBER 30, 2011
Flat Is the New Fair
Is President Obama paving the way for GOP tax reform?
By STEPHEN MOORE
'Suddenly, liberal Democrats are making the same argument about the tax code that I've been making for 20 years," laughs former Republican House Majority Leader Dick Armey. "Welcome to the party." Mr. Armey, who along with Steve Forbes has been the torch bearer for the flat tax since the early 1990s, believes that the latest applause line from President Obama that "billionaires should pay the same tax rate as janitors" may be the political gateway to sweeping tax reform.
Mr. Forbes sees an opening here too and says: "The flat tax is the perfect issue for these times. It fixes the economy and doesn't cost a dime." He's right. It's the teed-up GOP response to a jobless recovery and the near-universal sentiment among voters that the tax code is corrupt beyond repair.
That case is inadvertently helped as Mr. Obama and his new best friend, billionaire Warren Buffett, barnstorm the country trashing the tax system for, as the Oracle of Omaha puts it, "coddling the super rich." In truth, the system isn't nearly as skewed in favor of those at the top of the income pyramid as they allege: Today the top 1% pay 38% of the income tax. But in Washington, perception drives policy. The virtue of a flat tax with no deductions is that it provides an ironclad guarantee that the rich pay no lower a tax rate than janitors and secretaries.
This past summer the Senate Budget Committee, which is run by Democrats, reported that 26.5% of all tax deductions and credits are taken by those with incomes in the top 1% on the wealth scale. Cleaning out the attic of decades of these loopholes and using the savings to lower the tax rate ensures that Mr. Buffett, Bill Gates and Lady Gaga pay their fair share.
Mr. Obama complains in his budget that it's not fair that the rich get to deduct 35% for their mansions and charitable receipts, while the middle class deducts only 15% or 20%. But that's the collateral damage from a multitiered tax-rate system.
Democrat Kent Conrad of North Dakota, the chairman of the Senate Budget Committee, says that loopholes are "subsidies, and subsidies are not the type of thing that you want for an efficient market system." He sounds like Milton Friedman there and he proposes to reduce "tax expenditures" by 17%.
Why stop there? Republicans should counter-offer: We see your 17% and raise it to 100%.
Done correctly, the flat tax eliminates all double taxation of saving and investment. But if liberals won't accept a lower tax rate for capital gains and dividends, perhaps the grand deal in Washington could be to tax everything at 16% or 17%.
Democrats have come to a different conclusion: They want to get rid of the deductions and raise tax rates at the same time. When has that ever worked? The near 100-year history of the tax code teaches this inviolable law of politics: The higher the tax rate, the more tax carve-outs there will be for yacht owners. That is why the rich paid a smaller share of the income tax in the early 1960s when the top tax rate was 91%, and in the 1970s with a 70% rate, than they do today with a 35% rate.
That's why the flat tax is the fairest tax of all. The combination of a single tax rate with a family-size allowance—shielding, say, the first $35,000 of income for a family of four—ensures that everyone would pay the same marginal tax rate above that level. A family of four with an income of $70,000 would pay an average tax rate of about 8.5%, whereas the members of the Buffett billionaire club would pay 17%.
Why aren't Republicans in Congress and in the presidential race making this case? Newt Gingrich and Jon Huntsman have tax rate reform proposals that move toward a flatter tax. But the candidate who comes closest to a true flat tax is Herman Cain, the former Godfather's Pizza CEO. His argument for a "9-9-9" plan puts the current income and payroll taxes in the shredder and replaces them with a 9% personal income tax with no deductions, a 9% net business income tax, and a 9% national sales tax.
That would be rocket fuel for the economy, though the combination of a federal sales tax and an income tax is a big worry. But at least Mr. Cain has super-sized solutions to an economy with super-sized problems.
"I keep waiting for a Republican candidate to take the plunge," says a half-frustrated Steve Forbes. Then he adds one more flat tax selling point: "You know it ends all this crony capitalism in Washington. From now on, if Obama invites you to the White House, you'd know it's because he really loves you."
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Obama's tax policy: Take from the millionaires...and give it to the trillionaires.
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The Reid proposal to put a 5% surcharge on incomes over a million by will NOT close the deficit by 3% even in a theoretical case where millionaires were stupid and did not adjust their behavior whatsoever to fend off the additional punishment on achievement and reported income. http://www.taxfoundation.org/blog/printer/27547.html
Best case is to raise revenues in an between zero to 2% of the current deficit at the expense of a huge percentage, job killing, marginal tax increase. In the real world, this kind of rate increase will actually DECREASE government revenues.
How long ago was it that our commander in chief just said that everyone knows you don't raise taxes in a recession?
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Media idiocy in economics. Washington Post editorial yesterday denies that changing the income. They prefers static scoring. Call dynamic scoring "faith-based" analysis. Unbelievable.
http://www.washingtonpost.com/opinions/herman-cains-deceptive-and-unfair-tax-plan/2011/10/12/gIQAauGDgL_story.html
Mr. Cain’s argument of revenue-neutrality rests on the sleight of hand of dynamic scoring — taking into account the economic growth to be generated by lower tax rates. This kind of faith-based tax analysis is too dubious a basis on which to rest an economic program.
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Art Laffer has endorsed 999 and I heard on the Bret Baier Report that Cong. Paul Ryan has too-- but have not seen reference to this elsewhere.
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I am taking the Laffer and Ryan endorsements to be non exclusive; the Cain plan is one good way to move forward out of this mess:
Laffer...said Mr. Cain's principles on taxation are "really sound," and that Mr. Cain himself is a "world-class candidate," but he also praised several other GOP candidates.
http://www.politico.com/news/stories/1011/65958.html
“We need more bold ideas like this because it is specific and credible,” Ryan said
http://thehill.com/blogs/blog-briefing-room/news/187437-paul-ryan-loves-cains-specific-and-credible-9-9-9-plan
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Yes.
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As much as I like Cain, I'm very concerned about 999 and the potential for very bad consequences that may spin out of it.
http://www.freedomworks.org/blog/dean-clancy/herman-cains-999-plan-the-good-the-bad-and-the-ugl
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GM:
a) Note the exclusion of the poor.
b) The fears of the VAT tax: IMHO this is a matter of F.E.A.R: False Expectations Appearing Real. Tax rates are determined by how determinedly we resist increases. The current structure, where most people pay little or no taxes actually weakens our resistance on the whole. A system where virtually everyone pays THE SAME RATE will do much to stiffen the spine of we the people should Washington try to increase any of the 9s.
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Kudlow
Herman Cain is the only GOP presidential candidate who wants to kill the tax code. That's right. Put a knife in it. Junk the entire system. And people are cheering as he rises in the polls in his quest for the nomination.
Cain's 9-9-9 plan is not perfect. But then again, the good should never be the enemy of the perfect.
Rep. Paul Ryan gives the plan a thumbs-up. Supply-side mentor Art Laffer tells me it would be "far, far better than the current system." And Chris Chocola, president of the free-market Club for Growth, calls it "a truly revolutionary tax reform that would amount to a massive job-creating tax cut on investments, savings and income."
As the world now knows, 9-9-9 translates to a 9 percent income-tax rate, a 9 percent value-added net sales tax rate on business and a 9 percent national sales tax overall. Like many conservatives, I am troubled by the national sales tax piece. It reminds me too much of Europe. It could start low and then build on top of the other taxes. But I totally support the first two nines on personal income and business. In my view, these are vast improvements.
For his part, Cain argues that the sales tax nine would pick up revenue and help to lower the rate for everybody, especially the middle class. His economic adviser Rich Lowrie told me in a CNBC interview that the sales tax is a replacement tax, not an add-on tax like you'd find at the state level. This is a key point. Lowrie said, "All we are doing is pulling out taxes that are invisible. We're cutting the rates. We're putting them back in at lower rates."
Lowrie is referring to the payroll tax, which in the Cain plan will go from 15 to 9 percent. That constitutes a net tax cut and a good deal more transparency regarding costs and prices that are embedded in the current code. I'm not sure I buy into this point entirely, but it's an interesting argument.
Liberals oppose the sales tax because they say its regressivity will hurt middle- and low-income people. But the Cain plan partially deals with this by exempting everybody below the poverty line. Cain also states that sales of existing goods would be exempt. I have no knowledge, however, of the treatment of services, and I am somewhat skeptical about enforcement complexity overall.
Nevertheless, a mammoth drop in marginal tax rates for individuals (35 to 9 percent, or 18 percent including the sales tax) and for businesses (also 35 to 9 percent) would supply an incredibly strong economy-wide growth incentive.
Lowrie argued further that the 9-9-9 plan will add $2 trillion to U.S. gross domestic product, create 6 million jobs, increase business investment by a third and lift wages by 10 percent. "And if you fold all that growth together," said Lowrie, "federal revenues go up by 15 percent."
I'm still a flat-tax guy, and I can't vouch for these numbers. But I can vouch for the proposition that greater marginal incentives will drive economic growth into high gear. I know there are many skeptics on this. But as always, I point to the Harding-Coolidge-Mellon tax cuts of the 1920s, the John F. Kennedy tax cuts of the 1960s and the Ronald Reagan tax cuts of the 1980s.
Remember, too, that the Cain tax plan would eliminate the double-tax on saving and investment by removing capital gains, estates and dividends from the tax code. All this would throw off strong economic incentives.
Given the current economic malaise, which in large part can be traced to the weakened balance sheets and net worths of families suffering from the multi-year slump in stock prices and home values, increasing returns to saving and investment through a much lower marginal tax rate will boost asset values. Just what the doctor ordered.
As for businesses, not only would they get a globally super-competitive 9 percent tax rate, but they'd receive 100 percent expensing for new purchases of capital equipment.
Former Treasury hands Gary and Aldona Robbins priced out the Cain plan on a static basis and discovered it to be revenue neutral. Essentially, they found a $26 trillion tax base yielding $2.3 trillion in revenue for a 9.1 percent overall rate. Hence, 9-9-9.
In essence, the Cain plan combines the flat tax (with its single marginal rate) and the fair tax (which uses the national sales tax). I don't know if this is really possible. But in terms of first principles, throwing out the tax code, lowering marginal tax rates, getting rid of the carve-outs and deductions that make the current code impossible to understand, and providing an economic-growth tonic to heal our current funk, it makes a lot of sense.
That Herman Cain is rising in the polls is no surprise.
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Kudlow is wrong about Cain's 999 excluding people below the poverty line. Kudlow says: "the Cain plan partially deals with this by exempting everybody below the poverty line." That was the FAIR tax that did that, undermining its simplicity. Cain has only said that people poor or otherwise can avoid this tax by buying used goods. A fair point except the price of used goods will go up by the same 9% his own valid logic - an embedded tax passed along to the consumer.
Note that Kudlow also writes: "I am troubled by the national sales tax piece. It reminds me too much of Europe. It could start low and then build on top of the other taxes. But I totally support the first two nines on personal income and business....I'm still a flat-tax guy"
Me too.
I posted at length previously as to why I believe the FAIR tax is unworkable politically, such as here is 2007: http://dogbrothers.com/phpBB2/index.php?topic=1477.msg15510#msg15510 That is the reason Cain moved to the combination plan, but the combination plan precludes the central feature of the FAIR tax, repealing the income tax amendment.
I agree the Cain plan if implemented exactly as written will achieve an economic jumpstart and optimistic future growth rates similar to what is claimed, but I don't believe income taxes and corporate taxes will then stay flat or low thereafter, but I do believe that a new federal tax will never go down in its top rate or go away.
Cain 9-9-9 requires a 2/3 majority to change the rates? How so? That sounds more like a constitutional amendment than a tax bill. I favor constitutional amendments to cap tax rates and spending. That is not in the proposal.
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I strongly agree with this part, Crafty wrote: "The current structure, where most people pay little or no taxes actually weakens our resistance on the whole. A system where virtually everyone pays THE SAME RATE will do much to stiffen the spine of we the people should Washington try to increase any of the 9s."
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At least Cain is willing to think outside the box on this topic.
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I acknowledge that the 2/3 requirement to increase is probably BS.
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At the link below, Dick Morris succinctly explains why Herman's plan makes perfect sense, despite the attacks on it by the other candidates and the media. Herman DOES need to do a better job of defending the plan in a debate format, however. I have no doubt he is working on doing that as we speak:
www.dickmorris.com/blog/defending-999-dick-morris-tv-lunch-alert/
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http://online.wsj.com/article/SB10001424052970204002304576629481571778262.html?mod=WSJ_Opinion_LEADTop
The Tax Reform Evidence From 1986
By MARTIN FELDSTEIN
Congress's Joint Select Committee on Deficit Reduction is struggling to find $1.5 trillion in cuts over the next 10 years. This is a unique opportunity to use tax reform to reduce future budget deficits while lowering individual tax rates.
The Tax Reform Act of 1986, enacted 25 years ago last Friday, showed how a tax reform that includes lower rates can change incentives in a way that grows the tax base and produces extra revenue. The 1986 agreement between President Ronald Reagan and House Speaker Tip O'Neill reduced the top marginal tax rate to 28% from 50%. A conservative Republican and a liberal Democrat could agree to a dramatic reduction in top rates because the legislation also eliminated a wide variety of tax loopholes.
A traditional "static" analysis that ignores the response of taxpayers to lower tax rates indicated that those combined tax changes would leave total revenue unchanged at each income level. But the actual experience after 1986 showed an enormous rise in the taxes paid, particularly by those who experienced the greatest reductions in marginal tax rates.
To measure that response, I studied a sample of individual tax returns (stripped of all identifying information) for more than 4,000 taxpayers provided by the U.S. Treasury Department. Because the sample contained the tax return of each individual for the years 1985 through 1988, I could compare the taxable income of individuals in 1985 with their taxable incomes in 1988, two years after their rates were lowered.
Taxpayers who faced a marginal tax rate of 50% in 1985 had a marginal tax rate of just 28% after 1986, implying that their marginal net-of-tax share rose to 72% from 50%, an increase of 44%. For this group, the average taxable income rose between 1985 and 1988 by 45%, suggesting that each 1% rise in the marginal net-of-tax rate led to about a 1% rise in taxable income.
This dramatic increase in taxable income reflected three favorable effects of the lower marginal tax rates. The greater net reward for extra effort and extra risk-taking led to increases in earnings, in entrepreneurial activity, in the expansion of small businesses, etc. Lower marginal tax rates also caused individuals to shift some of their compensation from untaxed fringe benefits and other perquisites to taxable earnings. Taxpayers also reduced spending on tax-deductible forms of consumption.
A similar picture emerged for the group of taxpayers who faced slightly lower marginal tax rates of 42% and 45%. The reduction to 28% raised the marginal net-of-tax share of this group by 25% and their taxable incomes rose by 20%, suggesting that each 1% rise in the marginal net-of-tax share raised taxable incomes by 0.8%, quite similar to the estimate for the group with the highest marginal tax rate.
The substantial sensitivity of taxable income to the taxpayer's marginal net-of-tax share has important implications for the effect of tax-rate reductions on total tax revenue. For a 10% across-the-board reduction in all tax rates, a traditional "static" analysis implies that revenue would fall to 90% of its previous level. But reducing a current 40% marginal tax rate by 10% to 36% raises the net-of-tax share to 64% from 60%, a rise of 6.7%. If that causes the taxable income of those at that tax level to rise by 6.7%, their taxable income would fall to only 96% of what it had been. In short, the behavioral response of taxpayers in this highest bracket would offset 60% of the static revenue loss.
The effect of taxpayer behavior on revenue is smaller in lower tax brackets. Calculations using the National Bureau of Economic Research's TAXSIM model, which calculates federal and state income tax liabilities from survey data, indicate that a 10% across-the-board reduction in all federal tax rates would reduce revenue by about 60% of what a static analysis would imply—i.e., that the behavioral response of taxable income to the lower marginal tax rates would offset about 40% of the static revenue loss.
These calculations have important implications for today's deficit-reduction debate. Broadening the tax base by limiting the use of tax expenditures (the special tax rules that substitute for direct government spending as a way to subsidize health insurance, mortgage borrowing and other things) could raise substantial revenue. Doing so doesn't require eliminating any of those tax expenditures. In a study of recent Treasury data, Daniel Feenberg, Maya MacGuineas and I found that limiting each individual's tax reduction from the use of tax expenditures to 5% of that individual's adjusted gross income would raise revenue equal to about 10% of current personal tax revenue.
Combining that base broadening with a 10% cut in all tax rates would be revenue neutral in a traditional static analysis. But the experience after the 1986 tax reform implies that the combination of base broadening and rate reduction would raise revenue equal to about 4% of existing tax revenue. With personal income-tax revenue in 2011 of about $1 trillion, that 4% increase in net revenue would be $40 billion at the current level of taxable income, or more than $500 billion over the next 10 years.
The Joint Select Committee should insist on counting that revenue as the starting point for a serious deficit reduction plan.
Mr. Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, is a professor at Harvard and a member of The Wall Street Journal's board of contributors.
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Sent by an internet friend:
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An EXCELLENT little 8-minute talk from Neal Boortz on The Fair Tax and why some people just can't embrace it (video quality is terrible, but just listen.) BTW - this is what HERMAN CAIN ultimately wants to implement. His 9-9-9 plan is simply a transitional step, since he knows people have to be educated on the Fair Tax and have a President who supports it in order for it to get passed. Herman has supported this thing for YEARS along with Neal, and continues to believe (as do I) that it would be the biggest transfer of power back to the people since the Revolutionary War. It would also super-charge our economy. You would have to be either unable or unwilling to work to be unemployed - there would be such an abundance of jobs available:
www.boortz.com/weblogs/nealz-nuze/2011/oct/21/recording-video-today/
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All taxes at all levels are way too high. As far as I am concerned federal tax of 5% should more than enough.
Perry's plan of 20% doesn't do it for me.
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Crafty, With all respect it would be nice if Neal Boortz would address the objections raised instead of name calling critics like me - 'sniper', 'Stockholm Syndrome'. I raised 11 objections on the board to the Fair tax that in my view have not been answered. I would be happy to update them and re-post.
Obamites must love the in-fighting among their opposition. The tea party gained steam at least here I think when it switched from a 'tax cut rally' to a cut-spending-first movement. Cain has articulated that better than almost anyone - it is about the role of government. Yet we are unable so far to make 'cuts' below a 5% increase. Going to an all consumption based tax makes sense to me if we were given the luxury of starting over or if we were somehow able to now reduce the federal tax and spend burden to roughly single digits. We aren't close to getting even 40-50% of the people, much less 75% of the people (rough numbers to get a constitutional amendment) to agree to permanently ending all taxation on income. Meanwhile we have a country to rescue.
Fair tax is not on the ballot, the 9-9-9 is. I know that Cain favored the FAIR tax when he was running for nothing or gaining no traction when he did, but I don't know why, Crafty, you think he is still aiming there. He made his own calculation that it isn't politically do-able and that is when his candidacy leaped forward.
CCP, Your 5% number for federal tax burden...hmmm, I'm with you and maybe 2 other people but try having your congressman and senators propose those specific cuts and see how far it goes. Gingrich offers a 15% optional flat tax rate. The reason I predicted 20% for Perry is that people want to keep the mortgage deduction, the property tax deduction and the charitable contributions deduction. 20% is the marginal rate AFTER $50,000 is free and clear for a family of 4. That is pretty low considering that Obama is at twice that with a 39.6% rate not counting the removal of FICA caps and new taxes including 'stimulus' deals and Obamacare surcharges.
Cain with a retailing background knows the magic of nines, making his rates sound low. Problem is that we don't need to sell the producers on producing when they are allowed to keep 90% of what they make, we need to sell independent voters on the idea that that is a high enough rate to raise revenues, we can have a smooth transition, a speedy recovery AND long term robust growth. We can't afford further disruption, even in just the short run.
A 30% transaction tax on housing in an economy crippled in a housing crisis isn't going to make for a smooth transition no matter what the long term holds. A 30% tax on government purchases doesn't raise revenues at all. Prebates don't work for people who can't manage money, have these guys ever met poor people? That isn't Stockholm syndrome to point that out.
I like the Perry plan. I'm not endorsing Perry now because of the dope I saw at the debates and because of some policies of his I adamantly oppose - the crony capitalist fund?! I disagree with all of them starting with Pawlenty about the idea that capital gains taxes can be entirely eliminated (even though that would be ideal for me). Low rates bring in revenues, and that is the purpose. Zero tax on capital gains doesn't sound politically astute in a deeply divided electorate. Long term gains mostly need to be indexed to inflation and taxed at rates low enough to get capital moving. Perry says no tax on qualified capital gains. I'm guessing he means gains that were already taxed at the 20% corporate rate, but we will see.
Cain can respond with his final offer and Romney better wake up soon and smell coffee. Then we choose a candidate. Either we all get on board with one or we will lose to the snake oil salesman with yet another and another tax and spend stimulus. Good luck America.
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I confess I took a shortcut this morning (I had a phone interview scheduled) and have not yet listened to the Boortz talk. It was sent by someone who usually sends good stuff, and I posted it not as an advocate, but as an offering describing the FAIR Tax case,
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CCP, Your 5% number for federal tax burden...hmmm, I'm with you and maybe 2 other people but try having your congressman and senators propose those specific cuts and see how far it goes.
Don't you think it would be closer to 50% - those of us who are already footing all the bills?
No deductions - 5 earned income, dividends, gains (short and long), estate period.
The legislators would not do it because they couldn't turn around and corrupt the system for their gain by tax manipulation. That is what I think. The DC cans are not much better than the crats in this regard.
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Some rough math: A 5% on all personal income ($12trillion) raises 600 billion, but spending is 3.6 trillion. We need about twice that plus the payroll tax, corporate etc just to get to current revenues. If we have to exempt the lowest incomes, in Perry's terms that means 12,500 x 300 million people, almost 4 trillion of untaxed income, or a 15% rate required. Revenues lost to mortgage interest, property taxes and charitable deductions is how the flat rate with those exclusions needs to be close to 20%. No proposal will pass unless it gets us on a static analysis basis at least to current revenues. Then the growth it unleashes can start to close off the 40% gap with current spending.
Voters won't trust Republicans 10 seconds to make anything including the deficit worse.
This is the tax thread, but a big part of the new confidence, new hiring and new economic growth needs to come out of a comprehensive regulatory overhaul as well.
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Reposted here as requested:
Maybe someone here could educate me on this because its getting thrown around some right now.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213
So in the 50's we had a tax rate of 90% for the wealthiest and a < 5% unemployment. On the surface it looks like we should bring back the 90%, though it even says on that link they had less they had to actually pay the 90% on. So what was the rate then in terms of the rate now, if that makes any sense?
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CW:
Thank you for your question.
I think it was Cong. Dirk Evertson or Cong Wilbur Mills (1960s?) who said "Don't tax you. Don't tax me. Tax that fellow behind the tree."
My knowledge in this area is given a boost by the fact that my step father made a goodly amount of money syndicating real estate tax shelters in the 1960s and 1970s. His business model was destroyed by the Reagan tax rate cuts of 1980-82.
The politician says to the poor ”Vote for me and I will tax the rich.”
To the rich he says “Don’t worry, it is all a charade. Give me money and support and I will provide shelters and loopholes for you.”
To the special interests he says “Give me money and support and I will funnel rich people’s money into your hands.”
I will use the 90% rate from 1950s that you cite. (President JFK proved the Laffer Curve before it had a name by increasing revenues by cutting the rate from 90 to 70%. Reagan took it down from there.)
The numbers are greatly simplified so as to clarify the concepts involved.
The first thing to understand, is that at a 90% tax rate, the income earner keeps 10 cents.
The next thing to understand is the concept of “non-cash expenses”-- for example, depreciation on a building. It requires no outlay of money, but is considered a cost. Thus under a 90% tax rate regime, a dollar of depreciation puts 90 cents of TAX FREE CASH into the hand of the taxpayer. Reflect upon this.
With this in mind, lets run through a hypothetical.
Lets say normally a building is given by the tax code 20 years to depreciate. Thus for a $10M building the depreciation (on a “straight line basis”) is $500K per year. If rents equal costs (mortgages, insurance, electricity, upkeep, employees, etc.) i.e. if the building is cash flow breakeven, for the 90% bracket taxpayer the building yields $450 per year because the building is counted as a “loss” of $500k.. (.90 X $500K=$450K). With me so far? If the taxpayer has bought the building with $1M (i.e. 10% down) he is out of pocket $100M (remember the IRS would have gotten $900k of the $1M) and he is getting to keep $450K tax free! Minus the $100K investment, in the first year he has $350K. In subsequent years, this goes up to $450 because he only had to make the down payment on the building one time.
Pretty bitchin’, yes? Isn’t it great sockin’ it to the 1%?
Now Congress gets into the act and says “We need to create more housing for the poor! Vote for us! Give us money!” Then they create ACCELERATED DEPRECIATION for projects that meet the specified criteria. Naturally the criteria tend to be strongly influenced by who is donating money to them.
AD came in various forms such as “double declining balance”, “sum of the years” digits, etc. Basically this means more depreciation in the early years, less depreciation in the later years.
For simplicity sake, let us assume that the early years yield double the depreciation of straight line depreciation (and this was roughly the case). Thus in the first year, the “loss” (remember, this is a non-cash loss) would be $1M and thus instead of $350K more, the taxpayer has $750K more cash in his pocket! ($350+$450=$750K). However due to the depreciation formula this $750 goes down a bit each year.
So what happens next?
Why he sells his building to someone else and buys another building and starts all over again in the sweet spot of the accelerated depreciation curve!!! The person who sold him the building does likewise!!!
But that’s not all!!! If it makes sense for them to do so (and this will be a function of the capital gains rate in relation to the income tax rate) they get to defer the gain on the sale of the building through Section 1031 (reduction of basis in the new building by the amount of the deferred gain)!!!
Isn’t taxing the rich to pay their fair share fun?
But “Wait!” you say “We must stop this!”
Best to batten down the hatches for the squalls of how mean and cold-hearted you are for opposing public-private partnerships on behalf of the poor (for whom the housing in question was “built”.
Don’t tax you. Don’t tax me. Tax that fellow behind the tree.
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Very nice. Thank you sir.
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You are welcome CW.
I see I should add one more key point. The lower the tax rates, the less sense it makes to invest in tax shelters.
For example, during the 70% pre-Reagan era, it made sense for Hillary Clinton to play "commodity straddles". These were an entirely different concept where the trader bought a futures contract (usually on margin) on each side of the fence.
"Why bother then?" you may ask "The winning trade cancels out the losing trade." The answer is that, for example, you take the loss in December, but the gain in January. Thus for example a loss in 12/77 neutralizes taxes paid in 4/78, (four months later) but the gain taken in 1/78 is not paid until 15 months later-- in 4/79. The value of this is the time value of having the money to play with for the extra 11 months (15-4=11).
Even better is when you cheat, as Hillary did, you have the largest employer in the state of Arkansas, Tyson Foods, advising you on grains futures in 30 day or less contracts (which have virtually no reporting requirements) in the brokerage house used by Tyson Foods while your husband is running for Governor where the brokerage firm in question asigns winning and losing trades at the end of the day! Doing this, you can turn $2k into $97K in a few months! Awesome! A $95K payoff to the governor that is completely laundered! Isn't this great?!?
But I digress , , ,
Returning to the original point, when tax rates go down, so too does the logic of tax shelters and high bracket earners begin to allow their income to be exposed to taxes. Whereas investing at a 70% rate only means 30% out of pocket, at a 30% rate it means the reverse—70% out of pocket.
And so it was with the Reagan tax RATE cuts.
Remember the squalling I spoke about? When, as always, it was to be found – for the increase in the concentration of wealth that the data showed!
And the Adventure continues , , ,
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First, I must say 2 thumbs up for the 2 part answer from Crafty about why things aren't better with high tax rates. This explanation needs to be copied and saved over to the economic highlights film hall of fame thread. :-D
I would add that beside screwing up the allocation of money and investment, the tax avoidance industry steers too many of our very best and brightest people into the standing still industries of dealing with these complexities instead of inventing, innovating, building, hiring, marketing and selling real goods and services. The loss to our economy is immeasurable.
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Justice Pitney in Coppage v. Kansas, “it is from the nature of things impossible to uphold freedom of contract and the right of private property without at the same time recognizing as legitimate those inequalities of fortune that are the necessary result of the exercise of those rights.”
I find this piece below on income inequality to be a nice follow up to Crafty's post; Prof. Epstein is answering against the call for using the tax code to make up for income inequalities, also a good example of the economic coverage asked of Newt that is missing or inaccurate today. I don't know why it is so hard to explain that income inequality is a good thing. It is a natural and necessary phenomenon that happens when people live in a free society and make free choices. We are so lucky to live in a time and a place where most people can and do move freely between all or at least 3 or 4 of the income quintiles in their lifetime. Income inequality is the ladder. If all incomes were the same (which means low), how would you climb up? "inequalities in wealth pay for themselves by the vast increases in wealth"
Throughout this piece Epstein makes the distinction of income legitimately earned. Accepting inequality is not an arguement for theft or unfair advantage in our laws or enforcement. In a free society people will make choices and produce amounts different in value from others and different from what they will make at other points in their own life. It is a fact, not an issue.
Who makes more, Derek Jeeter or his batboy? Jeeter. Which one is living the American dream? Both, I hope.
Interesting to note that the Occupy movement began in a down period where income share of the top 1% has actually fallen, and the loss to the public treasury is disproportionately large because of the higher tax rates that apply to that income no longer earned.
Epstein makes many good points but one is that we might not accept the idea of a flat tax, but why does that mean that the exact level of progressivity in the tax code of a failing economy is the right one and must be preserved. I highly recommend that you read carefully all the way through this.
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http://www.hoover.org/publications/defining-ideas/article/99241
Taxing the top one percent even more means less wealth and fewer jobs for the rest of us.
The 2008 election was supposed to bring to the United States a higher level of civil discourse. Fast-forward three years and exactly the opposite has happened. A stalled economy brings forth harsh recriminations. As recent polling data reveals, the American public is driven by two irreconcilable emotions. The first is a deep distrust of government, which has driven the approval rate for Congress below ten percent. The second is a strong egalitarian impulse that directs its fury to the top one percent of income earners. Thus the same people who want government to get out of their lives also want government to increase taxes on the rich and corporations. They cannot have it both ways.
I voiced some of my objections to these two points in an interview on PBS, which sparked much controversy. The topic merits much more attention.
What are the origins of inequality? Start with a simple world in which all individuals own their labor. Acting in their self-interest (which includes that of family and friends), they seek to improve their lot in life. They cannot use force to advance their own position. Thus, they are left with two alternatives: individual labor and cooperative voluntary ventures.
Voluntary ventures will normally emerge only when all parties to them entertain expectations of gain from entering into these transactions. In some cases, to be sure, these expectations will be dashed. All risky ventures do not pan out. But on average and over time, the few failures cannot derail the many successes. People will make themselves better off.
The rub is that they need not do so at even rates. The legitimate origin of the inequality of wealth lies in the simple observation that successful actors outperform unsuccessful ones, without violating their rights. As was said long ago by Justice Pitney in Coppage v. Kansas, “it is from the nature of things impossible to uphold freedom of contract and the right of private property without at the same time recognizing as legitimate those inequalities of fortune that are the necessary result of the exercise of those rights.”
So why uphold this combination of property and contract rights? Not because of atavistic fascination for venerable legal institutions. Rather, it is because voluntary exchanges improve overall social welfare. This works in three stages.
First, these transactions, on average, will make all parties to them better off. The only way the rich succeed is by helping their trading partners along the way.
Second, the successes of the rich afford increased opportunities for gain to other people in the form of new technologies and businesses for others to exploit.
Voluntary exchanges improve overall social welfare.
Third, the initial success of the rich businessman paves the way for competitors to enter the marketplace. This, in turn, spurs the original businessman to make further improvements to his own goods and services.
In this system, the inequalities in wealth pay for themselves by the vast increases in wealth.
Any defense of wealth inequalities through voluntary means is, however, subject to a powerful caveat: The wealth must be acquired by legitimate means, which do not include aid in the form of state subsidies, state protection, or any other special gimmick. The rich who prosper from these policies do not deserve their wealth. Neither does anyone else who resorts to the same tactics.
As an empirical matter, large businesses, labor unions, and agricultural interests that have profited from government protections have drained huge amounts of wealth from the system. Undoing these protections may or may not change the various indices of inequality. But it will increase the overall size of the pie by improving the overall level of system efficiency.
The hard question that remains is this: To what extent will the United States, or any other nation, profit by a concerted effort to redress inequalities of wealth?
Again the answer depends on the choice of means. Voluntary forms of redistribution through major charitable foundations pose no threat to the accumulation of wealth. Indeed, they spur its creation by affording additional reasons to acquire levels of wealth that no rational agent could possibly consume.
Forced transfers of wealth through taxation will have the opposite effect. They will destroy the pools of wealth that are needed to generate new ventures, and they will dull the system-wide incentives to create wealth in the first place. There are many reasons for this system-wide failure.
First, the use of state coercion to remedy inequalities of wealth is not easily done. The most obvious method for doing so is by creating subsidies for people at the bottom, which are offset by high rates of taxation for people at the top. The hope is that high taxes will do little to blunt economic activity at the high end, while the payments will do little to dull initiative at the low end.
But this program is much more difficult to implement than is commonly supposed. The process of income redistribution opens up opportunities for powerful groups to secure transfers of wealth to themselves. This does nothing to redress inequalities of wealth. Even if these political players are constrained, there is still no costless way to transfer wealth up and down the income scale.
The administrative costs of running a progressive income tax system are legion. Unfortunately, that point was missed in a recent op-ed. Writing in the New York Times, Cornell economist Robert H. Frank plumped hard for steeper progressive income tax rates as a way to amend income inequality.
There is no costless way to transfer wealth up and down the income scale.
Yet matters are not nearly as simple as he supposes. In his view, the source of complexity in the current income tax code lies in the plethora of special interest provisions that make it difficult to calculate income by recognized standard economic measures. Thus, he thinks that it is “flatly wrong” to think that the flat tax will result in tax simplification. After all, it is just as easy to read a tax schedule that has progressive rates as one that has a uniform flat rate.
But more than reading tax schedules is at stake. First, one reason why the internal revenue code contains such complexity is its desire to combat the private strategies that people, especially those in the top one percent, use to avoid high levels of taxation. Anyone who has spent time in dealing with family trusts and partnerships, with income averaging, with the use of real estate shelters, and with foreign investments, knows just how hard it is to protect the progressive rate schedule against manipulation.
Second, the creation of these large tax loopholes is not some act of nature. Frank, like so many defenders of progressive taxation, fails to realize that progressive rates generate huge pressures to create new tax shelters. Lower the overall tax rates and the pressure to create tax gimmicks with real economic costs diminishes. Overall social output is higher with a flat tax than it is with a progressive one.
Third, the dangers posed by the use of progressive taxation are not confined to these serious administrative issues. There are also larger questions of political economy at stake. The initial question is just how steep the progressive tax ought to be.
Keep it too shallow, and it does little to generate additional public revenues to justify the added cost of administration. Make it too steep, and it will reduce the incentives to create wealth that are always unambiguously stronger under a flat tax system. But since no one knows the optimal level of progressivity, vast quantities of wealth are dissipated in fighting over these levels. The flat tax removes that dimension of political intrigue.
Fourth, sooner or later—and probably sooner—high tax rates will kill growth. Progressives like Frank operate on the assumption that high taxation rates have little effect on investment by asking whether anyone would quit a cushy job just to save a few tax dollars. But the situation is in reality far more complex. One key to success in the United States lies in its ability to attract foreign labor and foreign capital to our shores. In this we are in competition with other nations whose tax policies are far more favorable to new investment than ours. The loss of foreign people and foreign capital is not easy to observe because we cannot identify with certainty most of the individuals who decide to go elsewhere. But we should at the very least note that there is the risk of a brain drain as the best and brightest foreign workers who came to the United States in search of economic opportunity ultimately may return home. They will likely not want to brave the hostile business climate that they see in the United States.
Fifth, sophisticated forms of tax avoidance are not limited to foreign laborers. Rich people have a choice of tax-free and taxable investments. They can increase transfers to family members in order to reduce the incidence of high progressive taxation. They can retire a year sooner, or go part-time to reduce their tax burdens. And of course, they can fight the incidence of higher taxation by using their not inconsiderable influence in the tax arenas.
The incentives to create wealth are stronger under a flat tax system.
Sixth, the inefficiencies created by a wide range of tax and business initiatives reduces the wealth earned by people in that top one percent, and thus the tax base on which the entire redistributive state depends. Defenders of progressive taxation, like Frank, cite the recent report of the Congressional Budget Office, which shows huge increases of wealth in the top one percent from 1979 to 2007. The top one percent increased its wealth by 275 percent in those years. The rest of the income distribution lagged far behind.
Unfortunately, the CBO report was out of date the day it was published. We now have tax data available that runs through 2009, which shows the folly of seeking to rely on heavier rates of taxation on the top one percent. The Tax Foundation’s October 24, 2011 report, contains this solemn reminder of the risks of soaking the rich in bad times:
In 2009, the top 1 percent of tax returns paid 36.7 percent of all federal individual income taxes and earned 16.9 percent of adjusted gross income (AGI), compared to 2008 when those figures were 38.0 percent and 20.0 percent, respectively. Both of those figures—share of income and share of taxes paid—were their lowest since 2003 when the top 1 percent earned 16.7 percent of adjusted gross income and paid 34.3 percent of federal individual income taxes.
It is worth adding that the income of the top one percent also dropped 20 percent between 2007 and 2008, with a concomitant loss in tax revenues.
There are several disturbing implications that flow from this report. The first is that these figures explain the vulnerability in bad times of our strong dependence on high-income people to fund the transfer system. The current contraction in wealth at the top took place with only few new taxes. The decline in taxable income at the top will only shrink further if tax rates are raised. A mistake, therefore, in setting tax rate increases could easily wreck the entire system. Indeed, the worst possible outcome would be for high taxation to lower top incomes drastically. Right now, for better or worse, the entire transfer system of the United States is dependent on the continued success of high-income earners whom the egalitarians would like to punish.
Put otherwise, if a person at the middle of the income distribution loses a dollar in income, the federal government loses nothing in income tax revenues. Let a rich person suffer that decline and the revenue loss at the federal level is close to 40 percent, with more losses at the state level. The slow growth policies of the last three years have cost far more in revenue from the top one percent than any increase in progressive taxation could possibly hope to achieve. The more we move toward an equal income policy, the more we shall need tax increases on the middle class to offset the huge revenue losses at the top. Our current political economy makes the bottom 99 percent hostage to the continued success of the rich.
The dangers of the current obsession with income inequality should be clear. The rhetorical excesses of people like Robert Frank make it ever easier to champion a combination of high taxation schemes coupled with ever more stringent regulations of labor and capital markets. Together, these schemes spell the end of the huge paydays of the top one percent. Those earners depend heavily on a growth in asset value, which is just not happening today.
But what about the flat tax? Frank and others are right to note that a return to the flat tax will result in an enormous redistribution of income to the top one percent from everyone else. But why assume that the current level of progressivity sets the legitimate baseline, especially in light of the current anemic levels of economic growth? What theory justifies progressive taxation in the first place? The current system presupposes that this nation can continue to fund the aspirations of 99 percent out of the wealth of the one percent. That will prove to be unsustainable. A return to a flatter tax (ideally a flat) tax will have just the short-term consequences that Frank fears. It will undo today’s massively redistributivist policies. But it will also go a long way toward unleashing growth in our heavily regulated and taxed economy.
The United States is now in the midst of killing the goose that lays the golden eggs. That current strategy is failing in the face of economic stagnation, even with no increase in tax rates. It will quickly crumble if tax increases are used to feed the current coalition of unions and farmers who will receive much of the revenue, while the employment prospects of ordinary people languish for want of the major capital investments that often depend on the wealth of the privileged one percent of the population.
The clarion call for more income equality puts short-term transfers ahead of long-term growth. Notwithstanding the temper of the times, that siren call should be stoutly resisted. Enterprise and growth, not envy and stagnation, are the keys to economic revival.
Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is the Laurence A. Tisch Professor of Law, New York University Law School, and a senior lecturer at the University of Chicago. His areas of expertise include constitutional law, intellectual property, and property rights. His most recent books are The Case against the Employee Free Choice Act (Hoover Press, 2009) and Supreme Neglect: How to Revive the Constitutional Protection for Private Property (Oxford Press, 2008).
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You are welcome CW.
I see I should add one more key point. The lower the tax rates, the less sense it makes to invest in tax shelters.
Bortz likes to say, "People smart enough to earn a lot of wealth are smart enough to change their behavior when that wealth is threatened by high tax rates." I guess this is a good example of that.
Thanks for the info. I'll try to get a better handle on it. At least now I know what sorts of things I should look at.
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CW:
My respect for your response-- it shows search for Truth and this is to what we aspire around here.
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"Not once have any of my personal investment decisions been a function of marginal tax rates," Gruener said. "We just don't think about it."
http://money.cnn.com/2011/11/16/news/economy/tax_millionaires/index.htm?hpt=hp_t2
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"Not once have any of my personal investment decisions been a function of marginal tax rates," Gruener said. "We just don't think about it."
http://money.cnn.com/2011/11/16/news/economy/tax_millionaires/index.htm?hpt=hp_t2
Bull-shiite. They can always write additional checks to Uncle Sugar, yet funny enough, they don't. Also, we have real world example after example where taxes alter behavior, which punishes the people that make/do things for the rich.
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http://www.msnbc.msn.com/id/38378992/ns/politics/t/sen-kerry-docks-yacht-ri-saves-taxes/
Sen. Kerry docks yacht in R.I., saves on taxes
Lawmaker saves $500k in taxes on $7 million yacht
Stew Milne / AP
"Isabel," the 76-foot yacht owned by Democratic Sen. John Kerry of Massachusetts, is undergoing repairs at the Hinckley shipyard in Portsmouth, R.I., Friday, July 23, 2010.
updated 7/23/2010 4:34:00 PM ET
BOSTON — Massachusetts Sen. John Kerry is docking his family's new $7 million yacht in neighboring Rhode Island, allowing him to avoid paying roughly $500,000 in taxes to his cash-strapped home state.
If the Isabel were kept at the 2008 Democratic presidential nominee's summer vacation home on Nantucket or in Boston Harbor near his city residence, he would be liable for $437,500 in one-time sales tax. He would also have to pay $70,000 in annual excise taxes.
Rhode Island repealed those taxes in 1993. That has made the state something of a nautical tax haven.
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Warren Buffett’s taxing hypocrisy
By Bill Wilson — The Obama Administration has turned to billionaire Warren Buffett, chairman and chief executive of financial giant Berkshire Hathaway, to make the case for raising taxes on the rich because, says Buffett, he can afford it. On Aug. 22, the White House reportedly chatted with Wall Street’s most famous investor to get his thoughts about the sputtering economy.
What likely got the Administration’s attention was Buffett’s oped in The New York Times. Buffett proposed that “It’s time for our government to get serious about shared sacrifice.” He implied he would like to see the capital gains be treated equally as income.
To wit, he wrote of the so-called “super-rich,” which he apparently defines as households earning $1 million or more a year: “Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.” Isn’t that nice of Mr. Buffett?
But if he were truly sincere, perhaps he might simply try paying the taxes the Internal Revenue Service (IRS) says his company owes? According to Berkshire Hathaway’s own annual report — see Note 15 on pp. 54-56 — the company has been in a years-long dispute over its federal tax bills.
According to the report, “We anticipate that we will resolve all adjustments proposed by the U.S. Internal Revenue Service (‘IRS’) for the 2002 through 2004 tax years at the IRS Appeals Division within the next 12 months. The IRS has completed its examination of our consolidated U.S. federal income tax returns for the 2005 and 2006 tax years and the proposed adjustments are currently being reviewed by the IRS Appeals Division process. The IRS is currently auditing our consolidated U.S. federal income tax returns for the 2007 through 2009 tax years.”
Americans for Limited Government researcher Richard McCarty, who was alerted to the controversy by a federal government lawyer, said, “The company has been short-changing the tax collection agency for much of the past decade. Mr. Buffett’s company has not fully settled its tax bills from 2002-2009. Yet he says he’d happily pay more. Except the IRS has apparently been asking him to pay more going on nine years.”
Apparently, not paying taxes in full is an annual occurrence under Buffett’s watch. Considering the size of the company, the amount of unsettled taxes could total in the tens of millions.
McCarty explained, “The rough translation of the report is that Berkshire Hathaway did not pay all the federal taxes that it was required to for 2002 through 2004. The IRS examination team caught Berkshire Hathaway on at least some issues. Instead of paying up, Berkshire Hathaway is threatening the IRS with protracted litigation and is in the process of cutting a deal with the IRS Appeals office.”
He continued, “For 2005 and 2006, Berkshire Hathaway again did not pay all the federal taxes that it was required to. Again, the IRS examination team caught Berkshire Hathaway on at least some issues. Now, Berkshire Hathaway is again threatening the IRS with protracted litigation and is trying to cut a deal with the IRS Appeals office.”
McCarty concluded, “And, finally, the IRS has opened another examination of Berkshire Hathaway’s tax returns for 2007 through 2009, but has not officially sent Berkshire Hathaway the bill yet for taxes that Berkshire Hathaway failed to pay for those years. One would expect they will find yet more issues.”
Now, most Americans, when they receive a tax bill from the government, they pay it. They don’t get an attorney. They don’t appeal the bill. They pay it — on time and in full. But not Buffett’s company, which apparently takes years to settle its liabilities.
Since this appears to be an ongoing pattern at the company, it becomes reasonable to ask: Is this some sort of internal company policy to delay paying taxes on time? If so, could this be construed as a form of tax evasion?
Interesting questions for the man who professes to want to pay more to Uncle Sam, and who sees fit to raise the burden on all job creators — except for perhaps his company — despite the longest period of sustained high unemployment since the Great Depression.
As Mr. Buffett has seen fit to enter the political arena, in the interests of full disclosure, the American people should be alerted to his own taxing hypocrisy. Reporters should ask him, “If you’re so interested in paying more in taxes, why doesn’t your company settle its tax bills from the past decade now?”
Then they might ask him about the pot and the kettle as a follow-up.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.
Read more at NetRightDaily.com: http://netrightdaily.com/2011/08/warren-buffett%e2%80%99s-taxing-hypocrisy/
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"Bull-shiite"? Somehow I think you always have Islamic issues on your brain. :-) That's ok; it's a subject that while I don't always agree with you,
I definitely respect your opinion on the subject.
Moving on to taxes... :-)
Give the money to the government? I suppose, but then I have potholes on my street. I complained. "They will get to it, but money is short". Now I suppose I could write a check to LA, but I won't. It's a bogus, absurd, albeit ingenious argument that they should write a check to the government. They are saying "all" millionaires should pay more,
and they are saying it's ridiculous that the marginal tax rate affects their personal investment decisions. Seems reasonable to me. I few Scrooges object.
Mind you, I don't know since I don't make a million plus per year.
As for your sailboat example, I assure you Republicans do the same. I know some - I used to sail a lot. What always amused me was I was see 50 foot sailboats
registered in Nevada. Rather blatant I thought. CA finally caught on to that one. Then fancy cars all had Nevada plates. CA is catching on to that one too.
I think what they are saying is to raise taxes for everyone making more than a million dollars a year, don't create loopholes, or shelters, or increase deductions.
Note, Kerry still bought the boat; it didn't change his decision to buy, merely it changed his decision where to dock his boat since he had a choice.
A mere inconvenience saving him $500K.
As for your further post from Bill Wilson, companies dispute taxes all the time; so what. I've been audited and I disputed the IRS's conclusions too. Further, Berkshire Hathaway is not "his company". It's a public company. I don't quite get the relevancy here. Buffet didn't say companies, or individuals for that matter, should pay higher taxes than what is properly owed. That's want lawyers and accountants are for. He is simply saying that all individual millionaires should be required to pay more.
But I give up, I concede, as have others, that I will never be able to keep up with your frequent, albeit irrelevant posts.
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I try to dumb it down for you. Sorry you can't keep up.
Didn't it recently dawn on you how California's tax and spend model was driving business out of California?
Again, rich people like Kerry, who hypocritically espouse taxes as good yet avoid them when possible are responding to the disincentives created by taxes. When he decides to dock his wife's yacht in RI instead of Taxachusetts, not only is the state of Taxachusetts missing out on the taxes, the small businesses that would tend to the yacht and it's crew miss out to those in RI. Gee, low taxes attract economic activity.
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Hard to have a serious discussion about tax policy or anything in economics if you deny that incentives and disincentives have an effect on economic behavior. Why not petition the state government to close all economics departments in public universities. What is there to study if inputs to a decision do not affect the decision.
Some opposing opinions stimulate amazing discussion. Others just bring down the discussion. The adventure just took two steps backwards.
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JDN:
Of course there is a de minimis point at which behavior arguably is unaffected and where that point is can reasonably be discussed, but that does not seem to be the point you apparently are trying to present-- you go much broader than that.
GM's posts are EXACTLY on point. He is backing us his assertions with a number of examples of fact directly contrary to your assertions.
I gotta say, I find your argument here ultimately it reduce to a disbelief in the law of supply and demand.
This is tedious.
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Crafty, I agree GM has posted some interesting posts. If you look at the CA forum, you will see that I too have posted items that are similar to and agree with
GM's postings. For example, GM and I have both said that CA's model needs to be changed.
I never said nor did I deny incentives and disincentives have an effect on economic behavior. I posted an article and quoted one of the (millionaire) participants.
I think some on this forum would prefer that we return to the good old robber baron days. Opposing that idea, like these millionaires are doing is not "bringing
down the discussion", it is merely disagreeing with your opinion. Frankly, except for a few millionaires, I doubt if most Americans wish for the good old robber baron days.
I'ld like to think we have progressed since then.
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In isolation and without comment you posted this:
""Not once have any of my personal investment decisions been a function of marginal tax rates," Gruener said. "We just don't think about it.""
This sure gives the impression that you are agreeing with this denial of the law of supply & demand (price affects supply and vice versa) and this certainly is quite distinct from
Why else bother to post it?
Then, in response to his posts, you said "But I give up, I concede, as have others, that I will never be able to keep up with your frequent, albeit irrelevant posts."
This sure gives the impression that it is a response to his posts in response to your post. As I have already posted, I found his posts quite responsive to your posting of someone denying the law of supply and demand when it came to tax rates. To answer this with examples of where the two of you have agreed (and generally it is a good thing to note areas of agreement) is not really taking responsibility for what you have said here.
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I quoted the article and the participants therein. I posted it because it presents a different and credible opinion, more so than my own since
I would not be directly affected by a tax on those earning in excess of $1,000,000. In the search for truth I think it's good to hear opposing viewpoints.
I criticized GM's post because while they are both fruit, they are apples and oranges. State versus Federal taxes. Of course if
I have a choice where I'm going to invest or do something, i.e. shoot my film in AZ or CA, I will consider tax advantages (this specific example
has been posted before). But as the article pointed out, it's not the overriding issue, just one consideration.
Concerning Berkshire Hathaway arguing their taxes, well that's what lawyers and accountants do. Of course within the law Berkshire Hathaway is going
to try to avoid paying taxes. The post was not relevant. If the taxes are due, Berkshire Hathaway will pay and will still go on about it's business of making money. They won't stop doing insurance nor again will it materially affect their business decisions. And to say Buffet should simply give the money to the government is just plain silly.
The point I am not making very well and I thought the quoted individual made better is that
regardless of tax incentives I am still going to make that film. And probably regardless of tax advantages, Kerry would have bought
his boat. If his state doesn't get the business, well nearby RI does. And Berkshire Hathaway will pay the appropriate tax whatever it is
to the Federal Government.
If we raised taxes 2% on millionaires I doubt if it will have a negative affect on economic growth or creativity. Business will go on as before.
2% more or less is not the issue. Many of the truly rich (see article) don't seem to care. That was the point.
Heck, if I even raised your taxes 2% would you teach less? I doubt it. I suggest it wouldn't affect your business plan at all.
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"The point I am not making very well and I thought the quoted individual made better is that
regardless of tax incentives I am still going to make that film." ... "Heck, if I even raised your taxes 2% would you teach less? I doubt it. I suggest it wouldn't affect your business plan at all." - He already said he would move the business out of the bankrupt overtaxed state, people change their behavior based on incentives and disincentive. You don't measure that with a poll or a microphone.
A certain percentage quit, leave, relocate, hide income etc. Even if the majority stay and pay more the results at some point turn downward. That you go back to the infinitesimal argument is sad. These taxes and regulations at all levels accumulate! Your idea is not a 2% tax, it would be 2 more percent in a state collapsing from the asphyxiation that comes from prolonged incrementalism like this. If it is the last 2% of oxygen in the room, you die. In the real world like the USA or Greece, you just choose the safety hammock for a while.
Adding a regulation, and another and another, and adding a small tax and a small increase and another and another and another is how we got here. Family leave law alone didn't end hiring. A small tax on electricity alone didn't end manufacturing. Plant closing notice laws didn't end all production. The 60% tax on home telephone service made up of a bunch of 2% this and 2% that fees alone did not end all home telephone service. But how many taxes and regulations are there now? Have you looked at the economy lately? Economic behavior turned radically downward with the impending expiration of the Bush tax cuts even without that expiration actually occurring. Obama's own advisers said you don't raise taxes in a recession? Why not ? ? ? ? ? They kill of business investment and hiring AT THE MARGIN.
The discussion here in a short time has included why not go back to the 90% tax rates on the rich and the 9% Cain plan. That is quite a difference in thinking even if you do it 2% at a time. Ask the frog in the boiling water.
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Actually, if I recollect Crafty said he would consider, I'm not aware that he has decided to move his business out of Bankrupt CA. For the record, I notice he hasn't moved yet. And if he likes the weather (it's mid 80's today), the beach near his home, the clean ocean breeze, the international airport near his house, etc. I bet he's still thinking about that move. Further, I doubt if 2% more in Federal taxes (payable wherever he moves) will influence his decision to teach. Of course he would like to make more and pay less, but I think he teaches because he loves teaching martial arts. If money was the only answer he would stayed being a lawyer. But I can't answer for Crafty.
On another topic I said, "I think there are valid points on both sides of the argument." That is usually true IMHO.
I agree with your point, taxes and regulations accumulate. It's now to the point of being onerous in CA. Something needs to be done. But while similar, Federal taxes and State taxes are a little different.
On the Federal level, I happen to agree with the millionaire's quote and Buffet's opinion - as you phrase it, the sad infinitesimal argument that they can afford 2% more. You don't. I think you and I have agreed to disagree, but I think there are valid points on both sides.
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For the record, I am nowhere near the level where the higher tax rates would affect me directly!
However, I am still quite opposed to such increases because indirectly I think such increases would be bad for everyone.
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http://danieljmitchell.wordpress.com/2011/11/17/five-lessons-for-america-from-the-european-fiscal-crisis/
Five Lessons for America from the European Fiscal Crisis
November 17, 2011 by Dan Mitchell
I’ve written about the fiscal implosion in Europe and warned that America faces the same fate if we don’t reform poorly designed entitlement programs such as Medicare and Medicaid.
But this new video from the Center for Freedom and Prosperity, narrated by an Italian student and former Cato Institute intern, may be the best explanation of what went wrong in Europe and what should happen in the United States to avoid a similar meltdown.
[youtube]http://www.youtube.com/watch?feature=player_embedded&v=rZzJE7i8JWY[/youtube]
http://www.youtube.com/watch?feature=player_embedded&v=rZzJE7i8JWY
I particularly like the five lessons she identifies.
1. Higher taxes lead to higher spending, not lower deficits. Miss Morandotti looks at the evidence from Europe and shows that politicians almost always claim that higher taxes will be used to reduce red ink, but the inevitable result is bigger government. This is a lesson that gullible Republicans need to learn – especially since some of them want to acquiesce to a tax hike as part of the “Supercommitee” negotiations.
2. A value-added tax would be a disaster. This was music to my ears since I have repeatedly warned that the statists won’t be able to impose a European-style welfare state in the United States without first imposing this European-style money machine for big government.
3. A welfare state cripples the human spirit. This was the point eloquently made by Hadley Heath of the Independent Women’s Forum in a recent video.
4. Nations reach a point of no return when the number of people mooching off government exceeds the number of people producing. Indeed, Miss Morandotti drew these two cartoons showing how the welfare state inevitably leads to fiscal collapse.
5. Bailouts don’t work. This also was a powerful lesson. Imagine how much better things would be in Europe if Greece never received an initial bailout. Much less money would have been flushed down the toilet and this tough-love approach would have sent a very positive message to nations such as Portugal, Italy, and Spain about the danger of continued excessive spending.
If I was doing this video, I would have added one more message. If nations want a return to fiscal sanity, they need to follow “Mitchell’s Golden Rule,” which simply states that the private sector should grow faster than the government.
This rule is not overly demanding (spending actually should be substantially cut, including elimination of departments such as HUD, Transportation, Education, Agriculture, etc), but if maintained over a lengthy period will eliminate all red ink. More importantly, it will reduce the burden of government spending relative to the productive sector of the economy.
Unfortunately, the politicians have done precisely the wrong thing during the Bush-Obama spending binge. Government has grown faster than the private sector. This is why this new video is so timely. Europe is collapsing before our eyes, yet the political elite in Washington think it’s okay to maintain business-as-usual policies.
Please share widely…before it’s too late.
**Hottest economist evah!
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Regarding the 5 lessons above, really 6... Excellent Post! If you already read it, read it again and pass it along.
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Important point regarding the 2% tax idea on top of all other taxes and on top of all crippling regulations is to note that this is an anti-growth strategy. For whatever other objectives motivate the advocates have, it is the exact opposite of a pro-growth strategy for the individual and for the country - even if you think it applies only to everyone but you.
A tax on anyone is a tax on the economy and we all share an economy. Every tax hits everyone at least indirectly. Taxes are necessary but being overly clever and targeting (that fellow behind the tree) isn't.
Crafty put it extremely well here IMO: "I am still quite opposed to such increases because indirectly I think such increases would be bad for everyone."
In the 5 lesson post and throughout history we learn that this or any other new tax will not close the deficit, only kill growth and increase spending.
The idea that you can't move or change business activities because it is a federal and not a state law has been proven false over and over and over and over and over. Individuals and businesses change their behavior based on changing circumstances. The ones that don't perish. It only takes a 2% change in activities to offset the 'benefit' of a 2% tax. What retail business, when they desperately need more customers and more cash coming into the cash register, will raise prices by 2%? None.
No one has more flexibility to change their economic behavior than the rich. From a tax efficiency perspective, soaking the rich doesn't work. From a moral perspective, IMO it doesn't work. From a fiscal perspective, it doesn't work. The point of tax policy is to raise the money to pay for the legitimate functions of governing. Nothing grows revenues like growing the economy. You can get more money from the rich a number of ways, but not by simply raising the highest marginal rate. There is nothing the government does that grows the private economy other than loosening the handcuffs.
We need (IMHO) to identify the people and the policies that would move us further in the wrong direction, toward further stagnation and decline, and defeat them.
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http://dailycaller.com/2011/11/17/patriotic-millionaires-demand-higher-taxes-but-unwilling-to-pay-up-video/
:-D
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"Taxes should be continued by annual or biennial reeactments, because a constant hold, by the nation, of the strings of the public purse is a salutary restraint from which an honest government ought not wish, nor a corrupt one to be permitted, to be free." --Thomas Jefferson, letter to John Wayles Eppes, 1813
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The data is a bit dated, but interesting nonetheless. Which states recieve the most federal subsidies (per dollar contributed)?
http://www.taxfoundation.org/research/show/266.html
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By DANIEL J. MITCHELL
In a recent interview on these pages, presidential candidate Mitt Romney refused to rule out a value-added tax (VAT). He suggested that this hidden form of a national sales tax—which is embedded in the prices of goods and services during the production process—might be appropriate, particularly as a way of financing other tax cuts.
He's not the only Republican to speak favorably of a VAT. Herman Cain's 9-9-9 tax plan featured a flat tax and national sales tax. Very few people realized, however, that the final 9 was a VAT. And Rep. Paul Ryan, the chairman of the House Budget Committee and a favorite of the tea party thanks to his bold reforms to modernize Medicare and Medicaid, includes a VAT in his "Roadmap" plan, where it helps finance other reforms such as eliminating the corporate income tax.
What's going on here?
Most Republican supporters are drawn to the VAT for relatively benign reasons. It is a single-rate system, like the flat tax, for raising revenue, so it does not raise the possibility of class-warfare demagoguery. The VAT also doesn't hit savings and investment. And there are no distorting and corrupt loopholes. So there's a lot to like about the levy—or would be, if there were some practicable way of substituting a VAT for taxes on income.
Others assume that taxes eventually will be increased and they'd prefer to raise revenue in a less-destructive fashion. Better to impose a small VAT, the arguments go, than allow higher marginal tax rates on personal and corporate income to distort and discourage work effort and growth-enhancing investment.
These are legitimate motives, but it's important to look at what we can actually expect, not what some imagine in theory.
The most important thing to realize is that many people in Washington want bigger government, and a VAT is a necessary condition for that to happen. Simply stated, there is no way to turn America into a European-style welfare state without this new source of revenue.
But what about financing bigger government with higher income taxes, particularly on the wealthy? Though they'd never admit it publicly, smart left-wingers understand that there are two powerful reasons why soak-the-rich tax increases won't raise much revenue.
First, there aren't enough wealthy people to finance big government. According to IRS data from before the recession, when we had the most rich people with the most income, there were about 321,000 households with income greater than $1 million, and they had aggregate taxable income of about $1 trillion. That's a lot of money, but it wouldn't balance the budget even if the government confiscated every penny—and if it did, how much income do you suppose would be available in year two?
Second, higher tax rates don't raise as much revenue as expected. Upper-income individuals are far more likely to rely on interest, dividends and capital gains—and it is much easier to control the timing, level and composition of capital income, so as to avoid exposing it to the tax man.
This doesn't mean that those on the left won't push for class-warfare tax increases—they will. But their main motive will be politics, not raising revenue.
And that's why, looking at the long-run fiscal situation, the left needs a VAT. It's is the only realistic way to collect the huge amount of revenue that will be necessary to finance the mountainous benefits promised by our entitlement programs. Which is exactly what happened in Europe, where welfare-state policies only became feasible after VATs were adopted, beginning in the late 1960s.
In this country, some manufacturers are willing to overlook the VAT's flaws because the tax is "border adjusted." This means that there is no VAT on exports, while the tax is imposed on imports. For mercantilists worried about trade deficits, this is a positive feature that they claim will put America on a "level playing field."
But that misunderstands how a VAT works. Under our current tax system, American goods sold in America don't pay a VAT—but neither do German-produced goods or Japanese-produced goods that are sold in America because their VAT tax is rebated on exports. Meanwhile, any American-produced goods sold in Germany or Japan are hit by a VAT, as are all other goods.
In other words, there already is a level playing field. To be sure, there will also be a level playing field if America adopts a VAT. But it won't make any difference to international trade. All that will happen is that the politicians in Washington will get more money whenever any products are sold.
Unsurprisingly, President Obama is favorably inclined toward a VAT, having recently claimed that it is "something that has worked for other countries." And yet it's unlikely that the president would propose a VAT, in large part because he is fixated on class-warfare tax hikes. If he did, almost every Republican in Congress would be opposed, even if only for partisan reasons.
But what if a VAT sympathizer like Mr. Romney wins next November and decides that his plan for a lower corporate tax rate is only possible if accompanied by a VAT? There will be quite a few Republicans who like that idea because they want to do something nice for their lobbyist friends in the business community. And there will be many Democrats drawn to the plan because they realize that they need this new source of revenue to enable bigger government.
That's a win-win deal for politicians and a terrible deal for taxpayers.
Mr. Mitchell is a senior fellow at the Cato Institute.
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Gets it:
http://www.usnews.com/opinion/mzuckerman/articles/2011/12/22/as-obama-fails-to-lead-american-dream-is-called-into-question
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By ARTHUR B. LAFFER
The political season has barely begun, and yet we already know that class warfare will be President Obama's key issue in the 2012 general election. It's even reared its ugly head in the Republican primaries, with the candidates trying to paint front-runner Mitt Romney as a cold-hearted capitalist and Rick Santorum proposing targeted tax breaks for the "working class" manufacturing sector.
But none in the GOP can compare with the progressive intelligentsia's obsession with tax increases on the rich to raise revenues and achieve social justice. In a New York Times op-ed last August, Berkshire Hathaway CEO Warren Buffett famously asked Congress to "stop coddling the super-rich," complaining that his effective tax rate was half that of the other people in his office. He then instructed Washington to raise tax rates on millionaires and billionaires like him and retain the employee payroll tax cut on those "who need every break they can get."
Waving Mr. Buffett's op-ed for all to see, Mr. Obama wasted no time in proposing a surtax on millionaires called the "Buffett Rule." Putting aside all the oohing and ahhing over Mr. Buffett's selflessness, his effective tax rate on his true income would hardly budge if this "Buffett Rule" were applied. What's worse, raising the highest tax rates would most likely worsen the budget deficit and lead to a further weakening of the economy. Everyone would suffer.
Mr. Buffett stated in his op-ed that he paid $6,938,744 in total income and payroll taxes in 2010, representing 17.4% of his taxable income, which puts his taxable income just under $40 million. Although certainly a fantastic sum, $40 million actually understates Mr. Buffett's income in 2010 by more than 250-fold.
Mr. Buffett's net worth rose by $10 billion in 2010 to $47 billion, according to Forbes Magazine. That increase, an unrealized capital gain, is part of his total income by any standard definition, including the one used by the Congressional Budget Office. After also including a $1.6 billion gift to the Bill and Melinda Gates Foundation, Mr. Buffett's true income in 2010 was much closer to $11.6 billion than the $40 million figure cited in his op-ed. Hence his true effective tax rate was only 6/100ths of 1% as opposed to 17.4%. And these are just the additions to his income that we know about.
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Barack Obama awards the presidential Medal of Freedom to Warren Buffett, February 2011.
.The "Buffett Rule" would not tax the vast majority of his shielded income, including either his unrealized capital gains, which are currently taxed at zero percent, or charitable contributions, which are tax deductible. If the "Buffett Rule" were applied as President Obama proposes, then Mr. Buffett's federal tax bill would have been $14.4 million, rather than the $6.9 million he actually paid. As a fraction of his true income, his effective tax rate would only have risen from 6/100ths of 1% to 12/100ths of 1%.
Mr. Buffett's donation to the Gates Foundation goes to the heart of my critique of his public call for higher tax rates on the rich. Just look at the second contractual condition for his ongoing pledge to the Gates Foundation: "The foundation must continue to satisfy the legal requirements qualifying Warren's gift as charitable, exempt from gift or other taxes."
In other words, if his gift weren't tax sheltered he wouldn't give it. So much for "shared sacrifice."
Incidentally, I'm not the first to question Mr. Buffett's commitment to "shared sacrifice" in balancing the federal budget. In a 2007 CNBC interview, when asked why he shelters his money through tax-free strategies rather than writing big checks to Uncle Sam, Mr. Buffett responded: "I think that on balance the Gates Foundation, my daughter's foundation, my two sons' foundations will do a better job with lower administrative costs and better selection of beneficiaries than the government."
So Mr. Buffett thinks he and his family can put their money to better use than the government can. I guess he's really not so different from the rest of us after all.
Mr. Buffett also stated in his op-ed that in his 60 years working with investors he has yet to see anyone "shy away from a sensible investment . . . even when capital gains rates were 39.9% in 1976-77." Mr. Buffett's choice of 1976-77 is prescient because the economy in 1977 was a basket case. The official Bureau of Labor Statistics unemployment rate was 7.1%, consumer price inflation was 6.7%, and the S&P 500 dropped a whopping 17% after adjusting for inflation. Indeed, 1977 is a good illustration of the type of economy Mr. Buffett's policies would deliver.
He also said in his op-ed that "people invest to make money, and potential taxes have never scared them off." To make his point he compares the 1980-2000 period when 40 million jobs were created to what's happened since 2000 with lower tax rates and fewer jobs created.
Surprisingly, Mr. Buffett is actually trying to cite the phenomenal growth during the Reagan-Clinton period of 1980-2000 as a result of high taxes. But the facts reveal that the 1980s and '90s should be used as Exhibit A for why Mr. Buffett's proposals are dead wrong. Between 1980 and 2000, the top marginal income tax rate was slashed to 39.6% from 70%, and between 1977 and 1997 the capital gains tax rate was cut to 20% from 39.9%.
When it comes to raising tax revenues by raising tax rates on the rich, Mr. Buffett would again appear to be on the wrong side of the argument. Between 1921 and 1928, the top marginal income tax rate fell to 25% from 73%. During this period, tax receipts from the top 1% of income earners rose to 1.1% of GDP from 0.6% of GDP. The top income tax rate dropped to 70% from 91% after the Kennedy tax cuts began in 1964, while tax receipts from the top 1% of earners rose to 1.9% of GDP from 1.3% of GDP in the period 1960 to 1968. By the way, these periods were two of the biggest booms in U.S. history.
Guess what was the third period of boom? Since 1978, the top earned income tax rate fell to 35% from 50%, the top capital gains tax rate fell to 15% from 39.9%, and the highest dividend tax rate fell to 15% from 70%. After taking office in 1993, President Clinton virtually eliminated the capital gains tax from the sale of owner-occupied homes and cut government spending as a share of GDP by the largest amount ever.
Meanwhile, the top 1% of earners saw their tax payments climb to 3.3% of GDP in 2007 from 1.5% of GDP in 1978, while the bottom 95% saw their tax payments drop to 3.2% of GDP in 2007 from 5.4% of GDP in 1978. Why would Mr. Buffett want to reverse these numbers?
Of course, cynics and die-hard progressives might object to the above evidence on the grounds that it was driven by an explosion of income gains. But that's largely the point.
Mr. Laffer, chairman of Laffer Associates and the Laffer Center for Supply-Side Economics, is co-author, with Stephen Moore, of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
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A. I did not see the previous post in this thread, Laffer v. Buffet, when it went by a week ago. Very interesting! One point is that unrealized capital gains don't show up as income, don't show as tax and don't raise any revenues. The bad part of that is that many of those gains are unrealized because of the tax! An especially large problem is that states tax capital gains as ordinary income, not at a long term capital gains rate, so unless your gain is in Texas, South Dakota or a few other places, your tax is going to be far above the 15%, not counting the small problem described below.
B. Why should a capital gain get a preferred tax rate? Hint below.
C. What is the tax rate on a capital gain taxed at 15%? Does anyone know? I didn't think so...
15%. Right? Well no. Since it is by definition a LONG TERM capital gain, it contains an inflationary component. Let's take an example: If you bought an investment in 1971 for $100 and sold it in 2011 for $551. You just walked away with 5 1/2 times your money over a very long hold - before taxes. Your federal tax is 15% on 4 1/2 times the amount you invested, but your gain was zero because you only got back the same value in devalued dollars before taxes, so what is your tax rate really? That is a tough one mathematically because you have a real tax but no real income.
Take any dollar amount in any year, and translate it to equal value in any other year using this online calculator. The results may surprise you.
http://www.dollartimes.com/calculators/inflation.htm
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There is also the not-so-minor matter that one can LOSE money in the market, in real estate, etc. Trust me on this one :cry:
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Remember the moment in 2008 when Charlie Gibson of ABC News asked Senator Barack Obama why he would support raising the capital gains tax even though "revenues from the tax increased" when the rate fell? Mr. Obama's famous reply: "I would look at raising the capital gains tax for purposes of fairness." Well, we were warned.
Here we are four years later, and President Obama on Tuesday night linked the term "fair" to U.S. tax and economic policy seven times. The U.S. economy is still hobbling out of recession, real family incomes are falling and 14 million Americans are unemployed, but Mr. Obama declared that his top priority is not to reform the tax code to promote growth and job creation. His overriding goal is redistributing income.
Mr. Obama endorsed the political ruse he calls the Buffett rule, which asserts as a matter of moral principle that millionaires should not pay a lower tax rate than middle-class wage earners. Specifically, Mr. Obama is proposing that anyone earning more than $1 million pay at least 30% of that income to Uncle Barack.
The White House says that if a millionaire household's effective tax rate falls below 30%, it would have to pay a surcharge—in essence a new Super Alternative Minimum Tax—to bring the tax liability to 30%. For those facing this new Super AMT, all deductions and exemptions would be eliminated except for charity.
The Buffett rule is rooted in the fairy tale that taxes on the wealthy are lower than on the middle class. In fact, the Congressional Budget Office notes that the effective income tax rate of the richest 1% is about 29.5% when including all federal taxes such as the distribution of corporate taxes, or about twice the 15.1% paid by middle-class families. (See "How Much the Rich Pay," January 23, 2012.)
This is because wealthy tax filers make most of their income from investments. Such income is taxed once at the corporate rate of 35% and again when it is passed through to the individual as a capital gain or dividend at 15%, for a highest marginal tax rate of about 44.75%.
This double taxation is one reason the U.S. has long had a differential tax rate for capital gains. Another reason is because while taxpayers must pay taxes on their gains, they aren't allowed to deduct capital losses (beyond $3,000 a year) except against gains in the current year. Capital gains also aren't indexed for inflation, so a lower rate is intended to offset the effect of inflated gains.
One implication of the Buffett rule is that all millionaire investment income would be taxed at the shareholder level at a minimum rate of 30%, up from 15% today. The tax rate on investment income from corporations would rise to 54.5% from 44.75%, a punitive tax on start-up or expanding businesses.
The new 30% capital gains rate would be the developed world's third highest behind only Denmark and Chile, according to the American Council for Capital Formation. This is on top of the 35% corporate rate that is already the second highest rate in the world after Japan. That giant sucking sound you hear come January 2013 would be hundreds of billions of investment dollars fleeing to China, India, Korea and other U.S. competitors. Lower capital investment in the U.S. means less wage growth, and so the people hurt most by this tax hike would be workers, according to a study by the Institute for Research on the Economics of Taxation.
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.Mr. Obama conceded on Tuesday that the high U.S. corporate tax is an economic loser. Yet he misses the crucial point that business owners assess the combined corporate and capital gains tax on those business profits. Lowering the corporate tax rate makes the U.S. more competitive, but the tax change is self-defeating if it is combined with an even larger rise in investment income taxes on capital gains and dividends.
Mr. Obama isn't setting himself apart merely from conservatives with this Buffett ploy. He is rejecting 35 years of bipartisan tax policy that began with the passage of the Steiger Amendment by a Democratic Congress that cut the capital-gains rate to 28% from 35% in 1978.
As the nearby chart shows, the rate has never since risen above 28%, and the last time it moved that high was in 1986 as part of the Reagan-Rostenkowski tax reform that also cut the top marginal income tax rate to 28% from 50%. With income-tax rates so low, a differential was arguably less necessary—though it's worth noting that capital gains revenues fell dramatically after that rate increase.
A decade later Bill Clinton agreed to cut the rate back to 20% as part of the balanced-budget deal with Newt Gingrich. Capital gains revenues soared, helping to balance the federal budget. Nearly every study estimates that the revenue-maximizing tax rate from the capital gains tax is between 15% and 28%. Doug Holtz-Eakin, the former director of the Congressional Budget Office, says that a 30% tax rate "is almost surely above the rate that maximizes tax revenues." So it's likely the Buffett trick would lose revenue for the government.
Yet in a time of the highest deficits since World War II, Mr. Obama wants to double the capital gains tax rate even as he raises the top income-tax rate to 42% or so. Mr. Obama really is taking us back to the worst habits of the 1970s. And not because he thinks higher rates will raise revenue, but merely so he can score points against Mitt Romney and stick it to the successful.
This isn't tax fairness. It's tax folly.
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Democratic Tax Hypocrisy
Posted By Larry Elder On February 3, 2012 @ 12:11AM
Forgive Republican candidate Mitt Romney for his alleged failure to adequately explain why he paid “only” 14 percent of his income in taxes.
The honest answer — “Well, because my accountants couldn’t figure out how to get them any lower” — does not work in this or very many other election years. Romney seemed flat-footed because, like most business people, he seeks to minimize costs and expenses.
This includes taxes.
A normal wealthy-and-proud-of-it guy would have said: “Let me get this straight, pal. I’m not supposed to take every legal advantage provided me by the tax laws to reduce my taxes?” For what it’s worth, about 15 percent of Romney’s last two years of income went to charity — substantially higher than the percentage given by the Obamas or Joe Biden’s $380 (not a typo) of his quarter-million dollar income in 2006.
“Tax savings” allows people more money to save, spend, invest, bequeath and donate. On some level, even Democrats understand this.
Democrat Rep. Barney Frank, D-Mass., is one of them. In 2001, Massachusetts lowered it state income tax rate. But the legislature showed mercy for the Bay State’s guilt-ridden, tax-hike-supporting liberals. The tax form allowed the filer to check a special box — and pay the old, higher rate. Out of more than 3 million tax filers in 2004, a tiny fraction of 1 percent — 930 taxpayers — volunteered to pay the higher rate. Among those who declined the opportunity was Mr. Frank. Frank explained, “I don’t trust the legislative leadership and Gov. (Mitt) Romney to make the right decisions.” Instead, Frank said, “I’ll donate the money myself.” What?! Charity might better spend money than can government, which, by its nature, operates less efficiently and more expensively than can private welfare?
Democrat Sen. Howard Metzenbaum from Ohio (served 1974, 1976-1995) was another tax-supporting Democrat not too keen on paying more in taxes than he needed to. But after retirement, the wealthy Metzenbaum moved to Florida, which, unlike Ohio, is a state with no estate or personal income taxes. This saved him millions.
Democrat John Edwards’ wife Elizabeth, during the 2004 campaign, said rich politicians like her husband reveal “character” when they vote against financial “interest” by supporting higher taxes.
This is the same John Edwards who, as a trial lawyer winning big jury awards, established a separate sub-corporation to accept the money, paying him through dividends rather than income. Perfectly legal. But this allowed Edwards to avoid some $600K in Medicare payroll taxes.
Democrats like Sen. John Kerry, D-Mass., rail against the Bush tax cuts that rich people — like himself — “didn’t need” and “didn’t ask for.” Rhode Island requires no sales tax on yachts registered in that state — provided the boat is primarily housed in Rhode Island. Massachusetts is not so understanding. That state requires a sales tax and annual excise taxes. Folks say that Kerry and his 75-foot yacht spend way more time in Massachusetts than in Rhode Island. But accountants say that the wealthy yachtsman can avoid nearly $500K in state taxes by registering his boat in Rhode Island — which he did. All was going well, until a New York paper got hold of the story and Kerry “voluntarily” agreed to pay the Mass. tax — while continuing to insist that he does not really owe it.
Democrats like the late Ted Kennedy support the estate tax. And why not? The Kennedy family transfers wealth from generation to generation through trusts that avoid the very estate taxes that Kennedy consistently voted to impose on the wealth of others.
Shouldn’t tax-hike-supporting rich people like Warren Buffett want to pay more rather than less taxes? Yet one of Buffett’s companies is contesting tax claims against it.
Pro-tax-hike Democrats like MSNB-Hee-Haw’s the Rev. Al Sharpton deserve a special wing all to themselves in the Chutzpah Hall of Fame. Sharpton assails the Bush-era tax cuts and wants “the rich” to pay more. Sharpton lists income from his nonprofit at just under a quarter million dollars. Add this to his estimated salary at the cable network, and the “civil rights leader” likely pulls in a tidy $500K. Not bad for a guy that not long ago was a gold-medallion-wearing Harlem rabble-rouser in velour sweatpants who got famous by playing the race card in a phony rape case.
Sharpton, according to the New York Post, owes federal taxes and state taxes totaling $3.5 million. How much income would Sharpton have had to earn to amass $3.5 million in state and local taxes? A lot. How much nerve does it take for a guy making a half mil to go on television and pound the podium for higher taxes on the rich — when his own effective tax rate is 0 percent?
Ask Sharpton.
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I'm not a fan of Mitts, but I don't think anyone is questioning that Mitts did anything illegal or wrong. Nor did Buffet. At least I sure don't.
The question on the table is whether the tax laws should be changed; is it is appropriate that an individual making millions upon millions of dollars only pay 14% while some middle class working people pay a much higher percentage? I know the arguments, but it just doesn't sit right....
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The money is already taxed at the corporate level-- 35%. When Japan drops its rate in April (IIRC) we will be the highest in the world.
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Yeah, but as Mitts has proven, nobody pays that! :-D
It's all in the deductions (Mitts had lots) and keeping money offshore (Mitts did that too).
Further, I think it's an issue of fairness.
Why does a guy who buys/owns stocks/companies/real estate for a living and hold them for a while pay a lot less tax as a percentage than some poor schmuck who is a wage earner?
Frankly, assuming Mitts wins the nomination, I think it will be an issue in the election.
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So, should everyone pay taxes at the same rate?
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Sounds good to me. Give a floor for the poor; after that all earnings from whatever source get taxed at the same rate. And forget all deductions.
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Why should there be a floor for the poor? Fair means the same for everyone, right?
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Not looking to have someone starve....
There has to be compassion someplace...
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You are free to pay other people's taxes with your own money, if you wish.
Fair means the same taxes for everyone, right?
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"Yeah, but as Mitts has proven, nobody pays that!"
Forgive me, but you have not yet grasped the point-- it is that the 15% comes on top of the corporate rate of 35%.
"Why does a guy who buys/owns stocks/companies/real estate for a living and hold them for a while pay a lot less tax as a percentage than some poor schmuck who is a wage earner?"
Because it is on top of the corporate tax. Because part of the gain is illusory due to inflation. But mostly because he put capital at risk-- capital which is his AFTER the taxation upon what he actually made. He can lose the money he invests.
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The highest corporate rate is 35%; I repeat myself; who pays that?
Let's compare the average middle class schmuck. He works hard, pays taxes far above the 15% rate of Mitts and has a few dollars left over.
Where does he put it? Probably in a savings account. Fully taxable; again.
Mitts? He might buy a second vacation home. Is the interest deductible? Yep! If he sells it for a profit, he pays the minimal capital gains rate; not
the tax rate the middle class schmuck pays on his savings account. Or Mitts even keeps some of his money offshore and pays no tax.
Or maybe Mitts buys stock and holds them for a year. Again, does he pay a lower rate than the middle class schmuck who put his money in savings because
he really didn't have a lot of choices like the rich do? Yep.
Or maybe Mitts buys a company; calls himself president. Takes deductions that you cannot even fathom, then sells it for a profit. Yep, again he pays less tax
than the middle class schmuck.
I've got a friend who puts his kids on the payroll. Pays them 100K+ and they do filing in office once a month. Great deduction huh? The business pays for his car, his
meals, his maid, you name it, the business pays for it; all deductible. What does the average middle class schmuck do? He just pays his taxes and weeps.
Or maybe Mitts buys a new house. Lives in it for a few years. He deducts the interest, then decides to sell it at a profit (maybe not lately). The middle class schmuck who only rents
can't deduct interest, heck he can't even deduct his car payment, and his savings in the bank is taxed as ordinary income.
So Mitts sits back in his easy chair, making millions upon millions, AND paying less tax as a percentage than the middle class schmuck. It's all funny money, probably little of it is wages earned.
I notice Mark Zuckerberg, the president/owner of Facebook is going to reduce his salary to $1.00. Mind you, he is majority shareholder; a billionaire, actually a multi billionaire.
Zuckerberg is not dumb enough to pay regular tax on wages when he can pay 15% like Mitts. Heck he can borrow against his stock at a rate far lower than the tax rate.
But does the average schmuck have those options? Nope, he just pays and pays and pays.....
Is that fair?
Mitts has done nothing illegal; I don't question or criticize what he has done. If I were him and I had his money, I would do the same.
But most of us don't.... And we end up paying higher taxes than Mitts.
Is that fair....
So it's going to be an interesting election.
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The highest corporate rate is 35%; I repeat myself; who pays that?
Any tax on any business is ultimately paid by those that consume the products/services of that business.
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Well said GM, but answering JDN on the level on which he meant his comment:
Yes, the government hands out favors and further manipulates how businesses invest and/or spend their money. That said, does this mean you recognize the principal that Mitt's 15% is on top of corporate taxes?
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Well said GM, but answering JDN on the level on which he meant his comment:
Yes, the government hands out favors and further manipulates how businesses invest and/or spend their money. That said, does this mean you recognize the principal that Mitt's 15% is on top of corporate taxes?
In general, yes, I acknowledge your point, but there are numerous exceptions as I indirectly pointed out. For example, as I pointed out, for lack of alternatives, the middle class guy already paid taxes, then puts his money in a savings account for lack of alternatives and AGAIN pays taxes. What's the difference? Or for lack of funds, he doesn't buy a house, or a second house, which IMHO is a tax boondoggle for the rich.
But my primary point is as GM has tried to address (we disagree) is how to define "fairness". I do respect GM's point, perhaps because he IS a wage earner, but not all people are so logical or "fair" as he defines it.
However, I do understand your math, also I acknowledged that Mitts did absolutely nothing wrong. BUT.... it just looks bad, IMHO (and perhaps other Americans) that someone who makes millions pays less than 15%, an amount less than middle America.
I think the next election will address that point....
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JDN is concerned that people with actual ability and intelligence might get rewarded in this country.
I mean Mitt actually made money by being smart, while Obama had to get by as an affirmative action token and Chicago graft to make his money. Is that fair? What if Obama had to actually make money with his brains and talent? S-O-L-Y-N-D-R-A spells poverty and failure.
That isn't going to keep Michelle in Wagyu beef and luxury foreign vacations, is it? No private schools for the girls either. Imagine if they had to attend the same schools that the dems inflict on poor black children. Nope, not for the dem elites, who really care about the common people they fly over on their jets.
So, if your're going to be rich, make sure you align yourself with the left, then your wealth is fine, especially if you made it through graft/politics or married/inherited it.
Just don't do it honestly and through hard work, because that's not fair.
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First Lady Celebrates B-Day at Steakhouse Featuring $28 'Obama' Burger--Kobe Beef, Bacon, Cheese
By Susan Jones and Greg Gwyn-Williams
January 18, 2012
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President Barack Obama and first lady Michelle Obama arrive on the South Lawn of the White House in Washington on Dec. 14, 2011. (AP Photo/Haraz N. Ghanbari, File)
(CNSNews.com) - Michelle Obama celebrated her 48th birthday Tuesday night with her husband and friends at a D.C. steakhouse where the menu features a $28 hamburger named "The Obama."
BLT Steak describes its "Obama" burger as an 8-ounce American Kobe burger with bacon, cheddar cheese, burnt tomato ketchup, and scallion mustard.
American Kobe beef is from a line of Japanese Wagyu cattle, which traditionally are fed a special diet and massaged to produce the fat-marbling for which the meat is prized.
But the Obamas didn't have burgers--they reportedly had steak in the private dining room.
In response to a query from CNSNews.com, the BLT restaurant chain would not provide any details of the Obamas' visit, except to say they were "quite honored to have them as our guests."
But according to one food blog--in a town famous for leaks--the President and Mrs. Obama ordered a 10-ounce American Wagyu steak, which at $81 is the second most expensive item on the menu, just behind the 12-ounce American Wagyu for $92.
Dessert reportedly was a special-order red velvet cake.
The a la carte dinner menu, posted online, shows the Obamas had plenty of food to choose from: The appetizers at BLT Steak range in price from $11 (for a Bibb lettuce salad with mustard dressing) to $34 for a dozen oysters.
Entrees range from $26 for lemon-rosemary chicken to $92 for the 12-ounce Wagyu Ribeye.
Side dishes include an $8 order of French fries or onion rings. The most expensive side dish is $13 for "Hen of the Woods" mushrooms.
Most desserts are $10, and they include crêpe soufflé with passion fruit sauce and mini doughnuts with chocolate sauce and coffee ice cream.
"The Obama" is one of 5 burgers listed on the restaurant's "Political Burger Board." At $28, it is the second most expensive burger, right after "The Bi Partisan," which costs $32. The Bi Partisan is also an 8 ounce Kobe beef burger, topped with lobster, cheddar cheese and "black truffle buttermilk dressing." The other three burgers--including "The Pork Barrel"--cost either $16 or $18.
The restaurant's assistant general manager told the blog Foodorama that Michelle Obama "dines with us quite regularly."
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Expensive massages, top shelf vodka and five-star hotels: First Lady accused of spending $10m in public money on her vacations
By Daily Mail Reporter
Created 3:33 PM on 24th August 2011
The Obamas' summer break on Martha's Vineyard has already been branded a PR disaster after the couple arrived four hours apart on separate government jets.
But according to new reports, this is the least of their extravagances.
White House sources today claimed that the First Lady has spent $10million of U.S. taxpayers' money on vacations alone in the past year.
Expensive taste: Michelle Obama, pictured yesterday in Massachusetts, has been accused of spending $10m of public money on vacations
Branding her 'disgusting' and 'a vacation junkie', they say the 47-year-old mother-of-two has been indulging in five-star hotels, where she splashes out on expensive massages and alcohol.
More...Revealed: How Obama goes hobnobbing with friends and donors while on Martha's Vineyard family holiday
Michelle Obama shows up her husband in tiny purple bike shorts as the President lags behind in jeans
Nothing like a world of porn kings and gangsters to take your mind off things... Obama gets stuck into his holiday reading amidst global turmoil
Get Mrs Obama's sense of style with MailLife.co.uk
The 'top source' told the National Enquirer: 'It's disgusting. Michelle is taking advantage of her privileged position while the most hardworking Americans can barely afford a week or two off work.
'When it's all added up, she's spent more than $10million in taxpayers' money on her vacations.'
His and her jets: The President and his wife, who are spending nine days on Martha's Vineyard, have come under fire for travelling on separate planes
The First Lady is believed to have taken 42 days of holiday in the past year, including a $375,000 break in Spain and a four-day ski trip to Vail, Colorado, where she spent $2,000 a night on a suite at the Sebastian hotel.
And the first family's nine-day stay in Martha's Vineyard is also proving costly, with rental of the Blue Heron Farm property alone costing an estimated $50,000 a week.
The source continued: 'Michelle also enjoys drinking expensive booze during her trips. She favours martinis with top-shelf vodka and has a taste for rich sparking wines.
'The vacations are totally Michelle's idea. She's like a junkie. She can't schedule enough getaways, and she lives from one to the next - all the while sticking it to hardworking Americans.'
Travelling in style: Mrs Obama during her $375,000 trip to Spain last year
High security: Bodyguards surround the First Lady and youngest daughter Sasha as they take a stroll on the Costa del Sol
While the President and his wife do pay for some of their personal expenses from their own pocket, the website whitehousedossier.com says that the amount paid by the couple is 'dwarfed by the overall cost to the public'.
The magazine also reported that Mrs Obama, whose fashion choices are widely followed, had been going on 'wild shopping sprees', much to the distress of her husband, who, its sources reveal, is 'absolutely furious' at his wife's 'out-of-control spending'.
The President has already come under fire this week over his decision to take a family vacation while millions of Americans are out of work and countless more are financially strapped.
Luxury break: The President and his family, pictured in December, splashed out more than $1.5million on a Christmas holiday in Hawaii
'Winter White House': The property in Kailua cost $38,000 to rent
But the situation sparked further anger after he and his wife elected to fly separately to the Massachusetts retreat - despite travelling on the same day.
Mr Obama left the White House aboard Marine One on his way to Andrews Air Force base to hitch a lift aboard Air Force One - along with First Dog Bo.
After landing at Cape Cod Coast Guard Air Station, he then took a final helicopter to his holiday destination to complete the remarkable 500-mile journey.
His wife and daughters, who arrived just four hours earlier, were also travelling from Washington, but took a specially designed military aircraft.
They would also have had their own motorcade from the airport to the vacation residence.
FIRST LADY OF LUXURY TRAVEL: HIGHLIGHTS FROM THE OBAMAS' LAVISH GETAWAYS OVER THE PAST 12 MONTHS
GIRLS' TRIP TO SPAIN: AUGUST 2010
The exact cost is unclear as Mrs Obama and her 40 friends footed many personal expenses, such as hotels and meals themselves.
But the U.S. taxpayer would have paid for the First Lady's 68-strong security detail, personal staff, and use of presidential jet Air Force Two.
Per diems for the secret service team runs at around $281 each - nearly $98,000 for the length of the summer break.
Use of Air Force Two, the Air Force version of a 757, comes in at $149,900 for the round trip. This does not include time on the ground.
Mrs Obama's personal staff, of which there are an unknown amount and might cost considerably more per day, should also be taken into account.
CHRISTMAS BREAK IN HAWAII: DECEMBER 2010
According to the Hawaii Reporter, the bill for the $1.5m trip included:
$63,000 on an early flight bringing Mrs Obama and the children to Hawaii ahead of the President.
$1,000,000 on Mr Obama’s return trip from Washington on Air Force One.
$38,000 for the ‘Winter White House’ beach property rental.
$16,000 to rent nearby homes for Secret Service and Navy Seals.
$134,000 for 24 White House staff to stay at the Moana Hotel.
$251,000 in police overtime.
$10,000 for an ambulance to be on hand at all times
SKI TRIP TO VAIL: FEBRUARY 2011
Mrs Obama and her daughters stayed at the Sebastian hotel on Vail Mountain, where rooms cost more than $2,400 for multi-bedroom suites.
The family appear to have flown there on Air Force Two.
They were escorted to the resort by a motorcade of about a dozen vehicles, including 15 state and local law enforcement officers
SUMMER HOLIDAY ON MARTHA'S VINEYARD: AUGUST 2011
The Blue Heron Farm estate, where the Obama family are currently staying, rents for about $50,000 a week.
According to U.S. News and World Report, the Coast Guard is required to keep ships floating near the property, the presidential helicopter and jet remain at the ready and security agents will be on 24-hour duty.
Read more: http://www.dailymail.co.uk/news/article-2029615/Michelle-Obama-accused-spending-10m-public-money-vacations.html
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Good grief GM; now you are picking on Mrs. Obama because on her birthday she goes to an expensive restaurant? Or a vacation?
My parents for many years used to live 5 doors down from Nixon's Western White House in San Clemente. I still remember the
navy or coast guard ship offshore, the helicopters, the marine guards stopping the surfers (there is a famous surfing beach nearby) etc.
I'm sure he drank fine wine, ate nice steaks, etc. Who knows what the cost was; who cares?
I don't own or have much, but I too favor "expensive booze"
So what....
You must be kidding; this is the best you can post regarding "Tax Policy"?
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Hey, you're trying to push the class warfare theme. I guess after 4 years of failure, that's the best you and Obozo have.
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JDN, You wrote personal and hypothetical about the advantages Gov. Romney had. Deducting interest which is ludicrous, he doesn't need to borrow to buy a home. They goaded him into releasing tax returns to look for wrongdoing, found none and then exploited his perdsonal information for political cheapshotting. Romney's homes didn't cause tax burdens to go up on someone else. Michelle's lifestyle does. FDR ( a Dem) was winniong WWII with less staff than the first lady. If the idea is to stay on topic, please post what YOU think the rate for quadrupletaxation rates should be on illusory, inflationary gains.
Comparing with the average Joe (schmuck?)? The American at the 50th percentile pays roughly NOTHING in federal income tax. If you are counting FICA and oppose it, then good, let's all work to repeal it.
The poor do not work harder than the rich and I watch that pretty closely. But if they did or didn't would that affect what tax rates should be? Should we factor that in as a difficulty factor like they do for gymnastics or figure skating, or ... a wild idea, tax all income of all taxpayers from all legal sources at the same rate, without judgment from the government.
The nice thing about the Mitt and Buff personal stories is that if the rich are not in fact paying a higher rate, why are we so obsessed with continuing that failed policy?
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AS JDN notes, we are wandering a bit far from tax policy here.
That said, last word mine :evil: :lol:
It is my understanding that Michele has far exceeded the norm when it comes to spending public money on vacation (e.g. separate jets on mulitple occasions?!?) and that there is plenty of data showing that other presidents (e.g. Reagan, Bush 1 + 2) have had far more respect for the public purse and far more humility in their importance in relation to that of the people whom guard them (e.g. not taking certain trips at all so that personel could spend holiday time with families-- but that was is not something that was spoken about out of simple good manners and class. I would note also the incongruity of Mitt's wealth getting the treatment it has in comparison to Gigolo John Kerry, who did NOT earn his own money and who married a fabulously wealth woman not once but twice. A cynic might wonder as to the motivations implied by such a coincidence-- not to mention it is only the blogosphere which reports his tax doding ways with his yacht , , , until he was caught. Ditto the treatment of presidential hopeful John Edwards and his tax avoiding ways. etc etc etc etc
Anyway, returning to matters more pertinent to this thread, I invite JDN to address the variable of the possible LOSS of capital that is part of the differential between the treatment of capital gains and income. I also invite him to include in his calculus, that wages are a cost of doing business for a corporation (i.e. they are deducted) and dividends, which are a distribution of profit (i.e. money that is already taxed.)
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Doug, I was using Mitts as an example. Over and over did you notice I acknowledged that in my opinion he did absolutely NOTHING wrong. I'm no more likely or less likely to vote for him since I found that he paid 14% in taxes. I could argue like GM has argued before (yachts) that Michelle's lifestyle helps keep people employed, but that too is a rather silly argument.
As to who works harder, well, it doesn't really matter. It's how smart you are and how talented you are. That's true in all walks of life. Hard work is nice, but God given talent is better. I have friends who are partners at large law firms and they work hard; they also get paid very well. And I play golf with a gardener who also works very hard, but makes very little. That's life...
The issue I'm trying to focus on and I know you and I disagree on this point is the issue of fairness of taxation.
Let me give you a hypothetical example (I'm sure you will disagree, but stay with me).
On one hand we have a hard working dentist. He is employed by a large dental clinic; technically he is an employee. His salary is low six figures; he pays ordinary income tax on his income and further, various other taxes as well.
On the other hand we have a passive investor. He works just as hard as the dentist to find businesses to invest in and/or real estate to buy. I am not questioning his work ethic. Further, let's say he is successful as well, however he derives all of his income from these business investments and real estate at time of sale. Yet in my investor's case, all would be taxed at the much lower capital gains rate and further he avoids the various other taxes our dentist had to pay. Plus he has the luxury of various deductions unavailable to our wage earning dentist.
Now they both work equally hard. They both earn about the same. But one pays taxes left and right, while the other pays taxes at a much lower rate.
Is that fair?
On another point/question, yes, the loss of capital is a risk, but then so is the loss of the wage earner's job a risk. Neither party has a guarantee of success.
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Sorry, but that does not fly. The wage earner does not risk losing money he has already received. The wage earner does not have to put up his previous earnings in order to get the job.
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Perhaps we could have a government body of economic fairness that can decide who gets what kind of compensation. I'm sure that's worked out well in the past......
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I could argue like GM has argued before (yachts) that Michelle's lifestyle helps keep people employed, but that too is a rather silly argument.
It's quite different when a private person hires people and buys things, creating economic activity vs. Queen Michelle's lavish taxpayer funded lifestyle.
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Doug, I was using Mitts (Gov. Romney?) as an example. Over and over did you notice I acknowledged that in my opinion he did absolutely NOTHING wrong.
Looking for wrongdoing was the lure used to get his private information into the public domain. Now that everyone has his private information they (you) move to what else can we do with it, even pose hypotheticals that are absurd about what he has not done. Doesn't fly with me.
Again, what rate would you quadruple tax illusory incomes at? Again, the inflation component of a gain is not a again, yet it is quadruple taxed. Your story did not answer that. If you can answer with a tax code less than twice the length of the Bible, then we may have an improvement over the current code.
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This Crafty quote deserves repeating:
The wage earner does not risk losing money he has already received. The wage earner does not have to put up his previous earnings in order to get the job.
I would add that the investor has already paid his FICA contribution when the money was earned. Does anyone even know what the FICA 'tax' stands for anymore? What are the second and third words??
Federal Insurance Contributions Act - It is an insurance contribution. Like a pension, would you want Gov. Romney to be taxed all the way up on his income and then federally insured up to all or most of his highest annual income for his old age retirement. I think not and same with the people who designed the system.
Social Security and FICA have already been partially repealed with the Obama political keynesian move to put a coffin nail through its biggest strength - that is was allegedly fully funded.
If you want to lower the tax on labor, do so! If you want to further penalize and disincentivize the formation of capital in this country, do that too, but don't expect that the further lowering of investment with even fewer factories and employers hiring will help employment, national income or revenues to the Treasury, because it won't. It's not rocket science.
Efficient investment is necessary for robust employment. Hindering it kills off jobs and keeps capital from flowing to its most valuable use. Does anyone ever look at actual results? Or just focus group polling to set tax policy.
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http://www.foxnews.com/opinion/2012/02/13/mr-obama-dont-have-tax-problem-have-spending-problem/
Mr. Obama, we don't have a tax problem, we have a spending problem
By Wayne Allyn Root
Published February 13, 2012
FoxNews.com
Aug. 31, 2011: President Obama gestures after a statement in the Rose Garden of the White House in Washington.
Did you see President Obama's new 2013 budget? It's filled with $1.5 trillion in tax increases for the rich.
It appears that the president and his leftist cabal believe we are all stupid. They believe if you tell enough lies, the lies become fact. They spend all day, every day, trying to convince Americans that taxes on the rich are too low.
The reality is taxes are not low at all. If you think they are, you've either been brainwashed, or you aren't paying taxes. The truth is: The taxes are too damn high.
We do have a serious problem in this country. But it's not a tax problem. It is a spending problem.
Our government is addicted to spending. It doesn’t matter what the tax rate is. It doesn’t matter how high the tax revenues. We could raise tax rates to 90% and government would still spend $1.40 for every dollar it takes in. So why are we blaming the victim (taxpayers) for the national debt?
Government is a spending addict and needs rehab. If you don't believe me, look at Europe.
Taxes are far higher than America, yet the countries of Europe are desperately broke. Bankrupt, Insolvent. Panic is setting in. Greece is burning. It may become the worst economic crisis in modern history. And it's all about big spending and high taxes.
Yet President Obama continues to claim in every speech that taxes on the rich are too low and we therefore desperately need to raise taxes.
When a private sector CEO lies to investors, it’s called fraud. You can go to prison for manipulating the facts. Yet President Obama and his leftist cabal in Congress lie, omit and manipulate the facts about taxes every day.
Let’s examine the bold faced lies of Obama and the left, who try to justify tax increases on "the rich" on a daily basis:
First, Obama quotes the dollars earned by the top 1% of income earners to prove that “the rich” are making too much and being taxed too little. That’s sleight of hand.
The president is lumping billionaires with yachts and private planes into the same boat with small business owners like myself. Within that top 1% are a few billionaire titans like Warren Buffett, hedge fund managers who earn $500 million per year, Wall Street tycoons who earn $100 million per year just in stock options, all mixed in with small business owners like me.
How can you use billion dollar stock gains, or $100 million hedge fund incomes, or $20 million Wall Street bonuses, to justify raising taxes on a small businessman who makes $250,000 to $500,000 per year by working 16 hours a day?
By courageously risking their own money, small business owners create over 70% of the new jobs in the U.S. economy.
President Obama is comparing these individuals to billionaires who share the same tax bracket. Mr. Obama claims that everyone in the top 1% tax bracket is making too much, and paying too little in taxes.
The president is playing a bait and switch shell game. Some might even go so far as to call that kind of manipulation tax fraud.
Second, Mr. Obama claims tax rates are currently among the lowest in history. Once again the president is purposely omitting the full picture.
Separate from federal income tax rates, U.S. taxpayers now pay the highest FICA and Medicare tax rates ever; the highest state, local and property taxes ever; the highest sales taxes ever; and the second highest business income taxes in the industrialized world.
Add it all up, and small business owners like myself are overburdened like never before in history. So we are clearly being deceived. Again, some might call that tax fraud.
Third, Obama is comparing apples to oranges when he compares tax rates. Rates are lower today than in the past because many valuable tax deductions were eliminated. And we now face caps, phase-outs, and the dreaded Alternative Minimum Tax.
Therefore quoting higher rates is a distortion of the truth. A tax rate of 70% from decades ago might actually be lower than today's rates once you include these factors.
As Ronald Reagan would say, “There you go misrepresenting, again, President Obama.”
Fourth, Obama constantly reports that tax rates were once much higher. Another distortion.
It is true that FDR raised the top rate in 1935 to 79%. But what Mr. Obama and his team doesn’t tell us is that it only applied to someone making the equivalent of $76,000,000 per year.
Only one man in the entire United States of America paid a penny at that rate in 1935: John D. Rockefeller.
Mr. Obama wants much higher taxes for millions of small business owners making $250,000 and above.
But he quotes "robber baron” rates to sell his bait and switch scheme. In the private sector you face civil or criminal charges for misleading investors like that.
President Obama also purposely leaves out a very important fact -- that only in the last 30 years have we moved away from a cash economy.
Tax rates at 70% or higher didn’t matter prior to 1980 because the whole country operated with an underground (cash) economy. Most small businesses earned unreported cash.
Does anyone- including President Obama -- believe that restaurant owners, bar owners, or retailers paid huge taxes on their cash incomes 30 years ago?
Today we have a computerized economy based on credit cards. Virtually every dollar that every business takes in is tracked and reported. Today, banks report to government all suspicious or big ticket deposits. Virtually every dollar in the U.S. economy is tracked and taxed. So the rate of taxes is immaterial -- all of us are paying far more in taxes than ever before. To not report that difference is deceptive. Some might call that tax fraud.
Finally, President Obama calls his desired tax increases "small" and "fair." In reality they are huge.
If President Obama got his way federal income taxes would hit 40% or higher. And he'd take the cap off FICA taxes. And he'd dramatically reduce or eliminate mortgage, charitable and business deductions. And then just for fun, he'd add a national VAT tax. Now add in the new taxes for ObamaCare. Add it up.
Americans would face tax rates approaching 70%. And this time there is no cash economy. The government would take 60 to 70 cents of every dollar we all make, while we do all the work. The mafia has nothing on the government!
So why is Obama playing fast and loose with the facts? Taxes aren't low and he knows it. And the increases he desires aren't small or fair, and he knows it.
Our government is heavily in debt, and Obama needs to find targets of opportunity (i.e. victims) to pay the bills, so America doesn’t go bankrupt on his watch.
Second, Obama’s only chance at re-election is to redistribute billions of dollars to his voters and campaign contributors in the way of entitlements, welfare, food stamps, stimulus, and green energy "investments" by government.
Third, by targeting, demonizing and punishing small business owners and high-income earners (the people who make almost all the contributions to conservative causes and candidates), Mr. Obama can starve his political opposition. If taxes are higher on the rich, then the president's opposition has no money left to give to conservative candidates.
My hero Ronald Reagan's plan was to lower taxes on the rich, to motivate and encourage investment, entrepreneurship and job creation, while at the same time starving big government.
Mr. Obama's plan is is the polar opposite: to raise taxes dramatically on the rich, so he can feed the beast of big government, and at the same time, starve his political opposition.
Wayne Allyn Root is a former Libertarian vice presidential nominee. He now serves as chairman of the Libertarian National Congressional Committee. He is the best-selling author of "The Conscience of a Libertarian: Empowering the Citizen Revolution with God, Guns, Gold & Tax Cuts." Visit his web site: www.ROOTforAmerica.com.
Read more: http://www.foxnews.com/opinion/2012/02/13/mr-obama-dont-have-tax-problem-have-spending-problem/#ixzz1mUYXm3CJ
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Actually, selfishly speaking, I'm glad to hear about the problems in Greece. We need a wake up call. Better them than us. You can't keep spending $1.40 for every dollar earned.
I think we can raise taxes (sorry) on the rich. BUT we also need to lower spending. Both sides need to be addressed.
We should start with entitlements. Why can't the retirement age be raised to age 70? We are all living longer.
And public benefits need to be cut. That means police, firemen, military, all public employees have their benefits cut; it's crazy that they
are able to collect retirement benefits after 20 years of service. Make everyone wait to age 65 or age 70 to begin collecting benefits.
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"I think we can raise taxes (sorry)..."
a) Why be sorry if its the right thing to do.
"... on the rich."
b) Why are we back less than 24 hours after worrying about equal protection, again applying the laws unequally to different people depending on their circumstances? Let's raise taxes on those people, over there. If you don't like flat tax rates, at least make the changes across the board, affecting everybody.
c) My friend JDN, is it really not possible to train you to distinguish between taxes and tax rates after all these discussions? You are an economist - and a voter- we need you to draw the distinction! I believe Crafty gave you 5 major examples where lowering tax rates raised taxes (revenues to the Treasury). From what you write we have no idea if you favor raising tax rates or lowering them to generate more revenues. If you are saying raise tax rates even further on the people who have the most options and the greatest sensitivity to tax rates, then I think all that will do is stall the economy out even further - and push unemployment up even further. You should consider changing your thinking to pro-growth (Huntsman-like policies) sometime between now and the election. )
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I'm not sure raising taxes on the "rich" will hurt tax revenue; frankly I think it will raise tax revenue.
That said, I'm in favor of a flat rate (perhaps two or three tier) rate structure. BUT eliminate ALL the deductions. You make money, you pay......
And I'm not "sorry"; raises taxes on the rich; it's the right thing to do. But many on this forum have thin skin; I don't mean to offend. :-)
And I don't agree, the truly rich do not have the greatest sensitivity to tax rates. I don't think raising their taxes will "stall the economy even further."
PS Actually, I had a double major; one was economics! :-) And my best friend some time ago and former boat partner was a Phd. econometrics (Berkeley) and economist for BofA.
As for Huntsman, it's a package deal, but I liked him. But no one else did. And now look what the Republicans are left with....
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"PS Actually, I had a double major; one was economics!"
Where did you go?
"And my best friend some time ago and former boat partner was a Phd. econometrics (Berkeley) and economist for BofA."
Well, if he influenced you that may explain a fair amount. In contrast I would date the beginning of my economics awakening to my days at U. PA when I was exposed to econometrics-- the epitome of Hayek's fatal conceit. :lol: As for economist for BofA-- that too may explain a fair amount :lol:
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I went to the University of Southern California (USC). Actually it's quite a conservative school; at least in comparison to many others. I had been accepted at Berkeley but my parents thought it was too liberal for an impressionable young boy. :-)
As for my friend, he was the economist on the bank's international side at that time; we didn't talk economics much; most of our time we spent racing, chasing girls, drinking, or just sailing down to Mexico.
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"...University of Southern California (USC). Actually quite a conservative school; at least in comparison to many others. I had been accepted at Berkeley but my parents thought it was too liberal..."
Your parents did the best they could for you under the circumstances. :wink: Some of us here are trying to lure you to that next level of interest in economics, i.e. how people respond to different incentives and disincentives to produce.
"most of our time we spent racing, chasing girls, drinking, or just sailing down to Mexico."
The lifestyle of the 1%. We should tax it more. Or just ban it (sailing) with a federal law as they have done in the most beautiful part of MN.
"the truly rich do not have the greatest sensitivity to tax rates."
Please back that up at your leisure with something empirical.
I would link this thread and this forum as a one-sided documentary as to the opposite, and I would be happy to pull out specifics across the world and throughout history for you, if requested.
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http://online.wsj.com/article/SB10001424052970203960804577239120562365932.html?mod=WSJ_Opinion_AboveLEFTTop
FEBRUARY 23, 2012
David Cameron's Tax Lesson
A 50% tax rate yields less revenue than advertised.
Speaking of higher taxes (and President Obama always does), there's news from once fair Britannia.
Preliminary figures out this week show that Britain's 50% top marginal income-tax rate may have reduced tax revenue from top earners by as much as 5%, compared to the old 40% top rate (That's a 25% increase!). Tax revenue from those filing self-assessments due January 31 was down some £500 million
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http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9097219/50p-tax-rate-failing-to-boost-revenues.html
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If only corporations paid rather than simply complained about the high tax rate. For example,
"When corporations are hit with punitive damages, they’re able to write them off as an “ordinary and necessary” business expense (PDF). Consequently, Exxon’s $1.1 billion Alaska oil spill settlement actually cost the company $524 million after taxes. Obama’s budget proposes to eliminate the deductibility."
http://www.thedailybeast.com/articles/2012/02/25/8-ridiculous-tax-loopholes-how-companies-are-avoiding-the-tax-man.html
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If only corporations paid rather than simply complained about the high tax rate. For example,
"When corporations are hit with punitive damages, they’re able to write them off as an “ordinary and necessary” business expense (PDF). Consequently, Exxon’s $1.1 billion Alaska oil spill settlement actually cost the company $524 million after taxes. Obama’s budget proposes to eliminate the deductibility."
http://www.thedailybeast.com/articles/2012/02/25/8-ridiculous-tax-loopholes-how-companies-are-avoiding-the-tax-man.html
I'm not sure why it's so difficult for you to grasp this concept, but corporations don't pay taxes, consumers of the products/services provided by the corporations pay the taxes.
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As Mitt Romney has noted "corporations are people too: :-) A reasonable argument could be made that shareholders would take note of significant penalties , , ,
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Viva La France? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/5/2012
It’s not happening just in America. France will also elect a President this year. The French go to the polls on April 22 and, if necessary, a run-off vote will happen on May 6. The two top candidates are current president Nicolas Sarkozy – center-right by French standards, center-left by American – and the Socialist nominee Francois Hollande.
Last week, Mr. Hollande announced he wants to raise France’s top income tax rate to 75% from the current peak of 41%. He said “patriotism” and “justice” should convince French citizens to support his candidacy and his tax hike. The new tax rate would apply to those making more than one million euro per year (about $1,300,000). Those making more than €150,000 ($200,000) would face a tax rate of 45%.
One thing most people know about us is that we are not friends of higher tax rates – they slow growth and undermine economic activity. Nonetheless, we see Mr. Hollande’s proposal as a “win-win” for global supporters of small government and free market capitalism.
Hollande is currently up by 10+ points over Sarkozy in polls. We would be very surprised if his lead doesn’t shrink substantially in the next several weeks.
If it does, then France – France! – can actually lead the advanced economies of the world in repudiating the left-wing effort to push income tax rates back up to pre-Reagan era levels. To paraphrase Frank Sinatra, if those kinds of tax rates can’t make it in France, they can’t make it anywhere.
But what if Hollande goes on to win? Right now, the top income tax rate is 41%. For every euro a worker in this tax bracket generates as income, he keeps 59 cents to spend. When spent, this money faces a value added tax (VAT) of 19.6%, meaning that every euro of earnings generates 52.6 cents for the government and 47.4 cents of personal consumption.
In Hollande’s France, one additional euro’s worth of output would get taxed at 75%, leaving the worker with only 25 cents on the euro. Then, the same VAT would apply to any spending, meaning that the worker gets to consume only 20.1 cents out of every euro. In other words, the marginal return to additional work would fall by more than half (from 47.4% to 20.1%).
The natural result will be a combination of less work by France’s most productive citizens, a demand by these workers for higher pre-tax pay (which will spread the burden to those with more modest incomes), and some of France’s best and brightest seeking their fortunes elsewhere.
During the 1980s, President Reagan’s tax cuts helped re-make the US as an example for the world, “a shining city on a hill.” The world copied Reaganomics, with virtually every country in the world following suit. Hollande’s tax hikes would make France a “dingy city in a ditch” and, after watching what happens there, we doubt the US or world will follow, no matter who wins US elections this November.
Either way, through repudiation or bad example, we think the US will eventually be the better for it. Viva La France.
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second post
"As David Brooks recently wrote in the New York Times, 'the U.S. does not have a significantly smaller welfare state than the European nations. We're just better at hiding it.' Whereas European countries 'provide welfare provisions through direct government payments,' the U.S. does it 'through the back door via tax breaks.' For instance, 'European governments offer public childcare. In the U.S., we have child tax credits.' European governments openly 'subsidize favored industries.' We provide 'special tax deductions and exemptions' for Washington's favored industries. This back-door approach allows Americans to indulge in the fantasy of their self-reliance and rugged individualism without actually being self-reliant or rugged. ... When you include both direct and back-door social spending, our welfare state is bigger than Italy's. It is 'far above average' when compared to other industrialized nations. Unless we intend to leave our children and grandchildren with an unconscionable debt burden, that must change." --author Chuck Colson
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Thoughtful piece at City Journal gives a historical and intellectual perspective for anti-tax-increase principles: Read it at the link and click on the ads:
http://www.city-journal.org/2012/22_1_taxes.html
William Voegeli is a senior editor of The Claremont Review of Books, author of Never Enough: America’s Limitless Welfare State
"...These critics would have you believe that the antitax movement is nothing but belligerent extremism. The truth, however, is that you don’t have to embrace Norquist’s famous ambition—to shrink government until it’s small enough to be drowned in a bathtub—to conclude that opposing tax increases is both smart politics and wise policy. Nor do you have to make the maximalist supply-side assertion that tax cuts always pay for themselves. In rejecting tax hikes, Republicans aren’t trading in fanaticism. Rather, they’re confronting a governing failure—an abiding lack of candor about what our welfare state costs—that voters grasp but Democrats refuse to admit."...
..."When they refuse to raise taxes, Republicans force Democrats to make a deeply unpersuasive argument. Major expansions of the welfare state are indispensable, this argument goes; but the $5.08 trillion of federal, state, and local government outlays in 2010—35 percent of GDP—is already being spent on its very best uses; therefore, our new government endeavors will require corralling more of the 65 GDP percentage points that now roam contentedly beyond the fence.
Such a platform would be helpful for any candidate seeking the presidency—so long as it was the presidency of the American Federation of State, County, and Municipal Employees. But no Democratic politician will ever use it successfully to win over a large, diverse electorate residing outside our blue ghettos, which is why Democratic presidential candidates avoid it and instead promise not to raise taxes. This silence is a deafening testament to Democrats’ morose conviction that Americans don’t like their party’s agenda enough to give it the only endorsement that really matters: voting to pay for it. It’s hard to see what incentive Republicans have to extricate Democrats from this dilemma."
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"Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute." --Thomas Paine (Rights of Man, 1791)
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Under cover of the Republican Presidential Primary debates about how to defeat Barack Hussein Obama's socialist agenda and his plan to fund the final chapter of that agenda with enormous tax increases, Sen. Lamar Alexander (R-TN, no relation!) and Sen. Dick Durbin (D-IL) have teamed up to promote one of the largest tax increases in U.S. history -- a heavy levy on all Internet sales.
The so-called "Marketplace Fairness Act" S. 1832 was first proposed in November 2011 by Sen. Michael Enzi (R-WY), and now awaits action in the Committee on Finance. (And you thought all that "fairness" rhetoric was limited to leftists promoting Democratic Socialism.)
Some otherwise erudite conservative senators, such as my friend Bob Corker, have joined Alexander in this errant folly. They are backing the Republican version of the legislation because it is allegedly better than the Democrat version. For the record, I do not consider that to be a legitimate selling point.
Before explaining this enormous tax increase, allow me to provide some insights demonstrating how detached Lamar is from marketplace reality and how he became so disoriented.
I once admired Lamar, an affable and intelligent fellow whose successful 1979 gubernatorial campaign trademark was his folksy grassroots plaid shirt. After a couple of terms as governor, he accepted an appointment as Secretary of Education from George H.W. Bush in 1991. In that role, he unfortunately supervised the expansion of that department rather than its contraction as proposed by Bush's former boss, Ronald Reagan.
Predictably, after Lamar's move to Washington, he progressively lost touch with his grassroots base and began a slide into the mediocrity of Republican moderation -- which often renders its adherents ideologically indistinguishable from their Democrat opponents. I diagnose this condition as Chronic Potomac Fever, which infects too many well-meaning Republicans after they take up residence inside the Washington Beltway.
Post Your Opinion: What is the best way to eradicate the epidemic of Potomac Fever?
By 2002, Lamar had become a card carrying "establishment Republican." After his well-funded but narrow primary defeat of a strong conservative, Rep. Ed Bryant, Lamar went on to win the Senate seat vacated by Fred Thompson. To the detriment of conservatives and our Constitution, Lamar was elevated to Conference Chairman of the Republican Party from 2007 until 2012. However, given the influx of conservatives into the House and Senate ranks in 2010, Lamar announced his resignation, noting he was "stepping down from leadership to regain my independence."
The day after Lamar announced his support for the Internet tax, he sent me this explanation -- which aptly demonstrates just how disconnected he has become.
"This bill is about states' rights; closing tax loopholes that basically subsidize out-of-state businesses at the expense of Tennessee businesses... Today, if you buy boots from a store in Nashville, by law the store collects the sales tax you owe and sends it to the state to pay for our roads, schools and other services we ask the state to provide. But if you buy the same boots online from a company outside Tennessee, that company doesn't collect the sales tax you owe the state. ... That's not right. If businesses are going to fail or succeed, it should be based on the services they provide and the price of their products -- not on whether a company can successfully avoid collecting sales taxes that their Tennessee competitors can't get around collecting."
Memo to Lamar, et al.
I replied to his contorted and disconnected marketplace reasoning with a reality check, noting first that under our present Constitution, if I purchase a product from another state, it is NOT subject to state taxes in my state of residence unless that vendor has a retail presence in my state. That has been the standard for interstate commerce for generations, whether placing orders by mail, by phone or by Internet (Quill v. North Dakota regarding the latter).
Thus, suggesting that I "owe the state" sales tax when I purchase a product from another state is patently false. (Of course, some states endeavor to circumvent the sales tax exclusion by implementing "use taxes" -- without much success due to the ludicrous complexity requiring that citizens track and report every purchase when filing state tax returns.)
Further, it is absurd to suggest that the "boot purchase" example -- avoiding sales tax -- is the force that drives online sales. In some cases, people will go into a retail outlet, find a product they like, and then search online for a better price. I believe that is morally wrong. (And in regard to Sen. Alexander's laudable desire to support local businesses, those boots were probably made in China or India.)
The vast majority of Internet sales are driven by product, price comparison and convenience -- old-fashioned free enterprise competition -- not by short-circuiting a local vendor's sale to avoid sales tax. In fact, many items purchased on the Internet may not be available in a local market.
Post Your Opinion: What is the real motivation behind the so-called "Marketplace Fairness Act"?
As for Alexander's assertion, "If businesses are going to fail or succeed, it should ... not be on whether a company can successfully avoid collecting sales taxes that their Tennessee competitors can't get around collecting," again, this is a false premise. The shipping cost on a pair of boots purchased on the Internet is likely to be as much or more than the sales tax on the same pair of boots, if purchased locally.
Moreover, given the high price of fuel and the fact that a critical percentage of the fuel we use is imported from the Middle East, not only do Internet orders conserve fuel and preserve our environment, they promote national security.
For example, if 1,000 people in a single ZIP code place 1,000 Internet orders, the majority of those orders will be delivered by a common carrier in that ZIP code. In other words, a couple of FedEx or UPS trucks making multiple deliveries in one ZIP code is far more energy efficient than 1,000 consumers driving to multiple locations endeavoring to make those purchases.
The fact is, the Marketplace Fairness Act is really about generating billions of dollars in windfall taxes for state governments, many of which are as bloated and inefficient as the federal government and therefore just as bankrupt. If Lamar wants to implement an enormous tax increase and stifle free enterprise, then he should call it what it is, rather than obfuscate his motivation by claiming lofty rationales such as "states' rights."
The bottom line is, conservatives should opposed any tax increase, opting instead to cut federal and state government spending, most of which is not supported by the constitutions of either. Moreover, any tax increase that is not revenue neutral should be flatly rejected by even the most dullard of establishment Republicans.
In other words, if Sen. Alexander is going to support an Internet sales tax on Tennesseans in order to "level the playing field," he should also support an equal reduction in the overall rate of sales taxation to offset his tax increase.
PS: If you are curious as to why online behemoth Amazon.com supports the Internet sales tax measure, it is because Amazon already has locations in many states, meaning Amazon sales in those states are already subject to sales tax. But Amazon's support is more sinister. Determining, collecting and delivering state and local sales taxes on every purchase massively increases transactional overhead for small businesses that compete with Amazon. But Amazon is positioning itself to "rescue" those poor little businesses by processing all their transactions -- in return for substantial surcharges on the taxes collected, of course. Caveat emptor!
Deus et Constitutione — Libertas aut Mortis!
Semper Vigilo, Fortis, Paratus et Fidelis!
Mark Alexander
Publisher, The Patriot Post
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http://online.wsj.com/article/SB10001424052970204781804577269791012344900.html?mod=WSJ_Opinion_AboveLEFTTop
April 1 is a date that every politician and business executive in America should circle on the calendar. That's when Japan cuts its corporate tax rate to 36.8% from 39.5%. The United States will then hold the title of highest corporate tax rate, with average combined federal and state profit levies of 39.2%.
Yes, that's higher than Sweden. Higher than Russia. And China, Mexico, Denmark and even France. Doesn't it make you want to break out in a chant: U-S-A, U-S-A?
Tokyo's move is striking because its political class has long behaved as if tax rates don't matter, and the government is wrestling with the need to finance a typically large budget deficit and an aging population. But in 2010 politicians had a radical idea: Cutting the corporate profits tax would boost economic activity and lead to higher revenues.
The government approved an overall five percentage-point cut, which was delayed by last year's earthquake and tsunami. But the first installment arrives April 1 and in three years the rate will drop another 2.3 percentage points to 34.5%.
Japan's neighbors in Asia convinced Tokyo to act by luring investment from what used to be the world's second-largest economy and is now the third, after the U.S. and China. Korea has cut its top corporate rate to 22%, Taiwan to 17% and Thailand is moving to 20% over the next two years. Hong Kong and Singapore have led the way with longstanding rates of 16.5% and 17%, respectively.
This is part of a world-wide recognition that high corporate taxes create economic distortions. Most obviously they encourage businesses to locate operations in other countries. American liberals argue that most U.S. companies don't pay the top federal statutory rate of 35% because of various loopholes and credits, but the high rate encourages multinationals to keep their profits overseas to invest there, rather than in the U.S.
High rates also create incentives for tax avoidance that go far beyond making work for creative accountants. For instance, because interest payments are tax-free, corporate taxes encourage debt as opposed to equity financing, making companies more vulnerable to interest-rate shocks and business downturns. A mound of economic evidence also shows that high corporate rates result in lower compensation for workers.
Yet for two decades American politicians have done nothing as the rest of the world has cut corporate taxes, leaving the U.S. rate 10 to 15 percentage points above the international average. Now almost everyone—even President Obama—agrees that it's time to act. Mr. Obama unveiled a plan last month to chop the federal rate to 28% from 35%, but at the same time it would impose such a high penalty on U.S. firms with overseas operations that business groups rightly say the plan would be worse than doing nothing.
The last four years have seen numerous U.S. economic milestones—four years of trillion-dollar deficits, some $5 trillion in new debt, the loss of America's AAA credit rating, three years of near-zero interest rates, postwar records for federal spending as a share of the economy, and now the world's number one corporate tax rate.
Some conservatives say Mr. Obama doesn't believe in American exceptionalism. Clearly he does.
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http://www.nytimes.com/2012/03/18/business/marginal-tax-rates-and-wishful-thinking-economic-view.html?_r=1
"A family’s marginal tax rate is what its members pay to the government if they earn another dollar. If the government takes a smaller chunk of that dollar, a family has more incentive to earn it. Workers may choose to work additional hours, or a stay-at-home spouse may decide to work outside the home. Likewise, entrepreneurs may invest in a new enterprise or expand an existing one. Lower marginal rates also reduce people’s incentives to shield income from taxes, through legal and illegal means."
Oddly, Romer goes on to try to minimize that reality. With all the scrutiny over copyrights, I end my interest in what she has to say right there. My advice is don't bother click on the link or read it all. She is trying to tell potential skydivers without parachutes that the law of gravity is no big deal.
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On the eve of IRS day I post this challenge from Buchanan to Obama (sorry Rachel, I guess you no longer come to the board loaded with troglodytes so I what you don't see won't offend you; beyond that absolutely nothing personal meant and I do hope you will return to posting on the forum).
In any case here is Pat's pointed challenge:
***The glaring inequality of Obamavilleby Patrick J. Buchanan03/20/2012
CommentsRising inequality "is the defining issue of our time," said President Obama in his Osawatomie speech that echoed the "New Nationalism" address Theodore Roosevelt delivered in that same Kansas town a century ago.
In the last two decades, the average income of the top 1 percent in the U.S. has grown by 250 percent, bemoaned our populist president, while the income of the average American has stagnated.
"This kind of inequality -- a level we haven't seen since the Great Depression -- hurts us all," said Obama.
"Inequality ... distorts our democracy. ... It gives an outsized voice to the few who can afford high-priced lobbyists ... and runs the risk of selling out our democracy to the highest bidder."
But is the president, a former disciple of radical socialist Saul Alinsky, truly serious about closing the inequality gap?
Or is this just political blather to frame the election year as a contrast between Barack Obama, champion of the middle class, and a Republican Party that supposedly hauls water for the undeserving rich?
Obama's retort to those who say he is waging class warfare?
Republicans alone prevent him from raising the top U.S. income tax rate from 35 to 39.6 percent, where it stood under Bill Clinton, and advancing America toward true equality.
Republicans reply that the top 1 percent of U.S. taxpayers already carry 40 percent of the income tax load, while half of the nation and a majority of Obama voters pay no income tax at all. Moreover, these free-riders also consume almost all of the $900 billion the nation spends annually on Great Society programs.
Yet, a path has just opened up to test the seriousness of the president, to determine if he is a phony on the inequality issue, or a true egalitarian eager to close the gap.
That opportunity comes from a report last week that income inequality in America is at its greatest in the electoral precinct where Obama won his largest majority: Washington, D.C.
In Washington, the top 5 percent of households have an average income of $473,000, highest of all of the 50 largest cities in America. The average income of the top 20 percent of district households is $259,000. Only San Francisco ranks higher.
Moreover, that $259,000 average household income for the top 20 percent is 29 times the average household income of the bottom 20 percent, which is only $9,100 a year.
The citadel of liberalism that Obama carried 93-7 has a disparity of incomes between rich and poor that calls to mind the Paris of Louis XVI and Marie Antoinette.
Washington is a textbook case of the inequality that Obama says "distorts our democracy," and it is the ideal place to prove that he is serious.
For Washington is Obamaville. The mayor is a Democrat. The city council is Democratic. There are more lawyers and lobbyists concentrated here than in any city in America.
Here we have the perfect test case -- the most liberal city in the republic, with the greatest income inequality, where Obama's political clout and personal popularity are highest. And there is no obstructionist Republican cabal to block progressive reforms.
If Obama and the Democratic Party will not use their power to close the inequality gap right here in their own playpen, how do they remain credible in Middle America?
How to proceed, if the left is serious about inequality?
Consider. The District of Columbia income tax reaches 8.5 percent after the first $40,000 in income. A 5 percent surtax takes that rate to 8.95 percent for incomes over $350,000.
Yet, half a dozen states have higher and more progressive income tax rates than that.
Obama should call on his allies in the city government to raise the district income tax to the 15 percent level New York had in the 1970s.
Since district income taxes are deductible against federal income taxes, this would translate into an actual top tax bite on the Washington rich of 9.75 percent. Is that too much to ask of true progressives?
The new revenue could be transferred to Washington's working class and poor through tax credits, doubly reducing the district's glaring inequality.
Republicans will argue that raising the district tax rate to 15 percent on incomes above $250,000 will precipitate an exodus into Maryland and Virginia, where the top tax rates are not half of that. Conservatives believe as an article of faith that tax rates heavily influence economic behavior.
But Obama, who has kept the U.S. corporate tax rate among the highest in the world and wants U.S. personal tax rates raised closer to European levels, rejects this Republican argument.
Has he the courage of his convictions?
When the district's schools were desegregated in the 1950s, liberals fled. Let us see if they will stick around for a "progressive income tax" to reduce this unconscionable inequality between Kalorama and Spring Valley -- and Anacostia and Turkey Thicket.
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http://online.wsj.com/article/SB10001424052702303816504577305302658158454.html?mod=opinion_newsreel
By PHIL GRAMM
AND STEVE MCMILLIN
In the stagnant days of the Carter administration, when inflation was approaching 13.5% and interest rates were peaking at 21.5%, income was more evenly distributed than in any period in 20th-century America. Since the days of that equality in misery, the measured income of the top 1% of income tax filers has risen over three and a half times as fast as the income of the population as a whole.
This growth in income inequality is largely the result of three dynamics:
1) Changes in the way Americans pay taxes and manage their investments, which were a direct result of reductions in marginal tax rates.
2) A dynamic shift in the labor-capital ratio, resulting from the adoption of market-based economies around the world.
3) The flourishing of economic freedom and technological advances in the Reagan era, which were the product of lower tax rates, a reduced regulatory burden, and an improved business climate. These changes have not only raised the measured income of the top 1%, they benefited the nation and the world.
While income distribution has become a source of protest and political debate, any analysis of taxes paid in high tax-and-spend countries shows that the U.S. has the most progressive income tax system in the world. An inconvenient truth for the advocates of higher taxes on America's rich is that big governments in developed countries are funded not by taxing the rich more than the U.S. does, but by taxing everybody else more.
In 1986, before the top marginal tax rate was reduced to 28% from 50%, half of all businesses in America were organized as C-Corps and taxed as corporations. By 2007, only 21% of businesses in America were taxed as corporations and 79% were organized as pass-through entities, with four million S-Corps and three million partnerships filing taxes as individuals. By reducing personal tax rates below the level of the corporate rate, the Tax Reform Act of 1986 dramatically influenced how entrepreneurs structure businesses.
This has had a profound effect on what is now measured as the income of the top 1%, since a significant amount of what is now declared as personal income is actually income from businesses that are now taxed as individuals.
Enlarge Image
CloseDavid Gothard
.In 1986, just 5.6% of the income of top 1% filers came from business organizations filing as Sub-chapter S-Corps and partnerships. By 2007, almost 19% of income declared on tax returns filed by the top 1% came from business income. A significant amount of income that critics claim is going to John Q. Astor actually is being earned by Joe E. Brown & Sons hardware store.
The reported income of the top 1% also significantly increased as tax rates on capital gains were lowered, first under President Bill Clinton and then under President George W. Bush. At a top tax rate of 28%, realized capital gains were 2.5% of GDP and made up 17.7% of the income of top 1% filers. As the top tax rate fell to 20% in 1997 and 15% in 2003, realized capital gains rose to 4.6% and then to 5% of GDP. The percentage of the income of top 1% filers coming from capital gains grew to 26% in the 1997-2002 period and 28.1% during 2003-07.
By reducing the penalty for transferring capital from one investment to another, these lower tax rates increased the mobility of capital. High-income taxpayers sold more assets, declared more income, and paid more taxes.
Similarly, when the tax rate on dividends fell to 15% in 2003, dividend income for the top 1% grew 178% by 2007 to make up 5.6% of the income of these filers. In 2007, immediately prior to the recession, capital gains and dividend income combined was equal to the amount of salary, bonus and exercised stock options earned by the average top 1% filer.
Lower tax rates made dividend-paying stocks more attractive to high-income investors and made dividend payouts more attractive for companies that would have previously retained those earnings or bought back their stock. Capital trapped in companies with below-market rates of return was redeployed and the entire economy benefited.
All of this has had a huge impact on the measured income of the top 1% and the growth in income inequality. This impact can be estimated by examining what would have happened to the income of the top 1% if tax rates had not been lowered and these economic transformations had not occurred.
If the share of income coming from businesses, capital gains and dividends had remained at the levels before the tax rate changes of 1986, 1997 and 2003 respectively, the income of top 1% filers would have been 31% lower in 2007. The growth in income since 1979 for top 1% filers would have been only 2.5 times as large as the income growth of all taxpayers—not 3.6 times as large.
More businesses would have remained C-Corps and been taxed as corporations, fewer assets would have been sold and thus fewer capital gains would have been declared, and fewer dividends would have been paid. All of this would have lowered the income declared by the top 1%. Economic growth would have been lower and aggregate measured income of all taxpayers would have fallen, but the distribution of income would have been flatter.
The growing participation of China, India, Brazil, Russia and Turkey in the world economy has also affected income inequality. The vast expansion of labor engaged in world commerce has raised the return on capital and reduced the relative return on labor. The share of income flowing to capital—both traditional and human capital such as education and training—has risen.
In relative terms, the return to unskilled labor has fallen. Short of a crippling reversal in world trade, which would reduce the value of both labor and capital, this effect will dominate world markets for the foreseeable future. Since high-income Americans own more capital and have higher levels of education and training, their incomes have grown faster than everyone else's.
The flowering of talent from the expanded freedom and technological progress ushered in by the Reagan era has also played a role. Inequality is a natural result of the expansion of liberty and the development of new technology and new products. Henry Ford, Andrew Carnegie, Sam Walton and Bill Gates caused the income distribution to become more uneven, but they enriched the world.
To vilify success and the rewards it garners is an assault not just on capitalism but on liberty itself. As Will and Ariel Durant observed in "The Lessons of History" (1968), "freedom and equality are sworn and everlasting enemies, and when one prevails the other dies . . . to check the growth of inequality, liberty must be sacrificed."
Nowhere is the political debate over income inequality more detached from reality than the call for the top 1% of American income earners to pay their "fair share." The Organization for Economic Cooperation and Development (OECD) data on the ratio of the share of income taxes paid by the richest taxpayers relative to their share of income show that the U.S. has the world's most progressive tax burden.
The top 10% of earners in the U.S. pay 35% more of the income tax burden than in Sweden and 22% more than in France. These figures—from the 2008 OECD publication "Growing Unequal?"—include all household taxes imposed on income at the federal, state and local level, including social insurance taxes.
In an eternal irony unique to large welfare states, it is the expansion of government in the name of the poor and middle class that always costs poor and middle-class families the most. When the U.S. collects 16.1% of GDP in income taxes, the top 10% of taxpayers pay 7.3% and the other 90% pick up 8.9%.
In France, however, they collect 24.3% of GDP in income taxes with the top 10% paying 6.8% and the rest paying a whopping 17.5% of GDP. Sweden collects its 28.5% of GDP through income taxes by tapping the top 10% for 7.6%, but the other 90% get hit for a back-breaking 20.9% of GDP.
If the U.S. spent and taxed like France and Sweden, it would hardly affect the top 10%, who would pay about what they pay now, but the bottom 90% would see their taxes double.
Since OECD members have significantly higher consumption taxes on average than the U.S., the total tax burden of bigger government is even more heavily borne by lower-income citizens in developed nations than these numbers suggest.
The real and alarming message in these OECD numbers is that there appear to be limits in the real world to how much tax blood can be extracted from rich turnips. With much higher marginal income-tax rates, countries that are clearly willing to soak the rich have proven to be incapable of doing so.
Proposals to raise taxes on high-income Americans in the name of "fairness" not only threaten economic growth. The experience of nations with large governments shows that this argument is simply a red herring for a massive tax increase on middle-income Americans.
In the end, taxing is about feeding government, not redistributing wealth. What nation ever set off on the road to big government promising to tax middle-income workers, and what nation ever got big government without doing it?
Mr. Gramm is a former Republican senator from Texas and senior partner of U.S. Policy Metrics, where Mr. McMillin, a former deputy director of the White House Office of Management and Budget, is also a partner.
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http://hotair.com/archives/2012/04/06/the-obama-administration-loves-tax-cuts-in-china/
The Obama Administration loves tax cuts….in China
posted at 7:33 pm on April 6, 2012 by John Hawkins
If what’s good for the goose is good for the gander, then why doesn’t the Obama Administration think what’s good for the Chinese Dragon is also good for the American Eagle?
While making positive comments about the most recent five-year-plan developed by the Communist government of the People’s Republic of China, Undersecretary of State Robert Hormats specifically applauded China’s decision to lower taxes because it would spur economic growth.
….“China lowered taxes very recently, which will help increase demand, but it’s also good to boost consumption in China,” said Hormats. “So I think what’s interesting is that—sure, there are issues with China that I’ve mentioned–but I think a lot of the reform procedures that are going on in China are consistent with the kind of things that we think will be good for China and for the global system.”
Meanwhile, in a speech in Vermont on Friday, President Barack Obama argued that it was “basic math” that taxes needed to be increased on wealthy Americans so the government could provide more to the poor.
“But if you’re making more than $1 million a year, you can do a little more,” Obama said. “This is not class envy. This is not class warfare. This is basic math–that’s what this is.
“Look, if somebody like me gets a tax break that they don’t need and that the country can’t afford, then one of two things are going to happen–either it adds to our deficit, or we’re taking something away from somebody else,” said Obama.
“Look, there’s no way of getting around that,” said Obama. “Either folks like me are doing more, or somebody who can’t afford it is getting less. And that’s not right.”
Wait, so according to the Obama Administration, cutting taxes in China “will help increase demand, but it’s also good to boost consumption,” while cutting taxes in America “either…adds to our deficit, or we’re taking something away from somebody else.” It’s almost as if Hormats is pointing out the obvious economic benefits of a tax cut while Obama is completely ignoring those same benefits.
But, to what end? Why would the President do such a thing? Has he had any recent head trauma? Could he be a double just PRETENDING to be the President? Wait, you don’t suppose that Barack Obama could be stoking class warfare and touting policies that are bad for America because he thinks it will help him politically, do you? Wait, what am I saying? This is a man who campaigned on hope, unity, and a new tone in Washington. Certainly he wouldn’t stoop to demonizing American citizens and pushing bad economic policy for the sake of mere politics. Sigh…I guess the explanation will just have to remain as one of those great mysteries, like whatever happened to Jimmy Hoffa.
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The whole theme of this liberal story is the poor disabled student whose loans are considered income and now she owes taxes on them. He loans should be forgiven and of course her taxes too. NO mention of tax reform. No discussion of the burden on the rest of us who are paying taxes (up the ass); just another "F" liberal MSM sob story:
http://abcnews.go.com/Business/cancelled-student-loan-debt-creates-tax-nightmare/story?id=16086241
Bottom line make the "rich" pay up.
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While I fully get the accounting standards that say cancellation of debt is income, I gotta say that given the facts of this particular case I am not without a goodly amount of sympathy for this particular woman.
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"I am not without a goodly amount of sympathy for this particular woman."
Well she got a loan debt written off. The issue is not lets just talk about writing off her tax burden too and narrow the focus to this particular sob story. The focus should be that the tax laws are totally crazy in this country, unfair, and without any limit.
To me taxes are a Democrat party extortion scheme.
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Well, 100% agreement on tax laws!!!
That said, I DO want to focus on this particular story. We have here a person who by any normal standard would be allowed to declare bankruptcy-- and properly so!!!- but cannot because the creditor is the Govt, instead of private sector.
I'm sorry for thinking from my conclusions first, but this seems quite wrong to me.
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One opinion on bankruptcy and IRS debts:
http://www.unclefed.com/AuthorsRow/Daily/Fwdcsea.html
I wonder if this person had a problem with the progressive tax code when she was making a social workers salary?
In the meantime 139K of gov. student loans are otherwise forgiven. Still not too bad.
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I wonder what the treatment before Obamacare (remember, Obamacare took over student loans from the admittedly subsidized private sector) was of such loans by the tax code?
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Instructions to Form 1040EZ is 43 pages! http://www.irs.gov/pub/irs-pdf/i1040ez.pdf
Can't figure out my own taxes and now I need to figure them out for my daughter. Argh!
Meanwhile, President Obama who promised reform instead says hey, look at this shiny object - over here. http://www.nationaljournal.com/2012-presidential-campaign/priebus-calls-buffett-rule-a-shiny-object--20120415
And he is diverting money from life saving medical devices over to expanding the IRS. Is that hope or change?
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It is rather ridiculous. What should take (I presume your daughter is not some famous rock star making $$$) 5 minutes to complete becomes a headache.
In recent years, including this morning I've been using TurboTax. A few dollars well spent; it holds my hand step by step. In contrast, the Federal/State Instructions for Tax Forms requires an advanced degree and if you misinterpret you are liable plus penalties and interest. A flat 2-3 tier tax with basically no deductions/exclusions for anything (my take on a tax plan) if nothing else (there are other benefits) offers simplicity.
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A Turbotax error became the Geithner defense for why he failed to pay 4 major years of taxes. For me it is the bringing together of all the records and numbers for input that is the hard task, not the filling in out the forms or even paying the tax.
The largest tax for me (other than property taxes which are more than 100% of take home income) is the cost of not doing certain transactions at all because of the tax consequence.
Make it simple, yes, but also make the rates low.
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Doug said, "For me it is the bringing together of all the records and numbers for input that is the hard task"
That is true, and I acknowledge some businesses are more difficult than others, however my point is that if you eliminated nearly(all) the deductions
the necessity for many of the records for input wouldn't be necessary.
I don't mind lowering rates, but lower/eliminate deductions too. Most of the Republican proposals I've seen are a blanket "lower the tax rate" without eliminating deductions.
To be fair, the Democrats seem to want to raise the tax rate, but keep or somehow increase some deductions; equally bad. Somehow it seems wrong that a high earner pays less as a percentage than a lower wage earner because of deductions.
Doug you once asked me for my tax plan. I suggest a 2-3 tier system with almost no deductions. Of course it needs to be phased in, but I don't think we should
have mortgage deductions, charitable deductions, farm deductions, retirement deductions, medical deductions, heck any deductions, nor do I think capital gains or any other income should be treated any different than simple wage income. Simply put, if you make money you pay a certain percentage in tax. That said, the tax rate should be much lower than it is today. Easier, understandable, and IMHO fairer. But both sides of the aisle would complain for their own selfish reasons.
I didn't know about Geithner and Turbo Tax. You mean I too might have an excuse if I did something wrong? :-)
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"I didn't know about Geithner and Turbo Tax. You mean I too might have an excuse if I did something wrong? "
No, other than for Geithner that defense has been rejected for ordinary taxpayers. - Today's WSJ: http://online.wsj.com/article/SB10001424052702304444604577339840734386180.html?mod=WSJ_Opinion_LEADTop
"Mr. Geithner's episode notwithstanding, there's a growing issue here. Taxpayers who utilize a professional tax adviser such as a CPA or attorney can often avoid IRS penalties by alleging reliance on the tax adviser. (You're always responsible for the underlying tax itself and any interest on the amount.) But for someone who uses commercial software to prepare returns, no such defenses are generally available: The software isn't considered to be a "professional tax adviser." That's unfortunate, because growing numbers of Americans may end up with Mr. Geithner's the-software-did-it problem."
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"Doug you once asked me for my tax plan. I suggest a 2-3 tier system with almost no deductions"
We aren't very far apart on the structure, but the rates are crucial. I would keep the mortgage and charitable deductions until marginal rates are lowered enough that ending those won't kill off housing and charities. I would personally be fine without those two but the economy won't - at this point. Phase out would be fine but you would have to simultaneously phaseout the artificial costs that government is adding to housing and remove the duplication of government charging for what ought to be done by private charities.
I would word it differently, not end deductions but end the social engineering in the tax code (other than those two). No spending whatsoever in the tax code, state or federal. Spending for great causes like helping the poor goes over on the spending side of the ledger. The Romney plan will limit deductions like home mortgages of the upper incomes instead of raising their marginal rates to punitive levels. What you might call deductions I might call business expenses that MUST be deducted from revenues to calculate income. I can't pay the Feds what I already gave to the state and the Feds or vice versa. I already have a greater than 100% tax rate and pretty soon they won't even be able to take my first born as she prepares to venture from the nest.
The tax code needs to be efficient. Collect the money to run the essentials of the public sector but do the least possible harm disrupting the engine that drives it.
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"nor do I think capital gains or any other income should be treated any different than simple wage income."
Should an inflationary gain which is not a gain at all be taxed as ordinary income?
Capital gains should be taxed to maximize economic activity and revenues to the Treasury. (Same for corporate tax rates.) When you change the goal from raising money to fairness you raise less money. With deficits still over a trillion and accumulated debt approaching 16 trillion, why can we afford deliberate inefficiency?
We could tax investment gains at 40% federal plus 12% state plus 15.3% FiCA plus any other surcharges that we want but no one is going to make new investments or sell off any old ones, there won't be jobs and revenues would most certainly decline. It would end both the private and public sectors as we know them. It doesn't work and we are lucky the Dem supermajorities of 2009-2010 did not try it. What they propose to a Republican House in an election year that most certainly won't pass and that they did not pass themselves when they had complete control is demagogic rhetoric. Best not to take it all too literally.
The first step in any tax burden sanity plan is to spend less.
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While a radical change in the tax code is fun discussing, I doubt if anything of substance will happen.
That said, I agreed that eliminating the interest deductibility for mortgages needs to be phased in. However most
industrialized nations don't have a mortgage deduction, yet real estate seems to do just fine.
As for charity, giving is great; I think it's wonderful, but don't give because it's deductible. I find it a little offensive that one can
give money to an organization that I don't agree with or art I don't like and take a deduction depriving society
of your tax money.
As for business expenses being deductible, well that's only important to lower your income, thereby lowering your tax rate.
If for example there were no business deductions, you would still make investment in people and goods if you could
increase revenue/profit wouldn't you? If the tax rate was sufficiently low, offsetting the "benefit" of deductions, well why not?
The only ones who would suffer would be the 10's of thousands of accountants and quite a few lawyers.
As for your comment about "social engineering" I also agree. I drink; so what, why should there be an alcohol tax where the money
raised is used for schools or highways? Or a tax on cigarettes or junk food beyond the amount necessary to enforce safety.
We need taxes; nothing is free but let's have a direct relationship between taxes and the service/product.
Gas taxes for example should go to roads, not a long list of other items.
It's radical and it will never happen, but frankly I think it's more fair than our current convoluted system.
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"most industrialized nations don't have a mortgage deduction, yet real estate seems to do just fine."
Agree but it is putting toothpaste back in a tube. I never made an investment based on a tax benefit because I wouldn't trust that it would still be there later. But millions of people did.
"As for charity, giving is great; I think it's wonderful, but don't give because it's deductible."
No, but you can't pay for cradle to grave government covering all expenses for all people in need including yourself and all medical and scientific research and everything else and then expect that people will have money left over after taxes to help others. This was a choice made to shift that all to government, even the funding of 'charities' comes from government (ex: ACORN). If we want some of these functions to be done privately we can't also force people to pay for it all publicly. That is cognitive dissonance or just bad math. Another path would be to set public safety nets very low and unattractive keeping the public financial burden low and trust your fellow citizens to prosper and contribute voluntarily to help those who can't, as you say, without a deduction. You will notice that one side of the aisle is quite intentionally mis-using words like 'give-back', pay their fair share and 'contribute' when the programs are mandated and the payments are coerced.
What they forget is that they cannot coerce you to make the investments or earn the income in the first place. When the incentive become too negative, the levels of activity fall off steeply, witness 2008 coming into the first scheduled end to the 'Bush' marginal tax rate cuts. The investor based financial disaster very quickly became jobs lost in the millions and revenues lost in the trillions.
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Putting toothpaste back in the tube is always difficult, but that analogy could apply to many "benefits". Maybe it's time to stop selling toothpaste with the expectation of being
able to take an interest deduction? Further, I find it to be a progressive "tax"; if I can't afford a house, I rent, I don't get a deduction. Further, if I can't afford a house,
but need a car for work, well, too bad, the interest on that loan is not deductible. However, if I take a line of credit on my house, buy a car, the interest is deductible. Is
that fair?
As for charity, I think you underestimate the kindness and generosity of Americans. I don't give to my church and other needy causes because I get a deduction.
As for coercing people to make investments, actually I think my idea is the opposite. I would substantially lower taxes (eliminate deductions) so there is a greater incentive
to make a profit and invest.
I repeat myself, but I find it disingenuous to argue that we should lower tax rates only when in fact many/most people making the most money don't pay as a percentage
anywhere close to their supposed tax bracket, mostly because their excellent highly paid accountants find deductions.
Anyway, it's a fun forum discussion, but it will never happen. Too many interest groups will oppose eliminating deductions for their special cause/project. It becomes a merry
go round; if we don't eliminate the deductions, we can't lower the taxes. The money has to come from somewhere.
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"As for coercing people to make investments, actually I think my idea is the opposite. I would substantially lower taxes (eliminate deductions) so there is a greater incentive to make a profit and invest."
Agree. That comment was aimed at the current Dem scheme, you current proposal is closer to the various Republican plans - if you really would lower the rates.
Deductions are regressive because they apply most to the people who make and pay in the most. Hard to find income tax breaks for the half of the country that doesn't pay in (though we do that too). It is social engineering but at least in this one case we are incentivising something that perhaps improves neighborhoods and stability.
PP's take on the mtg deduction in housing IIRC was that ending it would collapse the housing market and the construction sector and all of the banks. A very high risk or high cost and it just doesn't gain you much. Again, Romney's plan is more realistic. Bring the rates down but limit the deductions for people at the high end.
If the argument of Buffet and Obama was true (the rich pay the lowest rate), this would be the perfect time to implement a true, one rate flat tax on all income and sort out the progressivity and redistribution over on the spending side. This whole idea that we should rob Peter to pay Paul because it is polling well with Paul is antithetical to our founding and former values.
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What’s Your Plan?
By Mark Steyn
April 14, 2012 4:00 A.M.
In the end, free societies get the governments they deserve. So, if the American people wish to choose their chief executive on the basis of the “war on women,” the Republican theocrats’ confiscation of your contraceptives, or whatever other mangy and emaciated rabbit the Great Magician produces from his threadbare topper, they are free to do so, and they will live with the consequences. This week’s bit of ham-handed misdirection was “the Buffett Rule,” a not-so-disguised capital-gains-tax hike designed to ensure that Warren Buffett pays as much tax as his secretary. If the alleged Sage of Omaha is as exercised about this as his public effusions would suggest, I’d be in favor of repealing the prohibition on Bills of Attainder, and the old boy could sleep easy at night. But instead every other American “millionaire” will be subject to the new rule — because, as President Obama said this week, it “will help us close our deficit.”
Wow! Who knew it was that easy?
A-hem. According to the Congressional Budget Office (the same nonpartisan bean-counters who project that on Obama’s current spending proposals the entire U.S. economy will cease to exist in 2027) Obama’s Buffett Rule will raise — stand well back — $3.2 billion per year. Or what the United States government currently borrows every 17 hours. So in 514 years it will have raised enough additional revenue to pay off the 2011 federal budget deficit. If you want to mark it on your calendar, 514 years is the year 2526. There’s a sporting chance Joe Biden will have retired from public life by then, but other than that I’m not making any bets.
Let’s go back to that presidential sound bite:
“It will help us close our deficit.”
I’m beginning to suspect that the Oval Office teleprompter may be malfunctioning, or that perhaps that NBC News producer who “accidentally” edited George Zimmerman into sounding like a racist has now edited the smartest president of all time into sounding like an idiot. Either way, it appears the last seven words fell off the end of the sentence. What the president meant to say was:
“It will help us close our deficit . . . for 2011 . . . within a mere half millennium!” [Pause for deafening cheers and standing ovation.]
Sometimes societies become too stupid to survive. A nation that takes Barack Obama’s current rhetorical flourishes seriously is certainly well advanced along that dismal path. The current federal debt burden works out at about $140,000 per federal taxpayer, and President Obama is proposing to increase both debt and taxes. Are you one of those taxpayers? How much more do you want added to your $140,000 debt burden? As the Great Magician would say, pick a number, any number. Sorry, you’re wrong. Whatever you’re willing to bear, he’s got more lined up for you.
Even if you’re absolved from federal income tax, you too require enough people willing to keep the racket going, and America is already pushing forward into territory the rest of the developed world is steering well clear of. On April Fools’ Day, Japan and the United Kingdom both cut their corporate-tax rates, leaving the United States even more of an outlier, with the highest corporate-tax rate in the developed world: The top rate of federal corporate tax in the U.S. is 35 percent. It’s 15 percent in Canada. Which is next door.
Well, who cares about corporations? Only out of touch dilettante playboys like Mitt Romney who — hmm, let’s see what I can produce from the bottom of the top hat — put his dog on the roof of his car as recently as 1984! That’s where your gran’ma will be under the Republicans’ plan, while your contraceptiveless teenage daughter is giving birth on the hood. “Corporations are people, my friend,” said Mitt, in what’s generally regarded as a damaging sound bite by all the smart people who think Obama’s plan to use the Buffett Rule to “close the deficit” this side of the fourth millennium is a stroke of genius.
But Mitt’s not wrong. In the end, a corporation doesn’t pay tax. The marble atrium of Global MegaCorp’s corporate HQ is indifferent to the tax rate; the Articles of Incorporation in the bottom drawer of the chairman’s desk couldn’t care less. Every dollar of “corporate” tax has to be fished out the pocket of a real flesh-and-blood human being, whether shareholder, employee, or customer.
And that’s the problem. For what Obama’s spending, there aren’t enough of them, or us, or “the rich” — and there never will be. There is only one Warren Buffett. He is the third-wealthiest person on the planet. The first is a Mexican, and beyond the reach of the U.S. Treasury. Mr. Buffett is worth $44 billion. If he donated the entire lot to the government of the United States, they would blow through it within four and a half days. Okay, so who’s the fourth-richest guy? He’s French. And the fifth guy’s a Spaniard. Number six is Larry Ellison. He’s American, but that loser is only worth $36 billion. So he and Buffett between them could keep the United States government going for a week. The next-richest American is Christy Walton of Walmart, and she’s barely a semi-Buffett. So her $25 billion will see you through a couple of days of the second week. There aren’t a lot of other semi-Buffetts, but, if you scrounge around, you can rustle up some hemi-demi-semi-Buffetts: If you confiscate the total wealth of the Forbes 400 richest Americans it comes to $1.5 trillion, which is just a little less than the Obama budget deficit for a year.
But there are a lot of “millionaires,” depending on how you define it. Jerry Brown, California’s reborn Governor Moonbeam, defines his “millionaire’s tax” as applying to anybody who earns more than $250,000 a year. “Anybody who makes $250,000 becomes a millionaire very quickly,” he explained. “You just need four years.” This may be the simplest wealth-creation advice since Bob Hope was asked to respond back in 1967 to reports that he was worth half a billion dollars. “Anyone can do it,” said Hope. “All you have to do is save a million dollars a year for 500 years.”
It’s that easy, folks! Like President Obama says, all you have to do to pay off his 2011 deficit is save $3.2 billion a year for 500 years.
He thinks you’re stupid. Warren Buffett thinks you’re stupid. Maybe you are. But not everyone is. And America’s foreign debtors understand that “the Buffett Rule” is just another pathetic sleight of hand en route to the collapse of the U.S. dollar, and of American society shortly thereafter.
When he’s not talking up his buddy Warren, the Half-Millennium Man has been staggering around demonizing Paul Ryan’s plan, which would lead, he says, to the end of the weather service, air-traffic control, national parks, law enforcement, and drinkable water. Given what’s at stake, you might think then that the president would have an alternative plan. But he has none, save for his proposal to pay off the 2011 federal deficit by the year 2526. The Obama No-Plan plan means the end of everything. That really ought to be the only slogan the Republicans need this fall:
What’s your plan?
And all you hear are crickets chirping.
But don’t worry, they’re federally funded crickets, chirping at a research facility in North Carolina investigating whether there’s any correlation between chirping crickets and the inability of America’s political institutions to effect meaningful course correction.
Hey, relax. The Buffett Rule will pick up the tab.
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**Happy tax day! Is this what hope and change means? Chicago corruption on a national scale.
http://hotair.com/archives/2012/04/17/gsa-inspector-general-investigating-potential-bribes-and-kickbacks-at-agency/
GSA Inspector General investigating potential bribes and kickbacks at agency
posted at 11:01 am on April 17, 2012 by Ed Morrissey
This may come as a shock to readers, but the agency that spent hundreds of thousands of taxpayer dollars on bogus, self-congratulatory “meetings” and bubble baths for its regional commissioner might also have been involved in a little graft, too. The Inspector General of the GSA told Congress yesterday that he has opened an investigation into allegations of bribery and kickbacks, deepening the potential scandal:
The inspector general for the General Services Administration said Monday that he is investigating possible bribery and kickbacks in the agency, as lawmakers accused the former GSA administrator of allowing a Las Vegas spending scandal to erode taxpayers’ trust in government.
Inspector General Brian Miller told a congressional committee scrutinizing an $823,000 Las Vegas conference that his office has asked the Justice Department to investigate “all sorts of improprieties” surrounding the 2010 event, “including bribes, including possible kickbacks.” He did not provide details.
Miller’s revelations of possible further misconduct by organizers of the four-day event, coming on the heels of a highly critical report, enraged Democrats and Republicans on the House Oversight and Government Reform Committee. The lawmakers put GSA officials on the defensive during a tense four-hour hearing, with some Republicans loudly rebuking former administrator Martha N. Johnson and her colleagues.
Small wonder, then, that regional commissioner Jeff “Bubble Bath” Neely took the Fifth Amendment when called to answer for himself in Congress yesterday:
The General Services Administration official at the center of a scandal over lavish government spending declined to answer questions at a congressional hearing on Monday, invoking the Fifth Amendment.
“Mr. Chairman, on the advice of my counsel I respectfully decline to answer based upon my Fifth Amendment constitutionally privilege,” Jeff Neely, the GSA official, said repeatedly in response to a string of questions from Rep. Darrell Issa (R-Calif.), the chairman of the House Oversight and Government Reform Committee.
I wondered about Neely’s action when I first heard about it. Certainly, it’s every American’s right to protect himself against self-incrimination while under oath, but until now, there hadn’t been any allegations of serious criminality in the GSA scandal — only exceedingly poor judgment. If the IG has now begun looking into graft and corruption at the agency, that makes this an entirely different kettle of very stinky fish indeed.
That’s not to say that the potential criminality is the entire extent of the scandal, though. Last week’s reporting on the story included a couple of smaller but still significant items into the mindset of the people involved — and the administration’s efforts to defend itself. First, Roll Call’s Jonathan Strong reported that the GSA didn’t just settle for overspending on normal team-building events, but went way out of their way to find excuses to stage new ones, including the creation of a Jackass Award:
Officials at the General Services Administration invented fake awards as an excuse to hold taxpayer-funded dinner events at conferences, according to an interview transcript obtained by Roll Call.
At one such event, GSA bestowed the “jackass award” on an employee, a GSA employee told the agency’s Office of Inspector General, according to the transcript. …
In the interview transcript obtained by Roll Call, a GSA employee who attended the Las Vegas conference said the administration’s officials routinely created awards to justify taxpayer reimbursement for dinner events.
“Typically at any — any conference in my memory over the last three or four years, probably even further back, there was always — there’s always one night where we have an awards ceremony and people are fed. I mean, it’s not even like it’s snacks. I mean, sometimes it’s pretty close to being like a full meal,” the employee said.
Describing the award ceremonies as a “running joke,” the employee said, supervisors explained that the fake awards were designed to justify dinner events at the conferences.
“He says: ‘OK, everybody, just remember, the only way we can have food is if we have an awards ceremony.’ Maybe not in those exact words, but fairly similar,” the employee said.
Also last week, an anonymous source within the Obama administration tried to argue that costs had actually gone down at GSA events since the lavish years of the Bush administration. US News reported that this Politico source flat-out lied to get the heat off of the White House:
But an anonymous source provided numbers to the news outletPolitico last week, floating the idea that the opulence of the GSA Western Region Conference had its roots in the Bush administration.
The source turned over documents to Politico showing that from 2004 to 2006 the cost of the conference ballooned by nearly 250 percent from $93,000 to $323,855.
But the Committee on Oversight and Government Reform says that whomever provided those numbers from the Obama administration fibbed.
“Instead of costs going up 248 percent between 2004 and 2006 as had been claimed, costs were actually reduced from $401,024 in 2004 to $323,855 in 2006—a 19 percent decrease,” the press release from the Committee on Oversight and Government Reform stated.
Classy. The very stinky fish tends to rot from the head down, after all.
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Lets try the Corruption thread for , , , drum roll please , , , matters pertaining to corruption.
http://dogbrothers.com/phpBB2/index.php?topic=1872.0
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You don't think fraud/waste/abuse and potential bribery/kickbacks aren't corruption?
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Ooof! I just looked up. :roll:
Ok, ok.....
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:-D
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he Patriot Post
Digest -- Friday, April 20, 2012
=================================
On the Web: http://patriotpost.us/edition/2012/04/20/digest/
Printer Friendly: http://patriotpost.us/edition/2012/04/20/digest/print
PDF Version: http://pdf.patriotpost.us/2012-04-20-digest.pdf
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The Foundation
"Would it not be better to simplify the system of taxation rather than to spread it
over such a variety of subjects and pass through so many new hands." --Thomas
Jefferson
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Government & Politics
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Election Year Taxes
As we have documented over the years, the Leftmedia are quite adept at using polls
to drive public opinion rather than reflect it. The latest such example was a poll
on taxes in advance of Income Redistribution Day, but as we shall see, there's more
here than meets the eye.
Gallup reports
(http://www.gallup.com/poll/153896/Less-Half-Americans-Consider-Tax-Bill-High.aspx
), "As tax filing day looms, Americans fall into two closely matched camps: those
who believe the amount they pay in federal income tax is too high (46%) and those
who consider it 'about right' (47%). Just 3% consider their taxes too low." It's
hardly newsworthy that so few find their taxes to be too low, but for so many to see
them as "about right" is interesting. Here's why: Roughly half of Americans don't
pay any income taxes at all. It's no coincidence, then, that roughly half of
Americans think their tax burden is "about right."
We'll give Gallup one thing: They made clear that Americans had a much more negative
view of their taxes prior to the Bush tax cuts. And why wouldn't they? Contrary to
media myth, the Bush tax cuts applied to everyone -- not just the wealthy. The top
rate went from 39.6 percent to 35 percent, the next tier dropped from 36 to 33,
followed by 31 to 28, 28 to 25 and the lowest bracket dropped from 15 percent to 10
percent. For those who appreciate math, the bottom bracket had both the greatest
nominal drop -- 5 points -- and the greatest percentage drop -- 33 percent -- but
you won't hear that on the network news.
Indeed, the Leftmedia have suppressed that inconvenient truth to the point that a
CNN poll shows that almost 70 percent of Americans think the tax system favors the
wealthy. The fact is, according to CNS News
(http://cnsnews.com/news/article/americans-making-over-50000-year-paid-933-percent-all-taxes-2010
) and the Tax Foundation, "Americans making more than $250,000 had an effective tax
rate of 23.4 percent and their total share of the tax burden was 45.7 percent." That
contrasts with Americans earning less than $50,000, who paid an effective rate of
3.5 percent for a share of 6.7 percent. Yet with Barack Obama's canard that the rich
don't pay their "fair share" being blasted through the sycophantic media bullhorn,
it's no wonder the idea sticks.
Perceptions could change on Jan. 1, 2013, when the Bush tax cuts are set to expire.
Some were extended by the last Congress, but rates will go up for everyone in
January unless an extension passes this year. The aforementioned rates will return
to their previous levels, the child tax credit will drop from $1,000 to $500, the
marriage penalty will return, the death tax will skyrocket to 55 percent, the
capital gains tax rate will increase from 15 percent to 20 percent (with another 3.8
percent tacked on for ObamaCare), and the tax on dividends will go from 15 percent
to the rate of ordinary wages -- as high as 39.6 percent. The temporary payroll tax
cut will also expire. The total tax bomb on the struggling economy will be close to
$500 billion.
Instead of defusing the issue, the Senate took up but failed to pass Obama's beloved
Buffett Rule, an election-year tax gimmick that would require millionaires to pay no
less than 30 percent in taxes. We call this a gimmick because, as columnist Charles
Krauthammer points out
(http://patriotpost.us/opinion/charles-krauthammer/2012/04/13/free-lunch-egalitarianism/
), "If we collect the Buffett tax for the next 250 years -- a span longer than the
life of this republic -- it would not cover the Obama deficit for 2011 alone."
An extension of the Bush tax cuts, on the other hand, should be a no-brainer during
an election year. It should not only be permanent, but there should be fewer and
even lower rates, which would lead to economic growth. As Joe Biden might say
(http://patriotpost.us/edition/2012/04/16/brief/ ), "It's not class warfare. It's
math." Of course, he meant that comment to further the administration's class
warfare against the wealthy and presumptive GOP nominee Mitt Romney in particular.
Obama and his minions want you to focus on what Romney does with his income, and not
what Obama does with yours.
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Video at the link. They show the debate clip from 2008 with Obama confronted with the historical facts that lowering capital gains rates increased revenues every time and raising them lowered revenues. The President doesn't care about the revenues. It's about 'fairness'. Watch the clip.
http://www.realclearpolitics.com/video/2012/04/20/krauthammer_buffett_rule_is_an_embarrassment_shameless_preposterous_and_deceptive.html
"This is a preposterous statement [a quote of Obama shown defending the Buffet tax] and he know it is. Also on growth, it is equally deceptive. What the tax is, it's a doubling of the capital gains tax. It's disguised, but that's the reason why the Buffett rates are lower, it's the capital gains rate and it's lower than the rate for normal income. So he double its. The reason that's not a good idea is because when you double the rate, you actually decrease the amount that the treasury receives. And you decrease the growth because you are shrinking the pool of capital that is out there that people can invest and hire other people. The reason that we had an economic boom after the Kennedy tax cuts and the Reagan cuts, 20 years later, it's precisely that they cut rates and particularly that they cut capital gains rates," Krauthammer said.
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"Why not raise taxes on capital gains but lower them on income?"
http://www.latimes.com/news/opinion/commentary/la-oe-campbell-flaws-in-the-buffett-rule-20120422,0,441132.story
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Also, IIRC Gingrich got Clinton to sign off on a cap gains tax rate cut too and it too generated and increase in revenues.
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Angry celeb over Obama and taxes. The only thing I would add is that the whole Democratic party should be blamed for their personal power tax. The whole modus is to rob people with money to buy votes. Every tax I pay I think I am paying the Democrat mafia extortionists:
http://news.yahoo.com/snl-alum-obama-f-king-asshole-audio-140806261.html
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CCP, I was going to post this video and see you already posted it. Jon Lovitz formerly of SNL.
Is this a bit?? People are laughing at his lines but the attack sure sounds sincere and true. He is a Democrat who voted for Obama ripping Obama. Full of profanity and passion!
What's wrong with making money, making a success of yourself, earning it. Isn't that what we wanted you to do?
'This is the United States of America, they tell you you can do anything you want - so go for it. You go for it and you make it and they're like Fuck You. (hahahahaha from the audience) What the fuck was that, you just said go for it..."
Another link at 'The Blaze': http://www.theblaze.com/stories/f-a-former-snl-star-slams-obama-over-taxes/
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Doug don't you like this guy Lovitz because he comes across as saying the truth? He went into showbiz to become rich and famous.
Not like the other phoney celebs who pretend it was all about their craft and art. They vote Dem for show. For naricissm. For BS reasons. They appear to have to prove something. Perhaps this makes them feel good about themselves. Do they despise themselves that much?
I became a doctor for different reasons. I didn't expect to get rich. I did like the idea of helping people. But if I said I didn't EXPECT to make a good living I would be lying. What, was I supposed to work hard to achieve this because I am a darn saint?
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Oops, posted a tax policy piece today on political economics. Maybe it was an excuse to get it out there twice. Maybe hard to follow, but it is VERY IMPORTANT to know the answer to this question ifyou plan toraise taxes on the rich: How much will they adjust their income to the new circumstance? Does revenue go up? By how much?
Where he points out the other economists are misguided on elasticity, they are wrong in his estimation by up to a factor of 10. From as low as 0.2 versus as high as 1.99! If we cannot narrow it closer than that or agree one side is wrong, Economics is hardly a science.
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Alan Reynolds: Rasising Tax Rates Excessively is Counterproductive
Economist Alan Reynolds is always worth the read IMO, challenging politicians, and economists who ignore elasticity. It reminds me of the arguments made to raise minimum wage a dollar. It there is no ill effect, why not raise it $20 or $50. If 50% or 70% tax rates have no ill effect, why not go to 100%? Those who project no revenue loss are using the wrong elasticity multiplier, Reynolds argues.
http://online.wsj.com/article/SB10001424052702303916904577376041258476020.html?mod=WSJ_Opinion_LEFTTopOpinion
Of Course 70% Tax Rates Are Counterproductive
Some scholars argue that top rates can be raised drastically with no loss of revenue. Their arguments are flawed.
By ALAN REYNOLDS
President Obama and others are demanding that we raise taxes on the "rich," and two recent academic papers that have gotten a lot of attention claim to show that there will be no ill effects if we do.
The first paper, by Peter Diamond of MIT and Emmanuel Saez of the University of California, Berkeley, appeared in the Journal of Economic Perspectives last August. The second, by Mr. Saez, along with Thomas Piketty of the Paris School of Economics and Stefanie Stantcheva of MIT, was published by the National Bureau of Economic Research three months later. Both suggested that federal tax revenues would not decline even if the rate on the top 1% of earners were raised to 73%-83%.
Can the apex of the Laffer Curve—which shows that the revenue-maximizing tax rate is not the highest possible tax rate—really be that high?
The authors arrive at their conclusion through an unusual calculation of the "elasticity" (responsiveness) of taxable income to changes in marginal tax rates. According to a formula devised by Mr. Saez, if the elasticity is 1.0, the revenue-maximizing top tax rate would be 40% including state and Medicare taxes. That means the elasticity of taxable income (ETI) would have to be an unbelievably low 0.2 to 0.25 if the revenue-maximizing top tax rates were 73%-83% for the top 1%. The authors of both papers reach this conclusion with creative, if wholly unpersuasive, statistical arguments.
Most of the older elasticity estimates are for all taxpayers, regardless of income. Thus a recent survey of 30 studies by the Canadian Department of Finance found that "The central ETI estimate in the international empirical literature is about 0.40."
But the ETI for all taxpayers is going to be lower than for higher-income earners, simply because people with modest incomes and modest taxes are not willing or able to vary their income much in response to small tax changes. So the real question is the ETI of the top 1%.
Harvard's Raj Chetty observed in 2009 that "The empirical literature on the taxable income elasticity has generally found that elasticities are large (0.5 to 1.5) for individuals in the top percentile of the income distribution." In that same year, Treasury Department economist Bradley Heim estimated that the ETI is 1.2 for incomes above $500,000 (the top 1% today starts around $350,000).
A 2010 study by Anthony Atkinson (Oxford) and Andrew Leigh (Australian National University) about changes in tax rates on the top 1% in five Anglo-Saxon countries came up with an ETI of 1.2 to 1.6. In a 2000 book edited by University of Michigan economist Joel Slemrod ("Does Atlas Shrug?"), Robert A. Moffitt (Johns Hopkins) and Mark Wilhelm (Indiana) estimated an elasticity of 1.76 to 1.99 for gross income. And at the bottom of the range, Mr. Saez in 2004 estimated an elasticity of 0.62 for gross income for the top 1%.
A midpoint between the estimates would be an elasticity for gross income of 1.3 for the top 1%, and presumably an even higher elasticity for taxable income (since taxpayers can claim larger deductions if tax rates go up.)
But let's stick with an ETI of 1.3 for the top 1%. This implies that the revenue-maximizing top marginal rate would be 33.9% for all taxes, and below 27% for the federal income tax.
To avoid reaching that conclusion, Messrs. Diamond and Saez's 2011 paper ignores all studies of elasticity among the top 1%, and instead chooses a midpoint of 0.25 between one uniquely low estimate of 0.12 for gross income among all taxpayers (from a 2004 study by Mr. Saez and Jonathan Gruber of MIT) and the 0.40 ETI norm from 30 other studies.
That made-up estimate of 0.25 is the sole basis for the claim by Messrs. Diamond and Saez in their 2011 paper that tax rates could reach 73% without losing revenue.
The Saez-Piketty-Stantcheva paper does not confound a lowball estimate for all taxpayers with a midpoint estimate for the top 1%. On the contrary, the authors say that "the long-run total elasticity of top incomes with respect to the net-of-tax rate is large."
Nevertheless, to cut this "large" elasticity down, the authors begin by combining the U.S. with 17 other affluent economies, telling us that elasticity estimates for top incomes are lower for Europe and Japan. The resulting mélange—an 18-country "overall elasticity of around 0.5"—has zero relevance to U.S. tax policy.
Still, it is twice as large as the ETI of Messrs. Diamond and Saez, so the three authors appear compelled to further pare their 0.5 estimate down to 0.2 in order to predict a "socially optimal" top tax rate of 83%. Using "admittedly only suggestive" evidence, they assert that only 0.2 of their 0.5 ETI can be attributed to real supply-side responses to changes in tax rates.
The other three-fifths of ETI can just be ignored, according to Messrs. Saez and Piketty, and Ms. Stantcheva, because it is the result of, among other factors, easily-plugged tax loopholes resulting from lower rates on corporations and capital gains.
Plugging these so-called loopholes, they say, requires "aligning the tax rates on realized capital gains with those on ordinary income" and enacting "neutrality in the effective tax rates across organizational forms." In plain English: Tax rates on U.S. corporate profits, dividends and capital gains must also be 83%.
This raises another question: At that level, would there be any profits, capital gains or top incomes left to tax?
"The optimal top tax," the three authors also say, "actually goes to 100% if the real supply-side elasticity is very small." If anyone still imagines the proposed "socially optimal" tax rates of 73%-83% on the top 1% would raise revenues and have no effect on economic growth, what about that 100% rate?
Mr. Reynolds is a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press, 2006).
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Doug: Good analysis by Reynolds there.
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http://www.spectator.co.uk/essays/7779228/swedens-secret-recipe.thtml
from Mark Perry...good stuff!
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Sweden’s secret recipe
FRASER NELSON
SATURDAY, 14TH APRIL 2012
Advice from a successful – and tax-cutting – finance minister
When Europe’s finance ministers meet for a group photo, it’s easy to spot the rebel — Anders Borg has a ponytail and earring. What actually marks him out, though, is how he responded to the crash. While most countries in Europe borrowed massively, Borg did not. Since becoming Sweden’s finance minister, his mission has been to pare back government.
His ‘stimulus’ was a permanent tax cut. To critics, this was fiscal lunacy — the so-called ‘punk tax cutting’ agenda. Borg, on the other hand, thought lunacy meant repeating the economics of the 1970s and expecting a different result.
Three years on, it’s pretty clear who was right. ‘Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,’ he says. ‘Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.’ Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit. The recovery started just in time for the 2010 Swedish election, in which the Conservatives were re-elected for the first time in history.
All this has taken Borg from curiosity to celebrity. The Financial Times recently declared him the most effective finance minister in Europe. When we meet in his Stockholm office on a Friday afternoon (he and his aide seem to be the only two left in the building) he says he is just carrying on 20 years of reform. ‘Sweden was a textbook case of European economic sclerosis. Very high taxes and huge regulatory burden.’ An economic crisis in the early 1990s forced Sweden on the road to balanced budgets, and Borg was determined the 2007 crash would not stop him cutting the size of government.
‘Everybody was told “stimulus, stimulus, stimulus”,’ he says — referring to the EU, IMF and the alphabet soup of agencies urging a global, debt-fuelled spending splurge. Borg, an economist, couldn’t work out how this would help. ‘It was surprising that Europe, given what we experienced in the 1970s and 80s with structural unemployment, believed that short-term Keynesianism could solve the problem.’ Non-economists, he says, ‘might have a tendency to fall for those kinds of messages’.
He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs. If cutting taxes for the rich encouraged risk-taking, then it had to be done. ‘In most cases, the company would not have been created without the owner,’ he says. ‘There would be no Ikea without [Ingvar] Kamprad. We would not have Tetra-Pak without [Ruben] Rausing. They are probably the foremost entrepreneurs we have had in the last few decades, and both moved out of Sweden.’
But they were not rich, I say, when they were starting out. ‘No, but they were becoming rich. If you have a high wealth tax and an inheritance tax, people emigrate because it becomes too costly to own a company. Ownership is a production factor. Entrepreneurs are a production factor. Yes, these people are rich and you can obviously argue that we want to encourage social cohesion. But it is also problematic if you drive out entrepreneurs from your country, because they are the source of job creation.’
Just as George Osborne took a hit for reducing the 52p tax to a 47p tax, so Borg’s party paid an political price for helping the rich. ‘If you are going to survive that politically, it is very important to cut taxes on low-income earners.’ He focused the tax credit on the low-paid, giving some the equivalent of a month’s extra salary every year. But there was still resentment. ‘We lost a lot of voters when we cut the property and the wealth tax, I don’t make any excuse for that. It was a severe blow to our support.’
This is the only time in the interview when Borg speaks like the politician he claims not to be. ‘When I look at other politicians I tend to see myself more as an economist,’ he says. This is true in that he is appointed, not elected, and was chief economist for SEB bank. But before this, he was a young libertarian longing to turn the world upside-down. Internet footage still exists of a denim-clad Borg declaring on television that if he was prime minister he ‘wouldn’t do a damn thing, so the people could do whatever they want’. When he later became a prime ministerial adviser, he caused a stir when it emerged that a government staffer backed drug legalisation.
When Fredrik Reinfeldt became party leader in 2003, he made Borg his right-hand man. It seemed a gamble at the time, but his faith in Borg’s expertise was absolute — Borg’s views had moderated, but his sense of urgency had not. ‘We came into government in October 2006 and we launched tax cuts in January 2007,’ he says, ‘so the first three months were extremely hectic.’ The Conservatives’ slogan was striking: ‘We are the new workers’ party.’ Tax rates would be cut for workers, and welfare cut to pay for it. High welfare levels, he says, can inflict cruelty in the name of compassion. ‘People emigrate from the labour market. Unemployment traps capture a lot of people in social exclusion.’ Tax cuts are not spoken of as an ideological aim, but as a tool to cut unemployment and advance social justice.
What even Borg did not expect was that his tax cut for the low-paid would increase economic growth so much that it has almost entirely paid for itself. Borg had created something that Osborne’s critics say does not exist: a self-financing tax cut. ‘There was some criticism at the time that we were borrowing to finance tax cuts,’ he says. But Sweden could do it, because it was expecting to return to surplus soon; Britain has no such luxury, he says. His main advice to Osborne is: ‘Keep on dealing with the deficit, because deficits destroy everything else.’
Borg and Osborne have a good relationship, as do David Cameron and Reinfeldt (who keep in touch via text message). All are men in their early forties, who pick fights with the old guard of their parties to flaunt their ‘modernising’ credentials. But politics in Britain and Sweden are as different now as they were in the 1980s, except the roles are reversed. Sweden is the unlikely champion of supply-side economics, with ideas too radical for Brits. There is cross-party support in Sweden for profit-seeking state schools, which Michael Gove won’t attempt. Borg’s tax-cutting policy was accompanied by a 268-page book explaining the dynamic link between lower taxes and more jobs. Such a document would be unthinkable from HM Treasury.
Sound economics is simply a far larger part of the government mission in Sweden than in Britain. Cameron once observed that no one ‘gets up in the morning thinking “I wish the state was smaller”,’ which is perhaps true in Whitehall. But not in Stockholm where, on Reinfeldt’s 45th birthday, Borg presented him with a graph showing Sweden’s tax-to-GDP ratio dipping under the 45 per cent mark for the first time in decades. That is still, of course, one of the highest rates in the world.
In public, Borg is not in the least triumphalist — if anything, he’s trying to stir up a bit of pessimism. Success has meant he now has to manage expectations, and Borg has taken to warning in his speeches that ‘a future economic crisis is as much a certainty in life as death and taxes’. He could add another certainty: that high taxes will slow down any economic recovery, and fortune tends to favour politicians who do something about that.
The Spectator, 22 Old Queen Street, London, SW1H 9HP. All Articles and Content Copyright ©2012 by The Spectator (1828) Ltd. All Rights Reserved
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"In a general sense, all contributions imposed by the government upon individuals for the service of the state, are called taxes, by whatever name they may be known, whether by the name of tribute, tythe, tallage, impost, duty, gabel, custom, subsidy, aid, supply, excise, or other name." --Joseph Story, Commentaries on the Constitution, 1833
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By HENRY I. MILLER
Much of the political conversation in Washington these days concerns innovation, job creation and competitiveness. But talk is cheap, and elected officials must enact policies that enhance economic activity and job creation. The medical device industry is an example of Washington doing exactly the opposite.
Medical device manufacturing is one of the nation's most dynamic and vibrant industries. The United States is the global leader in medical technology innovation, and it is one of the few major industries with a net trade surplus. This industry is responsible for more than 400,000 American jobs—and is indirectly responsible for almost two million more that supply and support this highly skilled workforce. Most important, its products are essential elements of modern medical care. They include everything from CT scanners and pacemakers to blood pressure cuffs and robots used by surgeons.
Yet instead of protecting this paragon of American ingenuity and innovation, the Obama administration and Congress have viewed the industry as a cash cow from which they could milk profits to help pay for the president's health law. So they added to the Affordable Care Act a 2.3% excise tax on medical devices that will take effect at the beginning of 2013.
This tax is especially pernicious because it is assessed on sales, not profits. To put this in perspective, imagine that you've manufactured medical devices and had sales of $1 million, after all your costs and expenses—everything from materials and labor to research and development—your profit was $100,000. The excise tax would be $23,000, wiping out almost 25% of your profits.
Many medical device companies have to ramp up sales before they become profitable. Due to the long, draconian and sometimes unpredictable regulatory process that must be negotiated before a product can be sold, it can take from $70 million to $100 million in total sales before these businesses make their first cent of profits. Nevertheless, they would have to pay the excise tax on their revenue.
The nation's medical device industry is vulnerable. It is not comprised of behemoths: 80% of its companies have 50 or fewer employees, the very businesses we are relying on to turn the U.S. economy around. The new excise tax comes when regulatory delays and uncertainty are increasing, and as many device firms are shutting down or moving abroad to take advantage of the more favorable tax and regulatory climate in Europe. The tax will force companies to lay off employees, cut back on research and development, or diminish capital investment.
The governors of five prominent states—Tom Corbett of Pennsylvania, Mitch Daniels of Indiana, Nikki Haley of South Carolina, Robert McDonnell of Virginia and Scott Walker of Wisconsin—agree. "As governors of states with a significant concentration of medical technology manufacturers, we believe that this tax could harm U.S. global competitiveness, stunt medical innovation and result in the loss of tens of thousands of good-paying jobs," they wrote in an April 30 letter to congressional leaders.
Anticipating the excise tax, several companies already have announced layoffs or withheld investments. Recent surveys show that medical technology executives are examining a host of other undesirable options, including passing along the added costs through price increases. Even if the market would tolerate that—which is surely questionable given the current pressure to drive down costs—it would, ironically, raise the costs of medical care. That was not supposed to be an outcome of ObamaCare.
The U.S. remains the global leader in medical device development and manufacturing, although reports from PricewaterhouseCoopers and others show that its lead is tenuous, in part due to regulatory uncertainties and dysfunction that thwart innovation. If we allow foreign competition to seize the lead, it will be difficult to regain.
We need to create a more nurturing entrepreneurial climate, one in which ingenuity and innovation are rewarded, not penalized. Legislation has been introduced in both the House and Senate to repeal the medical device excise tax. That would be a good start.
Dr. Miller, a physician and molecular biologist, is a fellow at Stanford University's Hoover Institution and a fellow at the Competitive Enterprise Institute. He was the founding director of the FDA's Office of Biotechnology.
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"There is no part of the administration of government that requires extensive information and a thorough knowledge of the principles of political economy, so much as the business of taxation. The man who understands those principles best will be least likely to resort to oppressive expedients, or sacrifice any particular class of citizens to the procurement of revenue. It might be demonstrated that the most productive system of finance will always be the least burdensome."
--Alexander Hamilton: Federalist No. 35
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This quote is too good to just leave over on the health thread:
"I noticed that taxes do play a role in persuading people to quit. Demand is elastic; as the price goes up, less people smoke or they smoke fewer per day. " - JDN
JDN (or whoever stole his sign-in ID this week) refers to smoking, yet smoking is perhaps the least elastic product with a physical addiction component and still has proven price elasticity.
Paraphrasing for something with far greater elasticity:
Taxes play a role on investors and job creators, persuading them to quit
Imagine the elasticity of someone who owns hotels to not build another hotel if the tax (and regulatory climate) is perceived as hostile. What is the elasticity of GE or 3M to not build its next facility in America or to not build it at all when threatened with higher taxes of just a failure to lower them to keep up with OECD competitor nations. The answer is nearly 100% elasticity at some range on the curve. There is an amount of tax or threatened future tax that will cause them to delay an investment or not make it at all, an investment or plant or facility construction project or other employment expansion they otherwise would have made. Delayed investment is lost business in an economic sense and the effect spills over to employees, customers, suppliers and supporting businesses.
There is an old American proverb, if it doesn't move, and it should, use WD40. If it moves and it shouldn't, use duct tape. High tax rates (and excessive regulations) are the duct tape of the economy.
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Who was that poser over on the health thread? :-)
Demand is elastic, HOWEVER it's not a straight line. For example, using my cigars as an example (non physically addicting) if prices went up 2% I doubt if if would have any effect on my smoking habits. However, if taxes increased significantly (as CA is proposing to do for tobacco) I may consider cutting back although I buy out of state (that is another discussion for another day; is that fair?). Further, if taxes went out the window, I might consider quitting or saving a cigar for a special day. The same, IMHO can be said about taxes. If we raise taxes on the "rich" 2.00% I truly doubt it will have much effect. Raise them 10% and it will have an effect. Raise taxes to 75% it will have a great effect. But even raising taxes to 90% will not totally dissuade some entrepreneurs. Like me who would pay whatever for the very occasional cigar, they are driven to create.
Anyway, we agree that it is elastic. We disagree on the curve. I contend that a minimal tax rate increase will have a minimal impact if any on new investment. But I concede, 2.00% this year, 2.00% next, eventually it becomes real money, eventually it will have an impact on new investment. But IMHO we are not there.
On another subject, bureaucracy, Doug, you are in the real estate investment business. I don't know about MN, but in CA there are so many hoops you must jump through, not to mention jump at the right time, have everything in line and I mean everything, or simply your permit is denied. Now I'm all for safety in construction, but sometimes government is simply ridiculous. No common sense.
Speaking of, let my give you an example. Someone owes me a few thousand. It's the principle and the money, so I decided to to do a wage garnishment. I went to the Sheriff's Office downtown since I was already in the courthouse for other business. I wait in line, get to the front, and they said my form was wrong (it was the form provided by the court on the internet). Ok, I get out of line, redo the form and wait again. I get to the front, and they say ok, it looks good, but I need 4 copies. Huh? Their form, they gave me one, and so now I get out of line, go downstairs and pay $.50 a copy (I think the snack bar guy with the photo machine is in cahoots) and go back into line. Finally, they accept my forms and my $30.00. I wait. It should be posted on their web sit in 2-3 days. I wait, and I wait, 3 weeks later, I call again. After repeated calls (they simply don't answer their phone) I got someone. "Oh, we are way behind, call back in another two weeks" Ok, I wait some more. Then I call back and get upset. Finally a Supervisor admits they have lost my forms. I'm suppose to go back downtown and file again (frankly reporting a Writ lost is a pain). We negotiate and they finally agree to accept a fax of the original. Finally 6 weeks later, service was done. My point of this long story is that for an additional (only because I still have to pay the Sheriff's Office for not doing their job) $40.00 (recoverable) I could have had a private process server do it; I know them well, they would have done it in 2-3 days. They are polite, efficient, and profit motivated. I wish the government would be run like a business........ I'm exhausted dealing with the government; it shouldn't be that way.
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"But I concede, 2.00% this year, 2.00% next, eventually it becomes real money, eventually it will have an impact on new investment. But IMHO we are not there."
A couple of questions present themselves here.
What IS the current rate? Federal? State? Municipal? What other taxes are there? FICA? Obamacare? (not to mention Capital Gains) If we add them up, what is the total? (Of course the answer will vary from state to state)
And in your opinion, what IS the rate at which new investment is discouraged?
And, what is the basis for that opinion?
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"Anyway, we agree that it is elastic. We disagree on the curve. I contend that a minimal tax rate increase will have a minimal impact if any on new investment. But I concede, 2.00% this year, 2.00% next, eventually it becomes real money, eventually it will have an impact on new investment. But IMHO we are not there."
Crafty already got on this point with some great questions. I would just point out that in the context of Calif, they already are rated worst perhaps for business climate, obviously they compensate for some of that with their positive qualities, but every 2% added to every tax rate that is already too high just makes the decision to invest elsewhere or not at all easier.
For the US Corporate tax rate, same thing. We are already worst. link below. Staying the same makes us uncompetitive. Raising it 2% would be just stupid.
Using round numbers for Calif or MN, if the top individual tax rate is 10%, a 2% increase takes it to 10.2% not 12%. Let's get our math straight. Don't tell me that a 20% or 40% increase on rates that are already the worst will not cause economic carnage. It most certainly will.
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China lowered it's corporate rate in Jan 2008 that was already lower than ours, coincidentally they largely avoided the financial collapse while the USA was transitioning from a Pelosi-Reid congress with Obama in the majority committed to raising the top individual tax rates to a government where that philosophy would control all branches of government. Then we act so shocked when the asset selloff exploded just months before the tax rate changes - that didn't even happen. The fact that "communist" countries have lower tax rates in the first place should be our first clue of the problem.
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I searched and found this in Reuters, but this story, like the cuts in China in 2008 certainly went by the American press without much notice. How stupid and dysfunctional can we be to not know that have the highest rates of quadruple taxation in the world does NOT yield greater revenues - as we hit our what, 4th year in a row of trillion dollar deficits. How are those high rates to punish big businesses for doing big business working out for us?? This was delayed one year by the earthquake. We have had a long time to know it was coming.
http://www.reuters.com/article/2012/03/30/usa-tax-japan-idUSL2E8EU5VV20120330
US displacing Japan as No 1 for highest corp taxes MARCH 30, 2012
* Japan's corporate tax rate dropping to 38.01 pct on Sunday
* Combined U.S. 39.2 pct rate will be developed world's highest
By Patrick Temple-West and Kim Dixon
WASHINGTON, March 30 (Reuters) - The United States will hold the dubious distinction starting on Sunday of having the developed world's highest corporate tax rate after Japan's drops to 38.01 percent, setting the stage for much political posturing but probably little tax reform.
Japan and the United States have been tied for the top combined, statutory corporate rate, with levies of 39.5 percent and 39.2 percent, respectively. These rates include central government, regional and local taxes.
Japan's reduction , prompted by years of pressure from Japanese politicians hoping to spur economic growth, will give that country the world's second-highest rate.
This has triggered complaints from U.S. politicians and business groups.
"This isn't an April Fool's Day joke," said Senator Orrin Hatch, the leading Republican on the Senate Finance Committee.
"Every industrialized country around the globe understands that tax rates can determine whether or not businesses succeed or fail," Hatch said in a statement.
Across most of the political spectrum there is broad agreement that the U.S. corporate tax rate is too high, though few corporations actually pay that rate because the loophole-riddled tax code gives them lower "effective" rates.
Republicans and Democrats agree that the tax code needs work. It has not been thoroughly overhauled in 25 years.
In February, President Barack Obama proposed a corporate tax reform blueprint that included a 28 percent top rate.
Republican presidential hopeful Mitt Romney has said he wants to cut the corporate rate to 25 percent.
COMPETITIVE EDGE
The average 2012 corporate tax rate for the 34 developed countries is 25.4 percent, according to the Organization for Economic Co-operation and Development.
"As countries such as Canada and the United Kingdom have moved to reform their tax systems and lower rates to encourage economic growth, America's inaction puts American worldwide companies at a competitive disadvantage and threatens our economic recovery," said Bruce Josten, an official at the U.S. Chamber of Commerce.
Some U.S. companies pay close to the 35 percent top corporate tax rate; some pay nowhere near that, thanks to tax breaks that let them lower their "effective" tax rates.
Of the 30 companies in the Dow Jones industrial average, 19 told shareholders their effective rate for their 2011 fiscal years, mostly ending Dec. 31, was below Obama's proposed new tax rate, according to a Reuters analysis of securities filings.
Of these companies, three - telecom company AT&T, Bank of America, and insurance company Travelers - posted a tax gain.
For the index's other 27 companies, effective rates reported ranged from 2.7 percent for telecom giant Verizon Communications to 43.3 percent for energy group Chevron Corp.
These figures are taxes for shareholder accounting but not necessarily what was paid last year because Congress lets companies defer parts of their income tax for future years.
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I second the point about corporate tax rates and amend the questions in my post to include it.
I second the point about double taxation too and amend my questions to include it.
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"He (Obama) hasn't raised other important issues of tax fairness, such as this one: How is it that two people with roughly the same income can wind up paying very different amounts in taxes?
The answer lies in our colossal and complex federal tax code, which is filled with deductions, exclusions, credits and other "tax expenditures." These amount to back-door spending by the government, and they create huge inequities even as they drain the nation's treasury. What's needed is comprehensive tax reform that eliminates many of these deductions, or at least restructures them in ways that make common sense."
I think the author makes some excellent points in his commentary. "Deductions, exclusions, credits...." have always been my complaint.
http://www.latimes.com/news/opinion/commentary/la-oe-walker-obama-romney-fiscal-reform-20120523,0,1078158.story
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" "Deductions, exclusions, credits...." have always been my complaint. "
Deductions, exclusions, credits keep getting put in there because the rates are too high and the high rates are known to kill off businesses and investment- if not for the targeted mercy of our gift horse elected officials help9ing key constituencies. That is the point behind across the board rate cuts; they alleviate the need for all the loopholes. Eliminating real loopholes and lowering the tax rates correspondingly is something we all should be able to agree on. The Huntsman Plan. http://www.boston.com/Boston/politicalintelligence/2011/08/huntsman-unveils-economic-plan/EaG9972xXVpV487E3dsENN/index.html
Targeted alleviation of tax burden is unequal treatment under the law. There ought to be a constitutional amendment against it.
Keep in mind though that deducting normal business costs is how you accurately calculate income, such as the cost of a pharmaceutical company's research or an oil company's cost of drilling both producing and non-producing wells. These are not loopholes no matter how often or loudly one demagogues them. Eliminate the deductibility of legitimate business expenses and the job creating investment and production in those industries will dry up.
ROI. Investors look at return on investment. It is not what you send to the government, it was you keep after all that. The Man from Marx calls it 'maximizing profits" - with an evil sound to it. More simply, investors look for a return. If the return is not there or not sufficient, they invest elsewhere or not at all.
Uncertainty is worse. It prevents an accurate calculation from being made and acts to delay investment/expansion decisions, which means job growth lost.
If we had a coherent set of governing principles, then policy changes from day to day and year to year would only be minor adjustments to current policy, keeping uncertainty within a very narrow range. That is not the case today. Instead we are arguing today over whether we even want a free enterprise based system at all.
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It's hard to believer that we have a special Obama sin tax on the manufacturing and sale of life saving medical devices in the United States. :? This is my congressmen, Erik Paulsen R-MN, authoring the repeal and delivering the GOP response address this weekend.
http://www.youtube.com/watch?v=Lq9oYeAW5zs
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http://www.dickmorris.com/obamas-coming-taxes-dick-morris-tv-lunch-alert/
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"An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." --John Marshall
Government
Taxmageddon is coming
"[Friday's] jobs report is a broken record, with the unemployment rate stuck at 8.2 percent. The Department of Labor reports that only 80,000 jobs were added in June -- consistent with other data revealing the economy has downshifted from slow to slower. ... In 2009, the President promised that his 'recovery plan' composed almost entirely of government spending was the only way to stave off rising unemployment. The White House even drafted a chart showing projected unemployment with the economic stimulus plan and without it -- to scare lawmakers into voting for it. According to their projections, by now, unemployment should be at 5.5 percent. ... [E]mployers aren't hiring because they are suffering from prolonged uncertainty, as economists readily admit. ... That uncertainty ... stems primarily from America's date with Taxmageddon on January 1, 2013. The largest tax increase in U.S. history -- $494 billion in one year -- will hit on that day, as a host of tax cuts expire and new tax hikes (including some of Obamacare's new taxes) take effect. Taxmageddon falls primarily on middle- and low-income Americans. Heritage research shows that families will see an average tax increase of $4,138. Visit the new Taxmageddon page to see the impact of these tax hikes on individuals. ... The President should be leading the country in the opposite direction -- giving employers and individuals the assurance that these tax hikes will be prevented. Instead, in his 2013 budget submission, the President called for $2 trillion in tax increases, and he has showed no signs of saving Americans from Taxmageddon. ... The longer Congress waits to prevent Taxmageddon, the more uncertainty there will be for workers and businesses. This is an element of the economy that is actually in the complete control of American policymakers. They should act quickly to increase certainty and stability at a time when the economy greatly needs it." --Heritage Foundation's Amy Payne
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Obama V. Clinton On Taxes
By DICK MORRIS
Published on DickMorris.com on July 10, 2012
President Obama is trying to re-write history when he says that his tax program is the same as Bill Clinton supported "when 23 million jobs were created."
It's not that way at all. Clinton's 1993 increase of personal income taxes on the top bracket to 39.6% had a very negative effect on the economy. It was only after Clinton's 1997 cut the capital gains tax - the opposite of what Obama proposes - that job growth really piled up.
When Clinton took office he did all the wrong things. He raised taxes sharply, hiking the top bracket from 35% to 39.6% and raised taxes on gasoline. The result was that the economy, which had been recovering, staggered. GDP growth dropped to 0.7% in Clinton's first quarter (down from 4.3% in Bush's last quarter) and stayed around 2% for the rest of 1993. Personal income rose 6.3% in 1992 under Bush but slowed to 4.1% under Clinton in 1993.
The tax increases Clinton passed failed to generate the revenue he had expected. The tax paradox set in. Martin Feldstein, former Chairman of the Council of Economic Advisors, summed it up in his Wall Street Journal article, "What the '93 Tax Increase Really Did," published on October 26, 1995. He said taxpayers reduced their incomes when they saw the tax hikes coming. Feldstein writes that "the Treasury lost two-thirds of the extra revenue that would have been collected if taxpayers had not changed their behavior." Because of Clinton's tax hikes, real personal income fell by $25 billion. High income taxpayers, facing the prospect of a tax increase reported 8.5% less taxable income in 1993 than they would have if their tax rates had not changed. The tax paradox!
Then Clinton got wiped out in the Congressional elections of 1994, losing control of the Senate and the House - the first time the Republicans had run the House in forty years!
Clinton suddenly saw the error of his ways and began to hold down spending and push for a tax cut. In 1997, he and the Republican Congress combined to cut capital gains taxes from 28% (the rate to which Bush had increased it) to 20%. The result was electrifying! Real wage growth was 6.5% in the four years after the tax cut compared to minuscule wage growth of 0.8% over the four years after Clinton's tax increase!
And the tax paradox was again evident: lower rates produced higher revenues! In 1996, the year before the capital gains cut, the tax collected revenues of only $66 billion. In the four years after the cut, they averaged $100 billion a year. But, what was more important was the surge in economic activity that the capital gains tax cut generated. In 1996, before the tax cut, there were $261 billion in capital gains in America. In the three years after the cut, capital gains rose to an average of $440 billion. The increased tax collections and the greater economic activity were such that they pushed the budget into a surplus for the first time since the 1950s.
These facts may be "inconvenient truths" for Obama to face but they are the facts!
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Patriot Post
http://patriotpost.us/editions/14084/#post-comment
Chronicle • July 11, 2012
The Foundation
"Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands." --Thomas Jefferson
Editorial Exegesis
"So the 2013 tax cliff is a big enough economic problem that President Obama now wants to postpone it for some taxpayers. But it isn't so big that he's willing to curb his desire to raise taxes on tens of thousands of job-creating businesses. That's the essence of Mr. Obama's announcement Monday that he wants Congress to extend current tax rates for a year, but only for those making less than $200,000 a year. This is a political gambit designed to protect Democrats who are starting to feel queasy about opposing GOP plans to extend all of the Bush rates as the economy weakens again. ... If the Bush tax rates expire as scheduled on December 31, rates on the top two income brackets will jump to 39.6% from 35%, and 36% from 33%. Add the scheduled return of income phaseouts for exemptions and deductions, and the rates go up another two-percentage points -- to at least 41% and 35%. Mr. Obama claims this will merely return rates to what 'we were paying under Bill Clinton,' but that's not true either. It ignores his ObamaCare tax increase of 0.9% on top of the current 2.9% Medicare tax, plus a new 2.9% surcharge on investment income, including interest income. That's an additional 3.8% surcharge on investment income, and added to the Bush expirations would take the capital gains rate to 23.8% from 15% today, and the dividend tax rate to about 45% from 15%. ... Congress's Joint Tax Committee -- not a conservative outfit -- estimates that in 2013 about 940,000 taxpayers will have enough business income to meet Mr. Obama's tax increase threshold. And of the roughly $1.3 trillion in net business income, about 53% will get hit with the higher tax rates. This is because millions of businesses report their income as sole proprietors and subchapter S corporations that file under the individual tax code. So Mr. Obama wants these businesses to pay higher tax rates than the giant likes of General Electric or J.P. Morgan. Does that qualify as 'tax fairness'? ... Republicans can win this debate by stressing growth over fairness and jobs over income redistribution." --The Wall Street Journal
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"As far back as the 1920s, a huge cut in the highest income tax rate -- from 73 percent to 24 percent -- led to a huge increase in the amount of tax revenue collected by the federal government. Why? Because investors took their money out of tax shelters, where they were earning very modest rates of return, and put their money into the productive economy, where they could earn higher rates of return, now that those returns were not so heavily taxed. This was the very reason why tax rates were cut in the first place -- to get more revenue for the federal government. ... Yet the invincible lie continues to this day that those who oppose high tax rates on high incomes are doing so because they want to reduce the taxes paid by high income earners, in hopes that their increased prosperity will 'trickle down' to others. ... When [Barack Obama] was a candidate for president back in 2008, Charles Gibson of ABC News confronted him with the fact that there was no automatic correlation between the raising and lowering of tax rates and whether tax revenues moved up or down. Obama admitted that. But he said that he was for raising tax rates on higher income earners anyway, in the name of 'fairness.' ... The point here is that Obama knew then that tax rates and tax revenues do not automatically move in the same direction. In other words, he is lying when he talks as if tax rates and tax revenues move together." --economist Thomas Sowell
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Though some conceptual issues are presented in the following-- leading to its numbers being inherently murky, its essential point strikes as both sound and profound.
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THURSDAY, JULY 05, 2012
The Real-World Middle Class Tax Rate: 75%
If we include all taxes, the real-world tax rate is much higher than the "official" income tax rate.
For those Americans earning between $34,500 and $106,000, the real-world middle class tax burden in high-tax locales is 15% + 25% + 5% + 15% + 15% = 75%. Yes, 75%.
Before you start listing the innumerable caveats and quibbles raised by any discussion of taxes, please hear me out first. Let's start by defining "taxes" as any fee that is mandated by law or legal necessity. In other words, taxes are what is not optional.
If we include all taxes, the real-world tax rate is much higher than the "official" income tax rate. These "other taxes" vary from nation to nation. France, for example, has a "television tax." It is mandatory, and since virtually every household has a TV this operates as a universal tax. The argument that this is "optional" is specious.
In every other advanced democracy, basic universal healthcare is paid by tax revenues. In the U.S., healthcare insurance is "optional" but this too is specious: in the real world, private healthcare insurance is mandatory because the alternative--having zero insurance--places your entire net worth and income at risk of catastrophic loss.
Having no healthcare insurance only makes sense if you have no real assets and a low income. At that point, your care will be provided by the taxpayer-funded Medicaid program, which is the default universal-care program in the U.S.
For this reason I consider the cost of private healthcare insurance in the U.S. the equivalent of a tax. We pay over $12,000 annually for barebones healthcare insurance, which amounts to about 15% of our gross income. Some countries pay for healthcare with a 15% tax, here we pay the 15% directly. There is no difference except the process of collecting the 15%. (The only real difference is that healthcare costs twice as much per person in the U.S. because the system is operated by cartels whose business model is fraud, opaque pricing and the elimination of competition via Central State regulation.)
Yes, the super-wealthy can absorb a $150,000 hospital bill, but the 99.9% cannot. Thus any claim that healthcare insurance is "optional" is specious.
Property tax is mandatory. Some countries have no property tax, others do. Once again, only counting social-insurance and income taxes as the "official tax rate" is horrendously misleading. For countries without property taxes, the revenues are collected as value-added taxes (VAT) or higher income taxes. One way or another, the services paid by property taxes in the U.S. are paid by other tax schemes in countries without property taxes. So property taxes must be included in any accounting of total taxes paid.
Many of us who reside in states such as Illinois, New York, New Jersey and California pay $12,000 or more annually in property taxes. That is about 15% of our household income.
Renters pay the property taxes indirectly, but to the degree that rents would be lower if property taxes were eliminated and the tax burden shifted to a VAT, then renters "pay" the tax just like property owners.
Employees looking at the paycheck stubs do not see the entire tax paid on their labor. Empoyees may wonder why their net pay has stagnated for decades. One reason is that the total compensation costs of employees has risen substantially.
To give but one example of many, Social Security taxes were once modest, 3% paid by the employee and 3% paid by the employer for a total of 6% of the wage. Now the total for Social Security (12.4%) and Medicare (2.9%) is 15.3%. Self-employed people pay the total 15.3% as "self-employment tax." This is the real-world tax burden of Social Security and Medicare.
The 15.3% Social Security/Medicare tax starts with dollar one of net income. The Social Security tax goes away above around $106,000 in income, the Medicare tax does not.
Most employees do not know how much healthcare insurance "tax" is paid by their employer. To the degree that wages would rise if the healthcare "tax" was not paid by employers, then employees pay for this "tax" indirectly. To act like it isn't a mandatory part of compensation costs is both specious and misleading.
The only transparent way to calculate the total tax burden is to count all taxes (or equivalent) paid by self-employed property owners. Not counting the indirect taxes of healthcare and property taxes is misleading to the point of blatant misrepresentation.
The basic Federal income tax gives each individual earner $9,500 in standard deductions and exemptions. The tax rate for all income above that is:
$1 to $8,500: 10%
$8,501 to $34,500: 15%
$34,501 to $83,600: 25%
$83,601 to $174,400: 28%
$174,401 to $379,150: 33%
Above $379,151: 35%
These rates are scheduled to rise at the end of 2012 unless Congress acts to maintain rates at current levels.
Many households have gigantic interest deductions stemming from gigantic mortgages, but let's set aside outsized debt-based tax deductions as far from universal.
Above a rather modest $34,600 in taxable income and up to around $106,000, the real-world middle class tax burden in high-tax American locales is 75%:
Social Security and Medicare: 15.3%
Federal income tax: 25% (28% above $83,600)
State income tax: 5% (mid-range)
Healthcare insurance: 15%
Property tax: 15%
15% + 25% + 5% + 15% + 15% = 75%
Clearly, the percentage of income devoted to healthcare insurance and property taxes declines as income rises. Someone earning $200,000 has not only dropped the 12.4% Social Security tax for income above $106,000, healthcare insurance and property taxes as a percentage of their income drops from about 30% for those earning around $86,000 to 15%.
We can argue fruitlessly about how many tax angels can dance on the head of a pin, but all the caveats and quibbles don't change the basic fact that real-world tax rate for the "middle class" earning more than $34,500 in taxable income in high-tax locales is a confiscatory 75%.
Please don't tell me the U.S. is a "low-tax" nation; I might suffer a breakdown that I couldn't afford due to exclusions in my "voluntary" healthcare coverage.
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http://www.dickmorris.com/obama-fudges-clinton-tax-record-dick-morris-tv-lunch-alert/?utm_source=dmreports&utm_medium=dmreports&utm_campaign=dmreports
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Tax something, get less of it. Putting an extra excise tax on medical devices as if saving lives needs a sin tax is unbelievably stupid and counter-productive.
“In anticipation of the tax, some manufacturers (of medical devices) have announced plans to lay off workers or reorganize operations.” - Robert Pear, reporter for The New York Times.
http://www.nytimes.com/2012/06/08/us/politics/bill-to-repeal-tax-on-medical-devices-clears-house.html
The Obamacare excise tax adds insult to injury for any remaining US Device manufacturers:
“The device industry is leaving. According to a summer 2011 survey by the National Venture Capital Association, in the next three years, 85 percent of venture-backed health-care companies expect to seek regulatory approval for their new products outside the U.S. first.” - WSJ
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Another idea would be to let innovative Americans who build medical devices to save lives be successful and tax them at the same rate as everyone else!
Instead we watch to see if the manufacturers or the patients in need die first.
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Raise taxes on employers and small businesses in a zero growth economy and you have a guaranteed recession, if all other factors are constant.
Senate Votes to Raise Taxes on Small Businesses
http://blog.heritage.org/2012/07/26/morning-bell-senate-votes-to-raise-taxes-on-small-businesses/?roi=echo3-12667655766-9251751-7fa21e7f52565d84305973172381cb07&utm_source=Newsletter&utm_medium=Email&utm_campaign=Morning%2BBell
Yesterday, the Senate narrowly voted (51-48) to raise taxes on 1.2 million small businesses, which will likely kill more than 700,000 jobs at a time when nearly 13 million Americans are out of work. Senators Joe Lieberman (I-CT) and Jim Webb (D-VA) joined all Republicans in bipartisan opposition to the tax hike.
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Raising taxes on "only the rich" polls well as a plurality of people still believe you can soak someone else and not yourself, your family, your neighbors in an integratively interconnected economy. It just doesn't happen to be true. Labor requires capital and employment requires employers with enough funds to meet a payroll and profit incentives to drive economic growth.
The Senate is actually bluffing or positioning because they know they don't have the votes in the House.
Two Dem Senators, Joe Lieberman and Jim Webb, crossed party lines.
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Good data presented here by Ari Fleischer in the WSJ a few days ago taken from the latest CBO study. The top 20% make 50% and pay 70% of federal taxes, while the middle quintile pays 9% of the burden and the lowest pay essentially nothing and receive the most back. The wealthy "haven't been asked to do their fair share"?? What a crock.
http://online.wsj.com/article/SB10000872396390444873204577537250318931044.html?mod=WSJ_Opinion_LEADTop
Ari Fleischer: The Latest News on Tax Fairness
A new Congressional Budget Office reports shows the share of taxes paid by the top 20% has gone up over the last 30 years, while the share of taxes paid by everyone else has gone down.
By ARI FLEISCHER
If fairness in paying taxes means the amount you pay is based on the amount you make, then the only group in America paying at least a "fair share" is the top 20%—people who make more than $74,000. For everyone else, the tax code is a bargain.
You wouldn't know this from President Obama's rhetoric, but our tax system, according to a recent report by the Congressional Budget Office (CBO), is incredibly progressive. Consider: The top 1% of income earners pay an average federal tax rate of 28.9%. (See the nearby table.) The average federal tax rate on the top 20% is 23.2%. The 20% of taxpayers earning between $50,100 and $73,999 pay an average 15.1%, and so on down the line. The CBO report includes payroll as well as income taxes paid.
(http://si.wsj.net/public/resources/images/ED-AP521B_fleis_D_20120722174204.jpg)
There's also another way of looking at fairness, and that's the tax burden. Here, consider the top 20% of income earners (over $74,000). They make 50% of the nation's income but pay nearly 70% of all federal taxes.
The remaining 30% of the tax burden is borne by 80% of the taxpayers, those who make less than $74,000. In short, this group's share of taxes paid, 30%, is lower than the share of income they earn, 50%.
Yet President Obama says that "for some time now, when compared to the middle class," the wealthy "haven't been asked to do their fair share."
He's right that the system isn't fair, but not because the top 1% pay too little. It is because they pay too much.
Mr. Obama has said that some wealthy employers pay a lower tax rate than their secretaries. True, some are able to lower their effective federal tax rate by giving millions to charity. Or because they derive much of their income as capital gains or from tax-free municipal bonds.
But middle- and low-income Americans who do not invest also pay lower rates thanks to the deductions they receive, such as a $1,000 per child tax credit (which phases out for couples who make more than $110,000), or the Earned Income Tax Credit, which no one making more than $50,000 is supposed to receive.
The CBO report ("The Distribution of Household Income and Federal Taxes, 2008 and 2009") covers the years 1979-2009. It makes plain that the impression conveyed by the president about what upper-income Americans pay in taxes does not hold up to scrutiny.
First of all, the share of taxes paid by the top 20% has gone up over the last 30 years, while the share of taxes paid by everyone else has gone down. It has gone up despite the tax cuts enacted by President Clinton in 1997 and by President Bush in 2001 and 2003. But that makes no difference to the president. The only group of taxpayers he calls on to "sacrifice" are those already doing all the tax sacrificing.
The top 20% in 1979 made 44.9% of the nation's income and paid 55.3% of all federal taxes. Thirty years later, the top 20% made 50.8% of the nation's income and their share of federal taxes paid had jumped to 67.9%.
And the top 1%? In 1979, this group earned 8.9% of the nation's income and paid 14.2% of all federal taxes. In 2009, they earned 13.4% of the nation's income but their share of the federal tax burden rose to 22.3%.
Meanwhile, the federal tax burden on middle- and lower-income earners is lighter. In 1979, the bottom 20% paid barely any taxes at all, just 2.1%. Now their share of taxes is a minuscule 0.3%. The burden on the middle-income earners ($34,900 to $50,100) has dropped too. In 1979, they paid 13.6% of all federal taxes; in 2009 they paid 9.4%.
One reason our country is so divided is because the president keeps dividing us. If taxes need to be raised to fight a war or fund a cause, the president should ask everyone to pitch in. If the need is national, the solution should be national—and that includes all of us.
But that's not how Mr. Obama governs. We learned during the 2008 campaign that he believes in spreading the wealth around. And recently we learned he doesn't believe that successful people made it on their own. Without the government, the president tells us, job creators and entrepreneurs would not be able to make it in America.
It's really the other way around. Without job creators and the successful, the government wouldn't have any money. So next time Mr. Obama meets someone in the top 1% or even the top 20%, instead of saying they're not paying their fair share, he should simply say thank you.
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Received in the email:
Tax his land,
Tax his bed,
Tax the table,
At which he's fed.
Tax his tractor,
Tax his mule,
Teach him taxes
Are the rule.
Tax his work,
Tax his pay,
He works for
peanuts anyway!
Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.
Tax his ties,
Tax his shirt,
Tax his work,
Tax his dirt.
Tax his tobacco,
Tax his drink,
Tax him if he
Tries to think.
Tax his cigars,
Tax his beers,
If he cries
Tax his tears.
Tax his car,
Tax his gas,
Find other ways
To tax his ass.
Tax all he has
Then let him know
That you won't be done
Till he has no dough.
When he screams and hollers;
Then tax him some more,
Tax him till
He's good and sore.
Then tax his coffin,
Tax his grave,
Tax the sod in
Which he's laid...
Put these words
Upon his tomb,
'Taxes drove me
to my doom...'
When he's gone,
Do not relax,
Its time to apply
The inheritance tax.
Accounts Receivable Tax
Building Permit Tax
CDL license Tax
Cigarette Tax
Corporate Income Tax
Dog License Tax
Excise Taxes
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel Permit Tax
Gasoline Tax (currently 44.75 cents per gallon)
Gross Receipts Tax
Hunting License Tax
Inheritance Tax
Inventory Tax
IRS Interest Charges IRS Penalties (tax on top of tax)
Liquor Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Personal Property Tax
Property Tax
Real Estate Tax
Service Charge Tax
Social Security Tax
Road Usage Tax
Recreational Vehicle Tax
Sales Tax
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone Federal Excise Tax
Telephone Federal Universal Service Fee Tax
Telephone Federal, State and Local Surcharge Taxes
Telephone Minimum Usage Surcharge Tax
Telephone Recurring and Nonrecurring Charges Tax
Telephone State and Local Tax
Telephone Usage Charge Tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
Workers Compensation Tax
Not one of these taxes existed 100 years ago
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The Numbers Inside a Hot-Button Issue Amid the Debate About Whether and How to Reform the Tax Code, a Look at How the Picture Has Changed
By DAVID WESSELLike this columnist ..
President Barack Obama says someone has to pay more taxes if the U.S. is to tame its budget deficit and provide the government he thinks the nation needs. He proposes that the best-off Americans pay more. It's only fair, he says.
"There are a lot of wealthy, successful Americans who agree with me because they want to give something back," he said in a speech in Roanoke, Va., that set off dueling campaign ads. "Look, if you've been successful, you didn't get there on your own."
His Republican opponent, Mitt Romney, counters that the deficit can be reduced without raising taxes if Washington is tough on spending. He thinks raising taxes on the best-off would be unwise and unfair. "President Obama attacks success, and therefore under President Obama we have less success," he said.
Enlarge Image
Close.The contrasting comments underscore philosophical differences over the roles of the individual and society. But the most tangible disagreement is on taxing the rich.
"Who's right: Obama or Romney? Both. Or neither," says Joseph Thorndike, a tax historian. "When it comes to taxing the rich, there is no single, objectively correct answer. You can talk all you want about asking rich people to pay 'their fair' share,' but don't kid yourself. You're just trying to turn private opinions into public policy."
"I'm struck" he adds, "how the facts can be used selectively by either side."
Academic tomes have been written about revamping the tax code so it finances the government while doing less damage to economic growth. But, countless congressional hearings later, the U.S. is no closer to a consensus on "fair share" than when the income tax was born 100 years ago.
The top marginal income-tax rate, the most visible metric, has gone from 7% in 1913 to 92% in the 1950s to 28% with the Tax Reform Act of 1986 to 39.6% in the Clinton years to today's 35%. Mr. Obama wants to raise that; Mr. Romney wants to cut it while eliminating loopholes and deductions to make up the lost revenue.
Over the past three decades, Americans—including most of the rich—have paid less of their incomes to Washington. Top earners have received more of the income and paid more of the taxes; a growing number at the bottom have paid less or, in some cases, nothing.
Whether that is fair is a question of politics and values. Facts can inform the debate. Here are a few salient ones:
The top 5%, top 1% and top 0.1% of Americans have been getting a bigger slice of all the income and paying a growing share of federal taxes.
To measure the tax burden over time, Congressional Budget Office economists look beyond income-tax returns. They add federal income, payroll, excise and corporate taxes and calculate them as a percentage of income, broadly defined to include wages plus the value of government- and employer-provided benefits.
.From Ronald Reagan to Barack Obama, the tax code has been tweaked and the economy has had its ups and downs, and the share of federal taxes paid by the top 5% and the top 1% has risen faster than their share of income:
In the 1980s, the top 5% averaged 22.6% of income and paid 28.5% of taxes.
In the 1990s, the top 5% averaged 25.3% of income and paid 34.3% of taxes
In the 2000s, the top 5% averaged 28.4% of the income and paid 40.3% of the taxes.
That doesn't mean that the best-off are living on less. The top 1% averaged income of $1,530,773 this year (up $174,083 from 2004, when the data series begins) and paid federal taxes of all sorts of $422,915 (up $20,704 from 2004), according to estimates by the Tax Policy Center, a number-crunching joint venture of the Brookings Institution and Urban Institute.
Average tax rates have come down for everyone. On average, the tax bite on the rich is bigger—except for those whose income mainly comes from capital gains and dividends.
Across the earnings spectrum, Americans' share of income that went to taxes fell in the 1980s, rose in the 1990s and fell again in the 2000s. This year, taxes and other receipts will cover only two-thirds of federal spending; the government will borrow the rest.
For those in the top 1%, whose incomes are more volatile than others, the average tax bite in 2007 was 28.9%, below the 1995 Clinton-era peak (35.3%) but higher than the 1986 Reagan-era trough (24.6%.)
Most Americans, though, have seen the share of their income that goes to taxes fall steadily. For earners in the middle, the tax bite eased from 18.9% in 1979 to 16.6% in 1999 to 14% in 2007 even before the recession and recession-fighting tax cuts.
Taxing Terms
Average tax rate: Percentage of the income of an individual or group that is paid in taxes
Capital gains: Profits from the sale of stock or other assets
Marginal tax rate: Tax on each additional dollar of income
Payroll tax: The 15.3% tax on wages, split between employer and employee, that helps finance Social Security and Medicare
.The rich do, on average, pay more of their income in taxes than the middle class. So do the super-rich—on average.
The annual Internal Revenue Service scorecard of the top 400 taxpayers—who reported average incomes of $200 million—showed they paid 19.9% of their adjusted gross income in federal income taxes in 2009, well above the rate paid by the middle class. Those with incomes between $100,000 and $200,000, for instance, paid about 12%. (The IRS tally for the top 400 counts only income reported on tax returns, and only income taxes. Neither the IRS nor CBO calculates figures for the 1% using the broader definitions of income and taxes.)
The fortunate 400, though, paid a lower rate than the not-quite-so-rich, those with incomes over $1.5 million. The main reason: More than 60% of the top 400's income was from dividends or capital gains in 2009, and those are taxed at a top rate of 15%, lower than many pay on wages.
The share of taxes paid by the bottom 40% of the population has been shrinking along with their share of income.
In 2007, the bottom 40% received 14.9% of the income (including the value of government benefits) and paid 5.9% of all federal taxes. In 1979, they had a bigger share (17.4%) of the income and paid more (9.5%) of the taxes.
David Wessel
.A growing number of Americans don't pay any income tax. They don't make enough or live on Social Security or are getting tax breaks targeted at low-wage workers.
In 2011, according to the Tax Policy Center, about 46% of households didn't pay any U.S. income taxes, a proportion swollen because so many have seen paychecks shrink or evaporate. But even in the better years of the mid-2000s, roughly 40% of households didn't pay any federal income tax.
Many did get hit by the payroll tax, which helps finance Social Security and Medicare. But about one-fifth of households didn't pay either federal income or payroll taxes; many did pay state and local taxes.
The tax system narrows the gap between economic winners and losers, but not enough to stop the gap from widening.
Because the tax code takes more from the top than from the bottom ("progressive," in tax jargon), it significantly reduces inequality.
Comparing income before and after taxes, CBO says the tax system cut the share of income going to the top 20% by about seven percentage points in 2007, most of that coming from the top 1%. Everyone else's share of income increased. But the market and social forces widening the inequality gap have been so strong, though, that after-tax inequality by CBO's measure still is higher than at any time in the past 30 years.
Over the past 30 years, the weight of federal taxes has shifted from the income tax to the payroll tax, which is less progressive. As a result, CBO says, "the extent to which taxes lessened the dispersion of household income" has been reduced. Academic analyses that zero in on the growing share of income going to the top 0.1% reinforce that.
So where does that leave the question of "fairness?" "It's not resolvable scientifically," says Mr. Thorndike, the historian. "It's only resolvable by a show of hands."
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Desperately Seeking Middle-Class Taxes
What Obama's critique of Ryan tells us about Obama's budget plans..
Democrats in Charlotte are pounding away at the savage budget cuts that Mitt Romney and Paul Ryan supposedly favor and their phantom plan for "raising taxes on the middle class," as President Obama puts it. The truth is the opposite, but table that for a moment. The President seems not to realize his critique is really a scorching if implicit indictment of his own time in office.
Think about his logic like this: Mr. Ryan's House budget details a long-range plan to equalize spending and tax revenues without—ahem—raising tax rates. But if such fiscal restraint is as deep and draconian as Mr. Obama claims, then as a matter of arithmetic the White House must favor a tax increase of an equal size, or something close to it, in order to pay for the amount of government he wants to sustain.
The nearby chart dramatizes this reality. It shows the accumulation of outstanding debt as a share of the economy in the modern era. This is debt held by the public—the kind the country has to pay back to bond investors, and not the IOUs that one part of the government owes to another part. These debt projections are highly speculative, and faster economic growth would do a great deal to mitigate them. But we offer them to help readers compare the Ryan and Obama budget visions.
For reference, the top line shows the Congressional Budget Office's "alternative fiscal scenario," which it considers the most realistic prediction if current tax and spending policies continue. In that model, debt grows two times as large as GDP by 2037 and the economy crashes. Not good.
Barely better is Mr. Obama's 2013 budget, which is the second line from the top. The White House purports to "stabilize" the deficit and therefore the debt boom over the next decade. After four consecutive $1 trillion-plus deficits and a more than 70% leap in publicly held debt since Mr. Obama's inauguration, that's a pretty modest goal.
But even discounting the usual accounting gimmicks that the White House uses to show this "stability," check out the fine print. There, the document concedes that beyond 2022 "the fiscal position gradually deteriorates" and the deficit "continues to rise for the next 75 years, and the publicly held debt is also projected to rise persistently relative to GDP." In other words, Mr. Obama's budget does not change the spending and debt trajectory.
Even in this best-case scenario by Mr. Obama's own lights, debt soon exceeds the 112.7% debt-to-GDP high-water mark in 1945, incurred to win a war for civilization across the world. The U.S. would now be taking on a larger liability—well above the 90% ratio that most economists consider the general boundary between safety and crisis—simply because the political class refused to modernize the entitlement state that drives the debt.
Mr. Ryan's budget, as shown by the third line, would gradually reduce debt by 36% relative to the status quo by the end of the decade, by 59% in 2030 and 80% less by 2040. No question that requires reforms that by conventional political standards are large. But that's because they're commensurate with the magnitude of the fiscal problem.
Mr. Ryan's major contribution has been to expose the illusion that Mr. Obama's re-election campaign rests on: pretending that raising taxes on a few thousand "millionaires and billionaires" can fund an ever-growing government.
The shaded wedge represents the smallest possible tax increase Mr. Obama would need to achieve the same fiscal balance as Mr. Ryan—except that, in his budget, spending would be at a quarter of the economy and climbing fast. And that's by the White House's own most optimistic projections. The reality will be far messier.
Every time Mr. Obama warns about Mr. Ryan "gutting" this or that "investment," what he's not saying but is unavoidably implying is that taxes must be far higher to finance this spending. Assuming he can read the budget tables, he knows the government has made promises it cannot mathematically keep—but he hopes nobody notices.
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Mr. Ryan had an instructive colloquy with Tim Geithner on this point in February. The Budget Chairman noted that the Administration doesn't "have a plan to make good" on the promises the political class has made to voters. The Treasury Secretary replied that "As I said, we're not disagreeing in that sense. I made it absolutely clear that what our budget does is get our deficit down to a sustainable path over the budget window."
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Associated Press/Carolyn Kaster
Timothy Geithner and Paul Ryan.
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Mr. Ryan: "And then it takes off." Mr. Geithner: "Let's ask ourselves why they take off again. Why do they do that?" Mr. Ryan: "Because we have 10,000 people retiring every day and health-care costs going up."
Mr. Geithner: "That's right. . . . We're not coming before you to say we have a definitive solution to our long-term problem. What we do know is that we don't like yours."
The only omission in Mr. Geithner's remarkable candor is that Democrats do have a plan, kind of. As debt continues to build, at some point U.S. creditors will lose confidence in the Treasury's ability to repay. Then Democrats and even some Republicans will impose a European-style value-added tax or another money machine to appease the bond markets.
What voters should know is that this taxing big bang won't only hit the affluent. Far from it. For evidence, consult a recent study by Eric Toder, Jim Nunns and Joseph Rosenberg of the Tax Policy Center. We know this Brookings-Urban Institute shop has credibility with liberals, because it is the source of the fiction that the Romney-Ryan team wants to boost middle-class taxes.
The researchers looked at how high income-tax rates would have to rise in the top two or even three tax brackets to lower debt to sustainable levels under something akin to CBO's alternative fiscal scenario. They conclude that even if the top rates hit 100%, the budget "cannot achieve the debt-reduction targets in some or any of the target years." Though conceding that near-total confiscation is "completely unrealistic," they report the results anyway "to indicate the infeasibility of achieving a high debt-reduction target simply by increasing top individual income tax rates." And this is from economists who favor higher taxes.
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Another way of putting it is that the rich aren't nearly rich enough to finance Mr. Obama's spending ambitions. Sooner rather than later, Washington will come for the middle class, because that's where the real money is.
Another thing Mr. Obama likes to say is that Messrs. Romney and Ryan "know their economic plan is not popular." Perhaps he can read minds, but at least they have a plan they're willing to put before voters. The President knows that voters won't like his, which is why he isn't honest about it.
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http://www.ftportfolios.com/blogs/EconBlog/2012/9/12/will-tax-hikes-bring-back-the-990s-boom
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http://reason.com/archives/2012/09/24/obamas-fact-challenged-tax-claim
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Same article......
"It would be a shame if voters fall for Mr. Obama’s misleading claim that their taxes are at a 50-year low. But who can blame the voters, or, for that matter, the fact-checkers, if even Mr. Obama’s opponent, Mitt Romney, buys into the idea. In the same “60 Minutes” program, Mr. Romney said taxes would remain essentially unchanged if he won. “I don’t want a reduction in revenue coming into the government,” Mr. Romney said."
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“I don’t want a reduction in revenue coming into the government,”
No. We are going to grow revenues by taxing at a lower rate on a higher level of income.
This might be rocket science or voodoo if it was not already tried and proven to be possible by Coolidge, Kennedy, Reagan, Clinton/Gingrich and G.W. Bush.
Conversely, the six years since 2006 has proven that increasing the expectation and uncertainty of future tax rates on investment made by "the wealthiest among us" certainly damaged working people with a doubling of unemployment more than it hurt the rich.
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I would add what I regard as a very important point.
The tax code is a major and perhaps the principal tool of fascism, which I am defining as the private means of production being directed by the state. When deductions, credits, etc are granted or taken away, investment is directed to or away from favored and disfavored sectors.
By diminishing deductions, credits, etc we diminish government interference with free markets and by so doing increase economic growth and efficiency and diminish corruption of the political process by special interests.
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I would add what I regard as a very important point.
The tax code is a major and perhaps the principal tool of fascism, which I am defining as the private means of production being directed by the state. When deductions, credits, etc are granted or taken away, investment is directed to or away from favored and disfavored sectors.
By diminishing deductions, credits, etc we diminish government interference with free markets and by so doing increase economic growth and efficiency and diminish corruption of the political process by special interests.(emphasis added)
WE AGREE! :-D
Time to go to work.
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http://www.cato.org/publications/commentary/irs-has-gone-rogue
The IRS Has Gone Rogue
by Michael F. Cannon and Jonathan H. Adler
This article appeared in National Review (Online) on September 26, 2012.
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A president who says “I haven’t raised taxes” has authorized his Internal Revenue Service issue a “final rule” that will illegally tax some 12 million individuals, plus large employers, in as many as 40 states beginning in 2014. Oklahoma’s attorney general has asked a federal court to block this rule. Members of Congress have introduced legislation in both the House and the Senate to quash it.
At first glance, it might not seem that the IRS is up to anything nefarious. The rule in question concerns the Patient Protection and Affordable Care Act’s tax credits, not the law’s tax increases. The tax credits are intended to offset the cost of insurance premiums for low- and middle-income workers.
For many Americans, however, those tax credits are like an anchor disguised as a life vest. The mere fact that a taxpayer is eligible for a tax credit can trigger tax liabilities against both the taxpayer (under the act’s “individual mandate”) and her employer (under the “employer mandate”). In 2016, these tax credits will trigger a tax of $2,085 on many families of four earning as little as $24,000. An employer with 100 workers could face a tax of $140,000 if even one of his workers is eligible for a tax credit.
So it is significant that the PPACA explicitly and repeatedly restricts eligibility for tax credits to people who purchase health insurance “through an Exchange [i.e., government agency] established by the state” in which they live. That means that under the statute Congress enacted, a state can block those hefty taxes simply by declining to create an exchange. The PPACA directs the federal government to create an exchange in any state that declines to create one itself, and Health and Human Services secretary Kathleen Sebelius estimates she may have to do so in as many as 30 states. (Some experts put the number closer to 40.) However, because the statute withholds tax credits in federal exchanges, the creation of a federal exchange does not trigger tax liabilities. By our count, as many as 12 million low- and middle-income Americans would be exempt from those taxes, including 250,000 Oklahomans.
It is here that the IRS has gone rogue. The agency has announced that, despite the clear statutory language restricting tax credits to exchanges established by states, it will issue tax credits through federal exchanges. One can see why Oklahoma and the rest might be upset: By offering tax credits in states that opt not to create exchanges, the IRS is imposing taxes where Congress did not authorize them. This IRS rule will tax those 12 million low- and middle-income Americans, including 250,000 Oklahomans, contrary to the express language of the PPACA.
Defenders of the rule claim that Congress intended the tax credits to be available in all exchanges. But is that true?
It may come as a surprise to supporters of the PPACA, as it did to us, but all the evidence that has surfaced to date shows that Congress restricted and, yes, intended to restrict tax credits to state-created exchanges. What the IRS is doing is illegal.
We examine the evidence in our forthcoming Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.” Here are a few highlights, including some material that is not included in our article.
1. The text of the PPACA is unambiguous.
The Supreme Court explainedin Connecticut National Bank v. Germain that when a court is trying to divine congressional intent, the most important factor is the text of the statute:
In interpreting a statute a court should always turn first to one cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there... When the words of a statute are unambiguous, then, this first canon is also the last: judicial inquiry is complete.
Using that canon as its guide, the Congressional Research Service writes this about the text of the PPACA’s tax-credit provisions:
A strictly textual analysis of the plain meaning of the provision would likely lead to the conclusion that the IRS’s authority to issue the premium tax credits is limited only to situations in which the taxpayer is enrolled in a state-established exchange.
Not convinced? You’re not alone. The CRS explained that courts might uphold the IRS rule if they were “willing to engage in a searching statutory interpretation involving text, context, legislative purpose, and legislative history.” So let’s look at context, legislative purpose, and legislative history.
By offering tax credits in states that opt not to create exchanges, the IRS is imposing taxes where Congress did not authorize them.
2. Every health-care overhaul advanced by Senate Democrats denied premium assistance to residents of non-compliant states.
The PPACA’s language restricting tax credits to state-created exchanges came almost verbatim from a bill reported by the Senate Finance Committee.
Senate Democrats’ other leading health-care bill emerged from the Health, Education, Labor, and Pensions Committee. The HELP bill allowed premium assistance through federal exchanges (called “gateways”) in certain circumstances. But if a state refused to assist with implementation, the HELP bill denied premium-assistance subsidies to that state’s residents. And if a state fell out of compliance, the HELP bill explicitly revoked these subsidies from residents who were already receiving them.
Harsh? Perhaps. But this legislative history shows that denying premium assistance to residents of non-compliant states was not some beyond-the-pale idea that Congress could not possibly have intended, but was instead the dominant approach in the Senate; every bill Senate Democrats advanced contained this feature. The HELP bill also suggests a legislative purpose behind the language: to encourage states to implement the law.
3. During Senate consideration, the PPACA’s lead author admitted that the bill made tax credits conditional on state compliance.
Finance Committee chairman Max Baucus (D., Mont.) was the chief sponsor and lead author of the Finance bill. He shepherded it through committee consideration and through negotiations with Obama-administration officials and congressional leaders, and he can reasonably claim to be the man most responsible for the relevant language of the PPACA.
Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What's Holding Back Health Care and How to Free It. Jonathan H. Adler is the inaugural Johan Verheij Memorial Professor of Law and Director of the Center for Business Law & Regulation at the Case Western Reserve University School of Law.
More by Michael F. Cannon
During a September 23, 2009, committee markup of his bill, Baucus acknowledged that restricting tax credits to policies purchased through state-created exchanges was the reason the Finance Committee had jurisdiction to direct states to establish exchanges, making this language an essential part of the bill. (Again, the Finance bill’s language restricting premium assistance to state-created exchanges was adopted without substantive change in the PPACA.) The admission came amid a debate over the committee’s jurisdiction. Baucus had ruled an amendment dealing with medical malpractice out of order on the grounds that the Finance Committee did not have jurisdiction to legislate in that area. Sensing a double standard, Senator John Ensign (R., Nev.) challenged Baucus. The Finance Committee, Ensign said, did not have jurisdiction to direct states to change their laws regarding health-insurance coverage or to establish exchanges — such matters fall within the jurisdiction of the HELP Committee — yet the Baucus bill did both. If the Finance Committee could not consider a medical-malpractice amendment, Ensign asked, then how could it direct states to create exchanges? For Baucus’s response, we go to the tape:
Baucus responded that the Finance Committee had jurisdiction because his bill offered tax credits to individuals on the condition that their states complied with the bill’s health-insurance provisions: “Taxes are in the jurisdiction of this committee”; “An exchange is essentially [where individuals can access] tax credits”: “There are conditions to participate in the exchange.” To place “conditions” on tax credits, of course, presumes a scenario in which they are not available.
It is worth mentioning that this is the only bit of context or legislative history that anyone has found that directly addresses the question of whether the PPACA authorizes tax credits in federal exchanges. And it highlights an additional legislative purpose that is important enough to count separately.
4. Restricting tax credits to state-created exchanges was an essential feature of the bill.
The conditional nature of the tax credits is what gave the Finance Committee a jurisdictional hook to legislate in this area. The need for that hook may have disappeared when the bill reached the Senate floor. But the language restricting tax credits to state-run exchanges did not.
5. House Democrats knew the Senate bill empowered states to block residents from “receiv[ing] any benefit.”
By early January 2010, Democrats were trying to iron out a compromise between the House and Senate bills that could clear both chambers. On January 11, eleven House Democrats from the Texas delegation sent a letter to President Obama, House Speaker Nancy Pelosi (D., Calif.), and House Majority Leader Steny Hoyer (D., Md.). They demanded “a single, national health insurance exchange, as adopted by the House,” rather than the Senate bill’s “weak, state-based health insurance exchanges.” The Senate bill “relies” on states to implement exchanges, they warned, even though “a number of states opposed to health reform have already expressed an interest in obstruction.”
To emphasize the dangers of the Senate bill, they noted that Texas officials had recently turned down health-care subsidies that Congress had made available under another law. As a result, they wrote, not a single Texas resident “has yet received any benefit” from that law. “The Senate approach,” they wrote, “would produce the same result — millions of people will be left no better off than before Congress acted.”
The Texas Democrats made no explicit mention of how the Senate bill restricted tax credits to states that created their own exchanges, yet they clearly saw a difference between state-created and federal exchanges under the Senate bill — a difference that would leave people in recalcitrant states without the assistance that residents of compliant states would receive.
So far, we’ve got the following context pointing to the conclusion that the IRS’s decision to offer tax credits through federal exchanges violates congressional intent: (1) the unambiguous text of the statute, (2) evidence that making tax credits conditional on state compliance was the dominant approach in the Senate, (3) an affirmation by the law’s primary author that the Finance bill’s language was deliberate and (4) essential, and (5) evidence that House Democrats understood the Senate bill would withhold benefits from non-compliant states. But even if we didn’t have items (2) through (5)...
6. By enacting the PPACA, supporters revealed that their true intent was to enact whatever the Senate bill contained.
On January 19, 2010 — eight days after the Texas Democrats’ letter — Massachusetts voters elected Republican Scott Brown to the Senate, in part because of his pledge to be the 41st vote Senate Republicans needed to filibuster any compromise health-care bill. On that day, Massachusetts voters killed the House bill and its approach to exchanges, leaving House Democrats with only two options: Either they could pass the Senate bill and hope to obtain limited amendments through the “reconciliation” process, or they would fail to pass a bill at all. When House Democrats approved the PPACA, they revealed that their intent was to restrict tax credits to state-created exchanges, because they preferred that option to failure. They decided that whatever the Senate bill’s approach to premium assistance, it was better than no premium assistance at all.
If federal courts do enough searching, they will surely find lots of PPACA supporters who wanted subsidies in federal exchanges, just as lots of them wanted a “public option.” But those possibilities died the day Massachusetts voters sent Scott Brown to the Senate. No matter what else PPACA supporters may have wanted to enact, their approval of the Senate language reveals they intended to restrict tax credits to state-created exchanges. If offering premium assistance through federal exchanges had been their intent, they would have put the House bill up for a vote in the Senate, rather than the other way around.
The text, context, legislative purpose, and legislative history of the PPACA all demonstrate that Congress did not intend to offer tax credits — nor to tax the aforementioned individuals and employers to help cover that cost — in states that declined to create exchanges. Evidence that the IRS’s disputed final rule violates the law and congressional intent has been mounting ever since we brought attention to this issue last year. It has continued to mount even since we wrote in June, “The IRS doesn’t have a leg to stand on here.” This mounting evidence has forced supporters of the rule to change their story a number of times, yet their new and improved defenses of the rule are inadequate and even self-contradictory. The IRS has gone rogue, taxing individuals and employers without statutory authority, and it deserves a swift rebuke from the federal courts.
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http://www.nationalreview.com/articles/329760/obama-s-advisers-favor-romney-s-tax-reform-alan-reynolds
Obama’s Advisers Favor Romney’s Tax Reform
But the president wants to do almost the exact opposite of what his advisers recommend.
By Alan Reynolds October 9, 2012 National Review
President Obama and the press keep saying Governor Romney’s goal of revenue-neutral tax reform is vague on specifics and arithmetically impossible, citing a flawed study from the Tax Policy Center that has been debunked by several economists, including Harvey Rosen of Princeton University.
Here is what the director of the Tax Policy Center, Donald Marron, had to say about a tax reform proposal that is nearly identical to Romney’s:
President Obama’s National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center’s Debt Reduction Task Force (on which I served) both endorsed this strategy [of lower marginal tax rates on a broader base] in their recent deficit reduction proposals. The fiscal commission’s “Illustrative Tax Plan” would scale back and redesign many of the largest tax preferences (e.g., mortgage interest, employer health insurance, and retirement saving), eliminate many others (e.g., state and local interest), and use the resulting revenue to
• Cut individual tax rates, bringing today’s six brackets (10, 15, 25, 28, 33, and 35 percent) down to three (12, 22, and 28 percent);
• Repeal the alternative minimum tax (AMT), the personal exemption phase-out (PEP), and the phase-out of itemized deductions (Pease);
• Cut the corporate income tax rate from 35 to 28 percent.
How does that tax plan compare with Romney’s? Romney would:
• Cut individual tax rates, bringing today’s six brackets (10, 15, 25, 28, 33, and 35 percent) down to 8, 12, 20, 22, 26, and 28 percent;
• Repeal the alternative minimum tax (AMT), the personal-exemption phase-out (PEP), and the phase-out of itemized deductions (Pease);
• Cut the corporate income-tax rate from 35 to 25 percent.
When it comes to tax policy, the main difference between Romney’s and Obama’s National Commission on Fiscal Responsibility and Reform and Bipartisan Policy Center’s Debt Reduction Task Force advisers is that Romney proposes 1) a slightly lower corporate tax rate, and 2) a much lower bottom rate of 8 percent rather than 12 percent. (The fact that there would be six rates rather than three is insignificant.)
Like most other news sources, The Economist (October 6) claims, “Mr. Romney has not specified which loopholes he would close.” On the contrary, Romney has been quite specific that he would prefer a firm dollar cap on total deductions. This is a much tougher plan than the president’s commission proposed, which cuts or caps some deductions but allows taxpayers to game the others. Romney’s plan is even tougher than a proposal from economist Martin Feldstein, which would limit deductions as a percentage of adjusted gross income (AGI). Romney instead proposes a very tight lid on the total of itemized deductions — during the first presidential debate, he suggested a cap no higher than $25,000 to $50,000.
Unlike the Obama plan, the Romney plan would collect huge revenues from many “millionaires and billionaires” such as Warren Buffet and Mitt Romney, who would be unaffected by higher tax rates on salaries but unable to follow their usual practice of deducting millions in charitable donations every year. Charitable donations have long been a nearly constant share of GDP regardless of tax rates, so the surest way to increase charitable donations is to increase GDP.
Aside from the fact that Romney has a stronger, less selective plan for limiting deductions, another key difference is that the President’s National Commission and Tax Force proposes a flatter, less progressive structure for individual income-tax rates. Because everyone who pays income tax gets the lowest rate on the first few thousand dollars of income, setting the lowest rate to 12 percent would indeed raise more revenues than an 8 to10 percent rate would (which is also why the 1986 Tax Reform has a minimum tax rate of 15 percent). That modest increase in the lowest tax rate is why the President’s National Commission and Tax Force can plausibly claim that their plan would raise more revenue than current law — or, as Marron puts it, “reduce the deficit by $80 billion in 2015 and more in later years.” Romney’s plan, on the other hand, just aspires to be revenue-neutral in a static sense (ignoring faster economic growth and reduced tax avoidance), but such minor details are properly left to Congress.
In marked contrast with the two groups of experts President Obama appointed to advise him on such matters (including Mr. Marron), the president proposes to do almost the exact opposite of what they advised. Obama would:
• Raise the top two individual tax rates (including Obamacare taxes) to 39.8 and 43.4 percent, and raise top tax rates on dividends and capital gains to at least 30 percent (the Buffet Rule);
• Retain the alternative minimum tax (AMT) and bring back rather than repeal the personal-exemption phase-out (PEP) and the phase-out of itemized deductions (Pease);
• Consider cutting the corporate income-tax rate by an unspecified amount only in exchange for eliminating alleged, inexplicable deductions “for moving a plant overseas.”
Nobody who has taken a serious look at designing a more efficient tax policy has ever suggested, as the president does, that we should trade fewer deductions for much higher tax rates on the rewards for investment, education, and entrepreneurship. When it comes to tax policy, some of the president’s wisest critics include his own National Commission on Fiscal Responsibility and Reform and his Bipartisan Policy Center’s Debt Reduction Task Force.
— Alan Reynolds is a senior fellow with the Cato Institute and the author of a critical new study about “top 1 percent” incomes.
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Alan Reynolds IMHO is a very good supply side economist. Quite typical of him to come up with something as to the point as this is.
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What I call a false question is where the question and the answer demanded are based on a false premise.
So it goes with tax reform. In every debate including the next one we heard or will hear Romney Ryan pressed to name the loopholes and deductions they will close in order to offset a false $5 trillion in static revenue shortfall; the $5 trillion is an exaggerated number even with the false scoring premise.
Biden, Obama and a false inference in a Tax Policy Center study falsely and repeatedly claim Romney will raise taxes on the middle class right while Romney is explicitly proposing to lower their tax rate by 20%.
Who really believes that you stimulate investment by punishing it and confiscating it, and who really believes that an across the board tax reform program with lower marginal rates will not re-energize business investment and hiring in this faltering economy?
High tax rates cause investors to hide their money and lower tax rates result in growth and higher revenues.
In the chutzpah of it all, Obama and Biden and the Democratic congress in Obamacare just did raise 11 taxes on the middle class, while they falsely accuse their opponents.
I haven't followed all the corrections to the static scoring number because it is a false question, but the Romney idea is to eliminate deductions only for the high income taxpayers in order to get the marginal rate down. This approach solves both problems, it keeps progressivity in place for political purposes and lowers the key determinant of economic disincentive, the rate of taxation you will pay on your next dollar of earning.
The moderator showed she has no grasp of supply side economics with the static scoring followup and the angry old man in the debate demanded to see the rest of the cuts to make up every penny of static loss while saying his opponents plan is something that it isn't.
Obama in his first debate said "it's math, uh, it's arithmetic". Same guy already has a trillion dollar hole in his own math which assuming it got no worse for 10 years is a hole twice the size of what he is accusing.
Missing in the false math is DYNAMIC SCORING, a common sense idea that Romney and Ryan must believe is too wonkish for a debate and too complicated to put in a 30 second to 2 minute soundbite. It means that people make changes their behavior according to the policies and incentives/disincentives presented. We don't live in a static world. If you don't believe policies have any effect, what the hell is economics the study of and why do we need elections? Yet onward we trudge with static scoring questions again on a national stage with a liberal moderator pursuing economic ignorance.
The question should be asked backwards. What policies get you to the 4% growth number of which Ryan repeatedly referred. And what will federal revenues be in 10 years or over 10 years if you implement those policies and get that growth, with resurgent capital investment, employment, hiring and startups?
The answer is that if we really implemented all of the Romney campaign proposals, economic growth including revenues to the Treasury would be phenomenal.
526 economists signed on with the Romney plan. It has such a chance to generate the growth that is so badly needed. The status quo has no such possibility. Growth is going from 2% to 1% to zero with no details whatsoever presented to tell us how we are going to grow "from the middle class outward".
Economic growth isn't all about tax policy. Regulations have become even more stifling than tax rates and energy policy is number one on the 5 point plan. $4 gas is a tax, and the government is only getting a part of it.
Robust economic growth is not only possible, but it is the only way that revenues can surge. Revenues don't surge at all when you raise tax rates, the investment simply goes elsewhere or dries up. Freeze or shrink the size of the pie but split it up differently, that is the Obama-Biden plan. WE TRIED THAT. And we aren't going downward in spending under anyone's proposal so declining revenues mean fiscal and monetary collapse. That would be more fair?! To whom?
Revenues doubled in the decade of the 1980s. Ryan was correct to point to the JFK cuts. (And no he didn't say he was JFK, where did that come from, he was asked to point to where this had worked.) Revenues surged after the Clinton-Gingrich capital gains rate cuts of the 1990s.
A 4th example: revenues to the Treasury grew 44% in 4 years following implementation of the 2003 tax rate cuts. Revenue growth and employment growth ended with election of the Pelosi-Reid-Obama-Biden majorities in congress who were openly promising to return tax rates back to their previous levels. It proves the supply siders right, both ways.
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This is an extremely important piece IMO. Very likely to become the framework for new tax reform. I have tried to write tax simplification and reform that meets all the political and economic requirements and I can tell you it's not as easy as it looks. Romney's plan moves us forward better than any other I have seen. This WSJ Editorial explains it extremely well.
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Romney's Tax Deduction Cap WallStreet Journal Editorial, Oct 20, 2012, link below
An idea to finance reform and avoid political trench warfare.
The Obama campaign and the press corps keep demanding that Mitt Romney specify which tax deductions he'd eliminate, but the Republican has already proposed more tax-reform specificity than any candidate in memory. To wit, he's proposed a dollar limit on deductions for each tax filer.
During the first Presidential debate, Mr. Romney put it this way: "What are the various ways we could bring down deductions, for instance? One way, for instance, would be to have a single number. Make up a number—$25,000, $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people. That's one way one could do it."
In an October 1 interview with a Denver TV station, Mr. Romney mentioned a cap of $17,000 and said "higher income people might have a lower number." His campaign stresses that these dollar amounts are "just illustrative" and that there are other ways to reduce deductions that in any case would have to be negotiated with Congress.
But details aside, the tax cap is a big idea, and potentially a very good one. The proposal makes economic sense to the extent that it helps to pay for lower marginal tax rates. Lower rates with fewer deductions improve the incentive for investing and taking risks based on the best return on capital rather than favoring one kind of investment (say, housing) over another. This would help economic growth.
The idea may be even better politically. The historic challenge for tax reformers is defeating the most powerful lobbies in Washington that exist to preserve their special tax privileges. Among the biggest is the housing lobby that exists to preserve the mortgage-interest deduction—the Realtors, home builders, mortgage brokers and the whole Fannie Mae FNMA -0.73% gang.
But don't forget the life insurance lobby (which benefits from the tax exclusion on the equity buildup in policies), the tax-free municipal bond interest lobby, the charitable deduction lobby and more. Each one will fight to the death to preserve its carve-out, which means that reformers have to engage in political trench warfare to succeed.
This is one reason President Obama wants Mr. Romney to be more specific: The minute he proposed to limit the mortgage-interest deduction, the housing lobby would do the Obama campaign's bidding by running ads against Mr. Romney's plan. Mr. Romney is right not to fall for this sucker play.
By limiting the amount of deductions that any individual tax filer can take, Mr. Romney is avoiding this lobby-by-lobby warfare. He'd let individual taxpayers decide which deductions they want to take up to the limit. In effect, the deductions would compete with one another as taxpayers decided which one was most important to them.
The political left should have a hard time opposing this because reducing deductions would hit high-income taxpayers the hardest. Out of the 140 million tax returns in 2009, the last year such data are available, only 45 million itemized their deductions. The non-itemizers, who take the standard deduction ($11,900 for joint filers in 2012), would be held harmless by the Romney cap. Most of these are lower- or middle-income earners.
The nearby table shows that the dollar value of deductions rises with incomes. Filers who itemized and earned between $10,000 and $40,000 in 2009 had average itemized deductions of roughly $16,000. This means they would on average lose nothing under a Romney cap. The average deduction amount rose to about $22,000 for incomes between $75,000 and $100,000. Filers with $1 million in income had average deductions near $173,000, and those who earn $10 million or more had deductions of about $4.3 million.
(http://si.wsj.net/public/resources/images/ED-AP950A_1dedu_D_20121019181803.jpg)
Another benefit is that the Romney deduction cap would cost taxpayers more in states with the highest tax burdens. Think of California, Illinois, New Jersey and New York.
The current tax code allows filers to deduct state income tax, real-estate tax, and some sales taxes from federal tax. This rewards states for raising taxes. Under the Romney cap, many upper-middle-class filers wouldn't be able to write off all their state taxes. This would create political pressure to cut state taxes.
We realize the tax cap isn't perfect and carries some risks. The tax code would not become any simpler. Liberals would also pocket the limits on deductions for the wealthy and immediately try to raise rates again. But that political risk exists for any reform short of repealing the 16th Amendment. Our preference would be to eliminate all such deductions and lower rates as far as possible, but we shouldn't make a perfect reform the enemy of the much better.
By the way, Mr. Obama has also called for limiting tax deductions for high-income filers. His budgets have endorsed allowing them to take writeoffs at a rate of 28% instead of 35%. The big difference is that Mr. Romney wants to dedicate the revenue gain from capping deductions to cutting tax rates. Mr. Obama wants to use the money to pay for more spending.
The larger point is that Mr. Romney is serious about reform and has put on the table a serious idea for how to finance and achieve it. That's far more than Mr. Obama has proposed about anything in a second term.
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Death Tax Resurrection
The estate levy will rise to 55% in 2013 if Congress does nothing..
For all the worry in Washington and Wall Street about the January tax cliff, almost no one is paying attention to the impending reincarnation of the death tax. This is one more tax increase that will live or die depending on who wins on November 6.
Thanks to the Bush-era tax cuts, this much-loathed levy fell to zero in 2010, but President Obama insisted on bringing it back and Republicans compromised with him after the 2010 election on a 35% rate and a $5 million exemption for 2011 and 2012. In 2013 the rate is scheduled to rise all the way back to 55% with a meager $1 million exemption—where it was in 2001. Americans who have worked a lifetime to accumulate $1 million of savings or other assets will be surprised to learn that Washington thinks they are plutocrats.
Mitt Romney wants to repeal this wealth grab once and for all, while Mr. Obama now proposes a 45% rate with a $3.5 million exemption. Even that is too low for some Democrats in Congress. The President declared in debate that killing the estate tax is another Romney tax cut for the rich. But new research on the fiscal and economic effect of the death tax underscores how wrong Mr. Obama is.
The revenue generated by the estate tax is too trivial to make even a dent in the $1.1 trillion deficit. In 2011 the tax raised a scant $7.4 billion and the best estimate for fiscal 2012 is about $11 billion. This is less than 0.5% of federal tax collections and is enough to run the federal government for one day. Adding to the folly is that fewer than half (44%) of estate tax returns have any tax liability. These families have to bear the compliance costs of the tax even though the government nets nothing.
It's worse than that because the nonpartisan Tax Foundation calculates that the death tax is a long-term revenue loser. "Tax revenue is likely to increase" upon repeal of the tax, the Foundation finds. At least three other recent studies agree. How is this possible?
First, repeal or even a substantial reduction would be coupled with elimination of a provision called the "step-up basis at death" for calculating capital gains. This "angel of death" policy means that heirs get to revalue the assets at the market price when the owner dies. Thus the appreciation of unsold assets until death escapes capital-gains tax.
If the death tax were abolished, the capital-gains tax would be applied to all unrealized gains from the sale of an asset. That's a fair and economically beneficial trade: There would be no grave-robber tax imposed at death, but all gains from a business or stocks or real estate would get taxed at the capital-gains rate (now 15%) when eventually sold by the heirs.
Abolishing the estate tax would also mean higher income-tax revenues. Under current law, billionaires like Warren Buffett and Bill Gates escape the tax by diverting their wealth into charitable foundations. But when income-generating assets are sheltered in this way, these foundations with a few exceptions don't pay tax on the future income from dividends, capital gains or interest. Eliminate the death tax and fewer people will shelter their money in foundations, meaning the money will continue to earn taxable income.
Most important, because the estate tax is a penalty on saving and capital investment, the economy grows more slowly over time. This is why so many industrialized nations, including Canada and Russia, have thrown out this tax as more trouble than it is worth.
Consider the perverse incentives of the tax. When a business owner begins to consider retirement with perhaps $10 million of lifetime wealth, he can reinvest the profits in the business (which means growth and more workers) or live lavishly in retirement and spend the money down to zero.
In the first case, he is smacked with federal and state death taxes that can take away half of the wealth. In the second instance, he pays no tax. A new study by the Joint Economic Committee Republican staff estimates that because of this disincentive to save and invest "the estate tax has cumulatively reduced the amount of capital stock in the U.S. economy by roughly $1.1 trillion."
The strongest case against the death tax is moral. The levy makes Uncle Sam up to a half-partner in the proceeds of successful businesses. That is on top of the property and income taxes and other assessments that owners pay year after year. Mr. Obama is so obsessed with redistributing income that he thinks it is unfair to leave behind a family business for the kids. What is truly unfair is when a family-owned enterprise has to be sold at auction to pay the death tax to the IRS.
Mitt Romney was right when he told a gathering in Van Meter, Iowa earlier this month that "we ought to kill the death tax. You paid for that farm once. You shouldn't have to pay for it again."
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From the previous post, "we ought to kill the death tax. You paid for that farm once. You shouldn't have to pay for it again."
Great line!
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Give some credit here to my congressman Erik Paulsen for pushing this. The House has approved repeal of the medical device tax. Now waiting for the Harry Reid led Senate to take up action - or to leave power.
Minnesota has 1270 medical device businesses. Want to get less of something, tax it.
Did anyone ever ask (David Gregory?) how this tax helps healthcare? Costs? Or exports!?
http://paulsen.house.gov/innovationtaxrepeal
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Payroll Taxes Are 'Regressive'? Time to Rethink That Idea (WSJ 10/29/2012 excerpt)
Critics of how Medicare and Social Security are funded don't take into account benefit payouts. Suddenly, the taxes look progressive after all.
By KIP HAGOPIAN
AND LEE E. OHANIAN
Many of those who assert that the rich don't pay their fair share of the nation's bills often point to how Social Security and Medicare are funded. For example, columnist Paul Krugman wrote on his New York Times blog in 2010 that "the payroll tax is regressive, as are most state and local taxes, which largely offsets the progressivity of the income tax." And President Clinton's secretary of labor, Robert Reich, said in an October 2007 blog post, "payroll taxes take a much bigger portion of the paychecks of lower-income Americans than of higher-income [Americans]. Viewed as a whole, the current tax system is quite regressive."
On the contrary, studies show that the Social Security and Medicare programs, viewed as a whole, are anything but regressive.
[image] Getty Images
The payroll taxes that fund these programs are collected for the express purpose of providing income supplements and medical care during retirement. In the case of Social Security, earned income is taxed proportionately at 12.4% (split evenly between employee and employer) up to a cap that is currently set at $110,100. Those who assert that the Social Security tax is regressive note that the income cap results in a decline in taxes paid as a percentage of income as income rises above the cap. But this observation omits three critical facts.
First, the amount of one's Social Security income at retirement is also capped. Second, higher-income workers receive less of a benefit as a percentage of their contributions than do lower-income workers. The payouts to retirees are, and are intended to be, redistributive. Third, Social Security income is subject to the income tax—and the income tax is progressive.
...studies suggest that both of the payroll-tax systems are progressive, not regressive. Moreover, according to a July 2012 study by the Congressional Budget Office, entitled "The Distribution of Household Income and Federal Taxes, 2008 and 2009," the entire U.S. federal tax system (including the earned-income tax, the various capital income taxes, the two types of payroll taxes, the corporate tax, and the excise tax) is also progressive.
Those who assert that "the rich" do not pay their "fair share" seem to be ignoring these other facts: A study released in 2008 by the Organization for Economic Cooperation and Development reported the U.S. federal income tax system is the most progressive of any of the 24 countries of its member nations. And an October 2011 report by the Tax Foundation noted that in 2009 the top 1% of U.S. earners—who earned 17% of the income—paid 37% of the taxes. The top 5% earned 32% of the income and paid 59% of the taxes. The bottom 50% paid 2.3% of taxes, and the bottom quintile received money back in the form of refundable tax credits.
http://online.wsj.com/article/SB10000872396390443684104578063140488175464.html
Lee Ohanian is professor of economics at UCLA and a senior fellow at Stanford University's Hoover Institution.
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Bill Clinton 'triangulated' one might recall. He reformed welfare, cut capital gains taxes, grew the economy, balanced the budget, and came off like some kind of a genius after his first two years of pathetic economic growth out of downturn.
Obama should scale back Romney's plan and take it. Offer to the R. House 10% instead of 20% rate cuts as an offset to closing down loopholes and deductions for the wealthiest.
He can do this now, since there is essentially no shifting of seats or power coming in January. Doing it would avoid the fiscal cliff, avoid the recession, raise the debt ceiling in the compromise and settle the uncertainty that keeps the economy from moving 'forward'.
The main point of attacking the rich was to gain and hold power. It worked. Now he needs to set his legacy as something other than a complete economic disaster.
Democrats want greater progressivity in the tax code. Conservatives more even taxation like the flat tax, fair tax or 9-9-9. Romney's plan was to keep existing progressivity constant. This was a split election. Instead of fighting with the Republicans, he should make them an offer they can't refuse, and then take all the credit.
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WSJ yesterday makes a similar point:
Romney's Tax Reform Marches On
It's Obama's second term, but get ready for the Romney-Simpson-Bowles plan.
http://online.wsj.com/article/SB10001424127887323894704578108911243293922.html?mod=WSJ_Opinion_BelowLEFTSecond
Lower rates would improve individual incentives; fewer loopholes would mean economic resources flowing to their most highly-valued uses. Even if tax reform were kept revenue neutral, it would spur faster growth and therefore higher revenues. And there would be less incentive for political corruption and trafficking in tax favors: a win-win-win.
Maybe Americans can benefit from the second-term "flexibility" Mr. Obama once promised Vladimir Putin.
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http://www.europac.net/commentaries/extend_and_pretend
Extend and Pretend
By:
Peter Schiff
Friday, November 9, 2012
Now that President Obama has been re-elected, the media is finally free to focus on something besides the clueless undecided voters in Ohio, Florida, and Colorado. The brightest and shiniest object that has attracted its attention is the "fiscal cliff" that we are expected to drive over at the end of the year unless Congress and the President can agree to turn the wheel or apply the brakes.
Fresh from his victory, the President took time today to let the nation know how he proposes to avoid the cliff: to raise taxes on those Americans who make more than $250,000 per year. He made clear than no one making less than that will be asked to pay any more. The two percent of taxpayers that the President is targeting earn 24.1% of all income and pay 43.6% (as of 2008) of all personal federal income taxes. Sounds like a fair share to me. But the four or five percent tax increases on those earners that are being proposed would only yield around $30 to $40 billion per year in added revenue, a drop in the federal bucket. Even if they were to double the amount that they pay our deficit would only be cut by about one third (even if those increases did not trigger an economic slowdown).
So what exactly is this looming menace, and why is it so dangerous? Stripped of its rhetorically charged language the fiscal cliff is simply a legal trigger that will trim the deficit in 2013 by automatically implementing spending cuts and tax increases. In other words, the government will spend less, and more of what it does spend will be paid for with taxes rather than debt. Isn't this exactly what both parties, and the public, more or less want? The fiscal cliff means that the federal budget deficit will be immediately cut in half, shrinking to approximately $641 billion in 2013 from the approximately $1.1 trillion in 2012. What is so terrible about that? I would argue that there is a greater danger in avoiding the cliff than driving over it.
If you recall, the cliff was created by a deal last year when Congress couldn't find ways to trim the deficit in exchange for raising the debt ceiling. When they failed to reach an agreement, Congress knew they had to raise the debt ceiling anyway. The resulting Budget Control Act of 2011, signed in August of that year, offered the pretense that they were dealing with our long-term fiscal crisis and not simply raising the debt ceiling with no strings attached. This was done not only to appease some House Republicans, who had threatened to vote against a debt ceiling increase, but to satisfy the bond rating agencies that had threatened a down-grade if Congress failed to act.
Now the focus turns to how Congress will dismantle the structure it created just 16 months ago. There can be little doubt that they will as economists are assuring politicians that driving over the fiscal cliff will immediately bring on a recession. The expiration of the Bush era tax cuts for all taxpayers will cost Americans an estimated $423 billion in 2013 alone. Hundreds of billions of across the board spending cuts, including the military, have been delineated. No politician would allow that to happen.
It is amazing that members of Congress can keep a straight face as they claim to want to address our long-term deficit problem while simultaneously working to avoid any substantive action. No doubt an agreement will be reached that will replace the looming fiscal cliff with another one farther down the road (which they can easily dismantle before we actually reach the precipice). Will the rating agencies buy this bill of goods a second time? If we lack the political courage to go over this fiscal cliff, why should anyone think we will be able to stomach going over the next one? Especially since each time we delay going over the cliff, we simply increase its future size, making it that much harder to actually go over it.
Many currently believe last year's S&P downgrade resulted from the same congressional dysfunction that resulted in the fiscal cliff agreement. The truth is that the downgrade would probably have been much greater, and more rating agencies would have likely joined S&P in taking action, had it not been for the fiscal cliff agreement. If further downgrades fail to be issued when the lame duck Congress inevitably comes up with another can kicking deal, then the agencies themselves could lose any remaining credibility. In my opinion, the only explanation for inaction by the rating agencies would be for fear of regulatory retaliation by a vindictive U.S government.
I do not think it is a coincidence that while the banks are suffering a regulatory backlash as a result of their perceived culpability for the mortgage crisis, the credit rating agencies have been relatively untouched. But the credit agencies played a key role in catalyzing the mortgage crisis by giving questionable ratings to the mortgage backed securities. My guess is the government simply does not want to open up that can of worms as similar mistakes are being made with respect to the agencies' ratings of government debt.
The truth is that regardless of what you call it, going over the fiscal cliff is not the problem, it is part of the solution. Our leaders should construct a cliff that is actually large enough to restore fiscal balance before a real disaster occurs. That disaster will take the form of a dollar and/or sovereign debt crisis that will make this fiscal cliff look like an ant hill.
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The numbers I can find put us at spending around 10 billion a day. So, with the new taxes Buraq wants.....
Anyone got better numbers?
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GM:
I challenge Schiff's numbers. I have consistently been seeing the tax the rich numbers as projecting $80B, not his number of $40B, under static revenue assumptions. Either number of course is a joke in the face of at $1.1T deficit.
One of the big problems with Schiff's logic is that static assumptions are not realistic. People DO respond to changes in tax rate on the margins. I think the supply siders are quite right on this point. Indeed the contrary position is, in effect, a disagreement with the law of supply and demand itself; the argument is that lower prices for people's work (i.e. less money after tax increases) will not affect how much work they offer in reponse. This is gibberish. These tax increases seem likely to trigger a recession (or worse) This will decrease revenues to the government, and trigger increased entitlement spending that will overwhelm the fictitious "cuts" of the sequester.
The second big problem with Schiff's logic is the matter of the draconian cuts in military spending. Most of us here regard this as profoundly unwise.
The third big prolbem with Schilff's logic is that it is oblivious to the fraudulent fictions of baseline budgeting. The CUTS he mentions are a lie. ACTUAL spending will still be increasing every year.
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Crafty: "I have consistently been seeing the tax the rich numbers as projecting $80B, not his number of $40B, under static revenue assumptions. Either number of course is a joke in the face of at $1.1T deficit."
Schiff wrote: "would only yield around $30 to $40 billion per year in added revenue, a drop in the federal bucket.
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$80B static with $30-40B 'yield', I think we are talking about the same thing. A drop in the bucket either way, plus 50-60% of the 'new revenue' never materializes because investors alter their behavior to the new set of rules. Not measured in that loss is the lost benefits (job gains etc) that would come from that lost prosperity.
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I get that, but perhaps the $80B number I have seen is the 1%ers tax PLUs the revenues from the other tax increases (e.g. the increase in the tax on dividends)?
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I get that, but perhaps the $80B number I have seen is the 1%ers tax PLUs the revenues from the other tax increases (e.g. the increase in the tax on dividends)?
That could be. What we know for sure is that quoting the static number is to quote a known falsehood. The reaction to a major policy change will not be static. See Romer and Romer: emlab.berkeley.edu/~dromer/papers/RomerandRomerAERJune2010.pdf http://www.forbes.com/sites/charleskadlec/2012/04/23/christina-romer-knows-tax-hikes-will-kill-the-recovery/
Robert Rubin had a piece today in the NY Times not worth posting. He goes through the deduction and loophole closing possibilities and decides they aren't worth it. Then comes back to favoring tax rate hikes on the rich that also close no gap and spur no growth. http://www.nytimes.com/2012/11/13/opinion/rubin-deluding-ourselves-over-the-fiscal-cliff.html?_r=0
Broken record: We increase revenues significantly only with pro-growth policies. We rejected that in the Presidential race and in the Senate, but not in the House.
The President is the so-called leader of the free world. He needs to find where he has common ground with the House, get something positive passed or we all live with the consequences.
I would stay as far to the sideline as possible while this plays out. There is a lot that still can go wrong.
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“Tax increases appear to have a very large, sustained, and highly significant negative impact on output.” - Former Chief Obama Economic Adviser Cristina Romer
From the Forbes link above:
A powerful analysis by President Barack Obama’s first Chair of his Council of Economic Advisers (CEA) indicates the President’s proposed tax increases would kill the economic recovery and throw nearly 1 million Americans out of work. Those are the extraordinary implications of academic research by Christina D. Romer, who chaired the CEA from January 28, 2009 – September 3, 2010. In a paper entitled: “The Macrcoeconomic Effects of Tax Changes” published by the prestigious American Economic Review in June 2010 (during her tenure at the White House), she stated: “In short, tax increases appear to have a very large, sustained, and highly significant negative impact on output.”
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1. Obama is going to continue to gut the military, no matter what.
2. Republicans need to just vote "present" on any taxes, fiscal matters. Let Buraq wage his class war unfettered. I know assets are already fleeing this country. Why piss into the wind at this point?
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http://hotair.com/archives/2012/11/13/just-so-were-clear-we-all-understand-these-tax-hikes-would-accomplish-zilch-right/
Just so we’re clear, we all understand these tax hikes would accomplish zilch, right?
posted at 2:41 pm on November 13, 2012 by Erika Johnsen
And I quote:
But as I’ve said before, we can’t just cut our way to prosperity. If we’re serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes. … That’s how we can reduce the deficit while still making the investments we need to build a strong middle class and a strong economy. …
Now, already, I’ve put forward a detailed plan that allows us to make these investments while reducing our deficit by $4 trillion over the next decade. I want to be clear: I’m not wedded to every detail of my plan. I’m open to compromise. I’m open to new ideas. I’m committed to solving our fiscal challenges.
But I refuse to accept any approach that isn’t balanced. I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me making over $250,000 aren’t asked to pay a dime more in taxes.
Yes, by all means, let’s be serious — and acknowledge that tax hikes on the wealthiest among us is not going to accomplish anything even remotely meaningful in terms of long-term deficit reduction. Talking about how expensive the two wars have been and ginning up populist resentments (Obama likes to add the “rich people like me” bit to fend off claims of class-warmongering, but the “fairness” implication is of course still there) while consistently failing to produce any concrete plans except on how the government can spend more money, is not a solution. The hit on economic growth that will come at the cost of steepening our already graduated income tax is a much less effective way of increasing revenue than the lowered taxes that would allow the economy to grow at a more robust rate and bring more people into the middle and upper tax brackets (and with the president’s proposed arrangements, we can count on more of the same economic stagnation that only adds people to the food stamp/unemployment benefits/etcetera welfare rolls and deepens our fiscal woe).
As Conn Carroll aptly reminds us, sure, the Congressional Budget Office has projected that allowing the Bush tax cuts to expire for the wealthy could bring in as much as $824 billion over ten years (which, given that it’s from the CBO, I’d wager is a somewhat rosy estimate). But when you put that in the context of, oh yeah, Obama’s been running up trillion-dollar deficits every year of his presidency, you can see what a hugely insurmountable problem this is.
I merely highlight this all again because this is what the lame-duck Congress that reconvened today has already started fighting about. President Obama can certainly talk a good game about being open to entitlement reform and compromise, rabble rabble rabble, but his declaration that “we cannot cut our way to prosperity” is just plain wrong. We can, and we should cut our way to prosperity — not because we want to take benefits away from people who currently need them, but because we want to create opportunities for people so that they don’t need those benefits anymore. This pattern of insanely frivolous government spending, as if the Obama administration somehow knows how to spend and allocate our money better than we do in bringing about economic growth, is not the answer.
But no matter, it’s all going to be pinned on those dastardly Republicans, no matter what happens. Oof.
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Wall Street Journal: Obama Sets Steep Tax Target: President to Seek $1.6 Trillion More in Revenue, Double Level From 2011 Talks:
President Barack Obama will begin budget negotiations with congressional leaders Friday by calling for $1.6 trillion in additional tax revenue over the next decade, far more than Republicans are likely to accept and double the $800 billion discussed in talks with GOP leaders during the summer of 2011. ...
Kevin Smith, a spokesman for House Speaker John Boehner (R., Ohio), dismissed the president's opening position for the negotiations. He said Mr. Boehner's proposal to revamp the tax code and entitlement programs is "consistent with the president's call for a 'balanced' approach." ...
In negotiations between Messrs. Boehner and Obama in mid-2011, the two sides neared agreement on a plan to cut the deficit by $4 trillion over 10 years, including $800 billion in new revenue. The deal fell apart after Mr. Obama asked to raise the revenue component to $1.2 trillion, and to this day each side blames the other for the collapse. Based on that history, some senior GOP aides said they believed a likely compromise would call for about $1 trillion in new tax revenue, possibly from capping deductions for wealthier taxpayers.
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The President's Tax Math
We're beginning to think he wants to go over the cliff this year. .
'You know, the math tends not to work," declared President Obama at his Wednesday press conference, as part of his explanation for why closing tax loopholes for the wealthy wouldn't provide enough revenue for a budget deal. Ergo, he says, tax rates must go up immediately for those making more than $250,000 a year, even if this means sending the economy over the January 2013 tax cliff.
The President must be getting bad advice because his math is mistaken in two ways. He's wrong on the revenue arithmetic of limiting deductions, and he's also wrong in claiming that raising tax rates as he proposes would do much better.
Regarding deductions, we refer readers to an October 17 study, in which even the liberal economists at the Tax Policy Center report that capping all itemized deductions at $50,000 a year for each tax filer under current policy would yield $749 billion in extra revenue from 2013-2022.
Reducing the annual deduction cap to $25,000 would raise an additional $1.286 trillion over 10 years. Lower the cap still further to $17,000, as Mitt Romney once suggested during the campaign, and the revenue increase soars to $1.747 trillion by 2022. Our preference is that Republicans hold out to use this revenue to finance a reduction in tax rates as part of a larger tax reform, but similar math applies in any case.
It's important to note that these revenue estimates are based on static analysis, a Tax Policy Center specialty that doesn't consider changes in behavior. But then that's the same kind of static analysis that Mr. Obama is insisting on. It's important to note as well that these estimates apply to capping the itemized deductions of all taxpayers, not merely those who make more than $250,000.
But the liberal class warriors at the Tax Policy Center also did the math for the distribution tables for this deduction cap when they were trying to defeat Mr. Romney. And, lo, they found that the top quintile of income earners would pay 96.2% of the higher taxes if deductions were capped at $50,000. The top 1% of earners would pay 79.9% of the higher tax revenue from capping deductions, and the top 0.1% would pay no less than 48.4%.
In other words, the rich would still be soaked and the middle class would largely be spared. Is that enough tax fairness for you, Mr. President?
As for Mr. Obama's implication that higher tax rates will bring a revenue windfall, he is simply being disingenuous. The Joint Tax Committee's budget score of Mr. Obama's proposal to raise taxes on capital gains, dividends, and income above $200,000 while reinstating the PEP and Pease deduction phase-outs yields merely $823 billion over 10 years.
That's barely more than the $749 billion from capping deductions at $50,000 a year. And at an annual average of $82 billion a year in revenue, it's merely 7.5% of last year's $1.1 trillion federal budget deficit. And that's assuming no negative impact on revenues from slower economic growth due to higher tax rates on savings and investment. To borrow a phrase, "the math tends not to work."
All of which makes us wonder why Mr. Obama is so insistent on raising tax rates now, even if he can get nearly the same amount of revenue from reducing deductions. Here's one guess: He really doesn't care if there's a budget deal this year that avoids the tax cliff.
By taking an absolutist line, he's basically gambling that Republicans will be more reasonable than he is and will blink. But if they don't blink and we go over the cliff, from his point of view so what? Mr. Obama then has an excuse to blame Republicans if there's another recession. Meanwhile, he pockets the higher tax rates that take effect on January 1 anyway, and he can then negotiate a budget deal next year without having to make any tax concessions.
He pleases his left wing for which higher tax rates are a secular religion, while pinning one more defeat on Republicans. Lest you think this is a conservative fantasy, it's more or less the tax cliff strategy that Democratic Senator Patty Murray of Washington advocated on Sunday on ABC's "This Week" and that labor leaders lobbied for at the White House on Tuesday.
All of this also fits with Mr. Obama's latest line that any budget deal must raise taxes by $1.6 trillion, which is $800 billion more than he had privately agreed to with House Speaker John Boehner last year. It also fits with Mr. Obama's press conference remarks Wednesday in which he held out the vague promise of tax and entitlement reforms next year but pressed for immediate tax and spending increases this year. He's backing GOP leaders into a position they can't accept without a backbench revolt.
Meanwhile, in the real world, stocks took another dive on the President's remarks. The Dow fell 185 points, and it is now down 674 or 5% since Mr. Obama's re-election. The President is playing a game of political chicken with the economy.
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WSJ: Tax the Young
By JOSEPH STERNBERG
My colleague Jason Riley noted yesterday that Mitt Romney scored terribly among voters aged 18-29—and the numbers are worse compared to previous Republican Presidential candidates. He's right to observe that in key respects, Republicans in general, and Mr. Romney in particular, had a serious messaging problem with that cohort. But there's one more point worth making about this demographic: In this cycle, "young people" consisted exclusively of folks who have never had to pay high tax rates.
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Zuma Press
Supporters of President Obama at the White House on Election Night 2012.
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This year's 29-year-old voter was born in 1983. If he started work right out of college, he entered the work force in 2001; if she went to college, the soonest she started a full-time job was 2005. Voters younger than 29 have started working (those of them who can find jobs, anyway) even later. This means that at no time have these voters been working when the Bush tax rates were not in effect. No wonder they're enthusiastic about high government spending and not terribly concerned about that tax implications: They've never experienced the greedy hand of government reaching more deeply into their pockets.
This dynamic might help explain previous youth results for Republicans that were more favorable. A voter who was 29 years old in 2004 had been born in 1975, might have had early memories of sitting in her parents' car in a gas line, and, if a college grad, had entered the work force in 1997. At the older end of the 18-to-29 cohort in 2004, you had workers who had been in the labor force for about seven years, long enough to have started enjoying salary increases that brought those workers into tax brackets where the Bush tax cuts made a real difference.
As Jason notes, Ronald Reagan and George H.W. Bush both won the youth vote in 1984 and 1988, respectively. A 29-year-old in 1984 had been born in 1955 and came of working age in the depths of the Carter malaise. A 1988 29-year-old would have first hit the job market in 1982 or before, when tax rates were still higher and the economy in the pits, and would have seen the benefits both personally and broadly of the Reagan tax cuts.
This isn't to say that the youth vote is solely motivated by economic concerns—young people do tend to be more idealistic, after all. But it seems fair to say that this electoral cycle was marked by the participation of a fairly significant cohort of voters who think they know a lot about the benefits of government spending but have little experience of the costs associated with it. If there's a silver lining to any increase in tax rates as a result of fiscal cliff negotiations, is that Barack Obama's youth base will get a useful lesson in cause and effect.
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http://soaktherich.us/
If you win, please email the white house.
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Is it counter-intuitive? Why is this so hard to understand much less explain?
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Stephen Moore: Why Lower Tax Rates Are Good for Everyone
If we want millionaires to pay more taxes, then we need an economy where there are more millionaires.
By STEPHEN MOORE (WSJ) 11/15/2012
President Obama on Wednesday announced that any budget deal must include $1.6 trillion from higher taxes. "When it comes to the top 2%," he said, "what I'm not going to do is to extend further a tax cut for folks who don't need it." He argued that we are never going to get anywhere near balancing the budget without more revenue from people earning above $250,000 a year.
He's probably right about that, though not in the way he intends. The country needs an economy that will create more of the "millionaires and billionaires" that Mr. Obama loves to excoriate, not more taxes from those who already exist. Total taxes paid by millionaires fell by almost $100 billion between 2007 and 2010, the last year with statistics available from the Internal Revenue Service. The drop resulted not from too-low tax rates, but from the severe recession and an anemic recovery since 2009 that thinned the ranks of the wealthy.
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Editorial board member Steve Moore on the GOP's stand-off with President Obama over raising taxes. Photo credit: Getty Images.
If Mr. Obama wants the Warren Buffetts and Justin Biebers to shoulder more of the nation's tax burden, he would do well to pay attention to the history of tax rates. Over the past century, lower rates have shifted the tax burden onto high-income earners and away from the middle class while maintaining the tax code's progressivity.
Let's start with the 1920s. All tax rates were cut during the Calvin Coolidge administration, including the top rate, which fell to 25% from the World War I high of 73%. Between 1923 and 1928, benefited by lower tax rates, the economy surged, raising incomes and living standards for the middle class. Tax collections in real terms nearly doubled—and the share of taxes paid by those who made more than $100,000 a year (more than $1 million today) increased to 51% from 28%.
The top tax rate rose to 63% in 1932, to 79% in 1936, and to 90% during World War II. The higher rates persisted after the war, and while the economy grew as the government's economic role ebbed, high rates generally helped to hold back the pace of growth.
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Tax rates weren't reduced much until the Kennedy administration. JFK cut rates by about 30% for every income group. He argued that the lower tax rates would "boost the economy, produce revenues, and achieve a future budget surplus." He even called lower rates "an investment in the future."
The Kennedy tax cut was enacted in 1964 (after JFK's assassination), lowering the highest tax rate to 70% from 91%. His prediction that the economy would surge was validated by rapid growth every year from 1965 through 1968. Tax collections grew by 8.6% per year and unemployment fell to 3.4%. "The unusual budget spectacle of sharply rising revenues following the biggest tax cut in history," announced a 1966 U.S. News and World Report article, "is beginning to astonish even those who pushed hardest for tax cuts in the first place."
Americans earning over $50,000 per year (the equivalent of about $250,000 today) increased their tax payments by nearly 40% after the rate cut, according to a report from the Joint Economic Committee of Congress. Their share of overall taxes paid rose to almost 15% in 1966 from 12% in 1963. Americans with an income of more than $1 million nearly doubled their tax payments to $603 million in 1965 from $311 million in 1962.
President Reagan cut all tax rates across the board in his first term, with the highest rate reduced to 50% from 70%. That was followed a few years later with the 1986 Tax Reform Act, which closed loopholes and lowered the top tax rate to 28%.
The economy soared in the 1980s and the unemployment rate plunged after the mini-depression of 1978-82. Tax rates fell but federal revenues rose to $1.032 trillion in 1990 from $517 billion in 1980.
Taxes paid by the wealthiest Americans facing the highest marginal tax rates increased every year during the 1980s expansion. Meanwhile, the share of total income taxes paid by the top 1% rose to 25% in 1990 from 18% in 1981. The wealthiest 5% of Americans saw their tax share rise to 44% from 35%. The surge in revenues was the result of prosperity that was largely spurred by tax-rate cuts. The increase in government deficits during that period, on the other hand, was due to higher federal spending.
In 2003, President George W. Bush signed legislation that cut the top income tax rate to 35% from 39.6% and cut taxes on capital gains, too. Federal tax revenues surged by a record $780 billion from 2003-07, when the housing bubble collapsed. And once again, the rich paid more tax, not less. The share of taxes paid by the top 1% rose to 41% in 2007 from 35% in 2003. Tax payments by millionaires doubled from 2003 to 2007 because there were more millionaires and their before-tax incomes rose rapidly.
It is also true that when Bill Clinton raised tax rates in the 1990s, the economy boomed and the share of taxes paid by the rich increased. But the otherwise depressive effect of higher tax rates was counteracted by the lighter burden of government on the private sector—federal spending declined to 18% of GDP in 2000 from 22% in 1993.
A cut in spending is the economic equivalent of a cut in taxes now, or later. This point is effectively conceded by Mr. Obama demanding that his spending and borrowing binge of the past four years must be paid for by a giant increase in taxes over the next decade.
Some liberals acknowledge these fiscal facts of life but argue that tax revenues from the wealthy increased simply because the rich got richer. And so they did. But the economic growth that was touched off by lower tax rates, particularly in the 1960s and 1980s, also benefited middle-class incomes and living standards. If Mr. Obama has his way and raises tax rates on upper-income groups, it will slow the economy, and everyone will lose.
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Grover Norquist: Washington Enemy No. 1 The man who enforces the no-new-taxes pledge is under fire like never before. Why he still expects Republicans will hold the line.
By STEPHEN MOORE
Washington
'No one is caving," Grover Norquist says emphatically and repeatedly when we meet this week in his office in the nation's capital. By "no one" he means congressional Republicans, and by "caving" he means surrendering to Barack Obama's call for tax increases. Republicans are facing an avalanche of pressure from the White House, the media and even many on Wall Street to abandon their antitax principles to avoid a "fiscal cliff."
Mr. Norquist, who runs the influential advocacy group Americans for Tax Reform, finds himself smack in the middle of the political fight in Washington over whether taxes will rise on investors and businesses next year, a move he believes would cripple the Republican Party and could plunge the economy into another recession.
He rattles off a list of reasons Republicans won't give in. If taxes rise on everyone next year because of a stalemate, he says, "who are you going to believe wants taxes to go up? Obama doesn't have credibility on keeping your taxes down; Republicans do."
And don't forget: "Nothing has changed on the chess board since Barack Obama agreed to extend all the Bush tax cuts two years ago. Exactly the same players. Republicans still control the House and Democrats still control the White House and the Senate." Then he delivers the clincher: "For 20 years Democrats have tried over and over to trick Republicans into breaking the pledge. It hasn't happened. This isn't my first rodeo."
I'm not nearly as optimistic that Republicans won't capitulate in the weeks ahead, but this is quintessential Grover, one of the few people in Washington known by friend and foe alike by his first name. In the 25 years I've known him, the man is always upbeat and the glass is always half full, even apparently now, following the GOP's demoralizing election defeat. He's forever plotting the next move or counteroffensive against "the other team," i.e., the Democrats.
His political leverage comes from his famous "taxpayer protection pledge," which asks politicians to promise they won't raise taxes. It has become GOP dogma since 1990, when George H.W. Bush broke his "read my lips" no-new-taxes promise and then lost his bid for a second term.
Mr. Norquist has spent his career making sure this mistake never happens again. He has been amazingly successful. Since 1993, there hasn't been a major tax increase in Washington with the exception of the 2010 ObamaCare law—which not a single Republican voted for. For 20 years, every Republican presidential nominee, most GOP governors, and almost all Republican Senate and House candidates have signed the pledge. He sees the pledge as embedded in the Republican brand: "It's a constant reminder to voters, 'Oh yeah, Republicans are the ones who won't raise my taxes.' "
The pressure on Republicans to repudiate this oath has never been as intense as it is now. Mr. Obama is claiming a voter mandate to raise taxes, while the media and liberals are declaring that the days of "Norquistism," as they derisively call it, are over. A New York Times story this week claimed that more Republicans are ready to violate the pledge. After the 2011 debt-ceiling debacle, the election losses and the prospect of getting blamed for going over the fiscal cliff, the conventional wisdom is that the GOP has no choice but to fold.
Mr. Norquist insists that this won't happen because Republicans who think Mr. Obama or Senate Majority Leader Harry Reid are ever going to agree to cut domestic spending or reform entitlements are "chasing imaginary unicorns."
The scare talk about financial Armageddon if Republicans won't raise taxes is "a completely invented crisis. Republicans can't allow themselves to be TARPed again," he warns. By this he means that the fiscal cliff is a replay of the tactic Washington and Wall Street used in late 2008 to bully Republicans into passing the $700 billion bank bailout.
"The world won't come to an end if this isn't resolved before January," Mr. Norquist says. Part one of his strategy is "for House Republicans to pass a bill now to extend all the tax cuts for everyone . . . so everyone knows that their tax bill won't be going up" in 2013.
Part two is for Republicans to demand that all negotiations with the White House take place in front of C-Span cameras. That makes sense because history proves that Republicans get snookered behind closed doors, and public negotiations allow voters to see what Democrats are really offering. He also wants any compromise to be available at least seven days before a House and Senate vote.
Mr. Norquist is unbending in his conviction that the only option for raising revenues and staying true to the pledge is through pro-growth reform. "Any deal now that closes loopholes," he figures, "is the destruction of tax reform." Why? Because "any dollar taken out of credits and deductions and then spent by Congress is not a dollar you can use for tax reform and cutting tax rates later."
I ask why the Democrats and the left are so obsessed with burying his tax pledge. Mr. Norquist replies that their main goal is not to lower the deficit or avoid a stock-market selloff. Rather, "Democrats want to spend and spend and spend. Obama did that with the stimulus, TARP II, ObamaCare. But they desperately need Republicans to validate that spending by raising taxes. Republicans could be counted on to do that when they were a minority party in the 1950s, '60s and '70s, and during two momentary lapses in 1982 and 1990." The Republicans became, as Jack Kemp used to put it, "the tax collectors for the welfare state."
Mr. Norquist adds that "even more than getting more revenues, they want Republican fingerprints on tax increases so they can smash Republicans in the next series of elections."
I remind Mr. Norquist that the election exit polls show that voters, for the first time in two decades, favor higher taxes on the rich. He winces at the mere suggestion but says that voters understand that their own taxes will increase as well. He paraphrases a 2011 Rasmussen poll question: "If they are going to raise taxes on the rich, do you believe, at the end of the day, they'll actually raise taxes on the middle class and you? Yes, 75%. So do you think voters really believe that they're dodging a bullet [by taxing the rich] or do they believe they're next?"
Mr. Norquist wants Republicans to reinforce this message, educating voters that higher taxes on the rich are "pure acts of symbolism." Democrats can't raise enough money to make even a dent in the deficit with their tax hike. The Obama budget "calls for $8 trillion of deficits, after he's extracted all these new taxes. This is why the Democrats will say, 'Oh, sorry, we didn't solve the problem, now we have to raise taxes on you.' "
How will they do that? Mr Norquist says that after Democrats get the tax hike on the rich, they'll go "straight toward an energy tax or a value-added tax." This is the only way "you get to a European size of government."
Are Republicans defecting from the taxpayer protection pledge? Sounding exasperated, he says, yes, a few are having "impure thoughts. But the media keeps interviewing the same five or so Republicans in Congress who want to cut a deal."
He notes that "every day last year the press was reporting some Republican who was willing to raise taxes in return for a hypothetical revamping of all our retirement programs. And for eight months, people like [Oklahoma GOP Sen. Tom] Coburn sat in rooms with [Illinois Democratic Sen. Richard] Durbin and what'd they find out? There was no spending restraint. There was no fundamental reform. And so even the ones who had impure thoughts about raising taxes in return for cuts got nowhere."
Have Republicans called to ask if they can break the pledge? "No, none," Mr. Norquist replies. He says 200 House Republicans have signed the pledge and at least 20 more have campaigned on not raising taxes. Of the three Senate Republicans who may vote for higher taxes—Lindsey Graham of South Carolina, Saxby Chambliss of Georgia and Tennessee's Lamar Alexander—all are up for re-election in 2014 and they "like being senators."
So what is the way out of this debt crisis? Mr. Norquist advises GOP leaders that the best outcome for 2013 is to "take the sequester." These are real across-the-board cuts of about $1.2 trillion over the next decade that start to take effect in January.
Many Republicans and military experts say the cuts could be catastrophic for national security. But Mr. Norquist agrees with the many House Republicans who say that "the only thing worse than sequester cuts is to not cut spending at all."
Will Republicans take the sequester? "I believe they will at the end of the day, though they should offer the defense secretary more flexibility in making the cuts," he says. "This is just much better than raising taxes." Then they should abide by the "Boehner rule"—as in House Speaker John Boehner—which requires that every dollar increase in the debt ceiling is accompanied by a dollar of spending cuts.
The question is whether any of this is politically realistic. Mr. Boehner has already put "revenues" on the table, presumably even if tax rates don't decline. Mr. Norquist says Republicans should tough it out even if it means going over the tax cliff, pass a bill one more time to extend current tax rates in January, and then Mr. Obama will be the one to bend and sign it.
But what if the president doesn't sign such a bill—and then blames Republicans for the fallout and demands that they pass a tax cut only for those below $250,000 in income? Would that violate the pledge? "That's not for me to decide," he replies. "Republicans will have to go to the American people and they will decide whether this was acceptable." He also adamantly denies wanting to go over the fiscal cliff. "If we do go over, it's the president's fault."
What is the political fallout if Republicans do break the pledge, which Mr. Norquist defines as voting for any net tax increase? He says the pledge is a commitment to the people of their district, state and country—not to him. If Republicans break their word, "They are saying, 'I was elected under false pretenses because I misled you about what I would do.'"
He then recites his favorite political story. "George Herbert Walker Bush managed the collapse of the Soviet Union, kicked Iraq out of Kuwait, had a 90% approval rating, however he agreed to a tax-increase deal [consisting of] two dollars of spending cuts for every one dollar of taxes. And he lost the presidency. Republicans who raise taxes have a hard time explaining to anybody other than a congenital Republican why you should elect them."
But Mr. Norquist is always happier talking about the carrot than the stick. "I feel very comfortable with where the Republican leaders are right now," he says. "We are infinitely stronger than we were two and four and 10 years ago as a Republican Party. We should be much more confident. We should emphasize growth and do a better job spreading the message to all voters. Explaining to people why tax increases are bad for the economy—that should be child's play."
Mr. Moore is a member of the Journal's editorial board
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http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html?_r=1&adxnnl=1&ref=opinion&adxnnlx=1353352104-jo1N6MA2hGfglRfi/5Zv2A&
Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”
Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.
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Indeed, notice that number, it is .01% i.e. 1/100 of the 1% that Baraq is going after. In other words, Krugman is blowing right by the point at which those rates kick in. Also noteworthy is that revenues went up under the Kennedy tax RATE cuts from those levels, as they did after the Reagan RATE cuts.
Also, there are a plethora of additional taxes that did not exist in Eisenhower's day.
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Hasn't Kalifornia taxed it'self into prosperity yet? We should all try it!
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How about we first establish a MAXIMUM tax of all levels of government, federal, state and local, on any dollar income legally earned in the United States of America.
Secondly, let's pass the Buffet law retroactively and in its implementation prosecute this pretend policy expert for tax evasion.
We are no longer, FYI to Buffet, competing in a 1950s global economy. .01% of the people paying the top rate, rounded, means that no one in their right mind paid those rates. We have the highest corporate rates in the world. Most personal rate analyses exclude that.
Buffet says investors won't pass up an investment because of a tax rate. More relevant would be to measure what percent and total time and resources producers take away from productive activities to put into high marginal tax rate compliance and avoidance.
The rate of new business startups is at a 40 year low, taking us back to the Jimmy Carter hangover. Tax rates are only part of the war against business growth success. We need far more, not fewer, businesses to start today, tomorrow and the next day and grow into billion dollar businesses, employing thousands and enriching people along the way. Punishing wealth and achievement does what to further that aim? NOTHING.
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http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-tax-for-the-wealthy.html?ref=todayspaper
A Minimum Tax for the Wealthy
By WARREN E. BUFFETT
Published: November 25, 2012
SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”
Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.
Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.
Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation’s economic output) increased at a rapid clip. The middle class and the rich alike gained ground.
So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.
And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.
A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.
The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.
This outrage points to the necessity for more than a simple revision in upper-end tax rates, though that’s the place to start. I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.
Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.
Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.
But the reform of such complexities should not promote delay in our correcting simple and expensive inequities. We can’t let those who want to protect the privileged get away with insisting that we do nothing until we can do everything.
Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.
In the last fiscal year, we were far away from this fiscal balance — bringing in 15.5 percent of G.D.P. in revenue and spending 22.4 percent. Correcting our course will require major concessions by both Republicans and Democrats.
All of America is waiting for Congress to offer a realistic and concrete plan for getting back to this fiscally sound path. Nothing less is acceptable.
In the meantime, maybe you’ll run into someone with a terrific investment idea, who won’t go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him.
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"And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion"
Cool. So if we take all their assets, we'll cover federal spending this year!
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"And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion"
Cool. So if we take all their assets, we'll cover federal spending this year!
The Chavez plan. Don't think it wasn't considered. I would say 5 months and change, one time only. Then what?
Another measure might be to close all their businesses, cut off all their spending and investing, and see how that affects the incomes of Obama's class warrior voters.
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"And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion"
Cool. So if we take all their assets, we'll cover federal spending this year!
The Chavez plan. Don't think it wasn't considered. I would say 5 months and change, one time only. Then what?
Another measure might be to close all their businesses, cut off all their spending and investing, and see how that affects the incomes of Obama's class warrior voters.
The big crash is the only thing that can penetrate the layers of stupid built up in this country.
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" The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust. , , , A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places."
Let's do a little casual math here.
Wealth increased 567%. Assusming that income and gains increased similalry and combine that with tax rates dropping roughly 20%, then revenues to the Federal government from the wealthy increased roughly 80% of 467%, which is one heck of an increase.
Sounds like a solution in search of a problem to me.
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The Foundation
"An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." --John Marshall
Editorial Exegesis
Why is the answer so hard?
"One of the more amazing post-election spectacles is the media celebration of Republicans who say they're willing to repudiate their pledge against raising taxes. So the same folks who like to denounce politicians because they can't be trusted are now praising politicians who openly admit they can't be trusted. The spectacle is part of what is becoming a tripartisan ... attempt to stigmatize Grover Norquist as the source of all Beltway fiscal woes and gridlock. Mr. Norquist, who runs an outfit called Americans for Tax Reform, is the fellow who came up with the no-new-taxes pledge some 20 years ago. He tries to get politicians to sign it, and hundreds of Republicans have done so. He does not hold a gun to their heads. Grover's ... apparent crime against Washington is that he now actually wants to hold politicians to what they willingly signed. If enough Republicans will disavow their tax pledge, then the capital crowd can go about agreeing to a grand fiscal bargain that raises taxes, pretends to cut spending and avoids the January 1 fiscal crack-up that the politicians have set us up for. Voters are supposed to believe that only Grover stands in the way of this happy ever-after. ... The truth is that Mr. Norquist doesn't have such power. The voters do. Mr. Norquist merely had the wit to channel the electorate's limited government beliefs into a single-issue enforcement mechanism. ... The real problems are a political class that won't control its spending and economic policies that are retarding growth. That's where the GOP should keep its public focus. Mr. Norquist's tax pledge has been one of the few restraints over the years against those bad Beltway appetites. Democrats demonize Grover because they know this. They want to pit Mr. Norquist against other Republicans precisely so they can dispirit the tea party grass-roots and take away the tax issue as a GOP advantage. Republican voters know that elections have consequences and that Mitt Romney's defeat means there will be policy defeats too. But they will give the House and Senate GOP credit if it fights for its principles and drives a hard bargain." --The Wall Street Journal
"f the Democrats are really serious about soaking the rich, why don't they come out in favor of replacing the income tax -- which is basically a mechanism to prevent the upper-middle class from becoming wealthy -- with a wealth tax? Holders of great family fortunes can easily live off their inheritances, with no taxable 'income' whatsoever, but imagine if the Kennedys, the Rockefellers, and those who grabbed the swag by marrying the widow of a rich Republican senator, were forced to cough up a sizable percentage of their estates to the feds each year. Then you'd see real tax reform, and in a hurry." --columnist Michael Walsh
"[R]aising taxes would result in less economic activity, not more. Herein lies the key to understanding why the left wants higher taxes for 'the rich.' To the rich-should-pay-more crowd, the question of whether raising taxes hurts economic growth is less important than the issue of 'fairness.' ... Andy Stern, the former head of the Service Employees International Union, the fastest-growing American union, describes the economic philosophy of the left: If raising taxes on 'the rich' hurts the economy, that is an acceptable price. 'Western Europe,' says Stern, 'as much as we used to make fun of it, has made different trade-offs which may have ended with a little more unemployment but a lot more equality.' Any questions?" --columnist and radio talk-show host Larry Elder
"The Left misunderstands conservatives when it believes the argument over tax rates is an argument about greed -- that wealthier Americans simply want to grab all the money we can. In fact, many of the top 5 percent are among the most generous people in the world; they just tend to give their money to charities that actually produce results. Leaving aside -- for the moment -- the increasingly inverse correlation between taxation and individual liberty (a crucial consideration all its own), we conservatives look at the vast bureaucratic beast with a sense of utter futility. We opt out of government projects and seek personal independence in part because we see government fail time and again -- and not for lack of resources. For millions, government is less 'the thing we do together' than it is the 'monster inflicted upon us,' and the taxes we pay are less a contribution to the well-being of the community than a ransom payment to keep the monster away from our door." --columnist David French
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Pro-Islamist Losing Grip on Republican Party
Arnold Ahlert - November 28, 2012 - www.radicalislam.org
Anti-tax promoter Grover Norquist is losing his vice-like grip on the Republican party. The head of Americans for Tax Reform, who as recently as last year counted 238 members of the House and 41 members of the Senate among those who had signed his anti-tax pledge, has seen those numbers decline to 217 in the House, one shy of the 218 needed for a majority, and 39 in the Senate.
Both totals represent an all-time low. Last Wednesday, Senator Saxby Chambliss (R-GA) disavowed his pledge not to raise taxes, even as he acknowledged doing so could hurt his reelection chances in 2014. ”I don’t worry about that because I care too much about my country,” he said. “I care a lot more about it than I do Grover Norquist.” Americans might not like seeing their taxes go up, but Grover Norquist’s fall from grace has its benefits: As he goes down, so goes his pro-Islamist agenda.
That agenda was laid bare by Rep. Frank Wolf (R-VA) in a speech on the House floor, October 4, 2011. “My conscience has compelled me to come to the floor today to voice concerns I have with the influence Grover Norquist, the president of Americans for Tax Reform, has on the political process in Washington,” said Wolf. “My issue is not with ATR’s goal of keeping taxes low ... My concern is with the other individuals, groups and causes with whom Mr. Norquist is associated that have nothing to do with keeping taxes low.”
Wolf mentioned Norquist’s “association and representation” of terrorist financier and vocal Hamas supporter Abdurahman Alamoudi and terrorist financier Sami Al-Arian.
In 2004, Alamoudi, one of the most prominent and influential Muslim Brothers in the United States, was sentenced to 23 years in prison for supporting terror. Alamoudi, a self-described supporter of Hamas and Hezbollah, had cultivated ties with the Clinton White House that eventually enabled him and his associates to select, train and certify Muslim chaplains for the U.S. military.
Fearing a loss by Al Gore in the 2000 presidential election, Alamoudi befriended Norquist to ensure his access to senior levels of the U.S. government would be maintained if Republicans took charge. He gave Norquist $20,000 to establish the Islamic Free Market Institute and Alamoudi’s longtime deputy, Khaled Saffuri, became the founding director.
Norquist and Saffuri eventually became an integral part of the Bush administration’s Muslim outreach efforts during the 2000 campaign, with Saffuri named as Muslim Outreach Coordinator. During that campaign, Bush was also introduced to Sami Al-Arian. In 2006, Al-Arian was sentenced to 57 months in prison after pleading guilty to conspiracy to provide support to the Palestinian Islamic Jihad (PIJ).
Wolf illuminated the bigger picture of that relationship, noting that Norquist was an “outspoken supporter of Al-Arian’s effort to end the use of classified evidence in terror trials.”
Al-Arian ran the National Coalition to Protect Political Freedom (NCPPF), and Norquist supported their efforts to weaken or repeal the Patriot Act as well, despite the terrorist atrocities perpetrated on 9/11.
Wolf also revealed that Norquist “was scheduled to lead a delegation to the White House on September 11, 2001, that included a convicted felon and some who would later be identified by federal law enforcement as suspected terrorist financiers.” One of the members of that delegation was Omar Ahmed, co-founder of the Council on American-Islamic Relations (CAIR). CAIR was named an un-indicted co-conspirator when the Holy Land Foundation was convicted of sending million of dollars in funding to Hamas and other Islamic terrorist organizations.
Another relationship Norquist cultivated was with Suhail Khan, who has ties to a variety of Islamist movements. Khan’s father, the late Mahboob Khan, was a member of the Muslim Brotherhood and one of the founders of the Muslim Students Association (MSA), whose anti-Semitic activities at American colleges has been documented on numerous occasions, including their latest attempt to organize a divestment campaign against Israel at the University of California, Irvine.
In 2007, Norquist promoted Suhail Khan’s candidacy for election to the American Conservative Union’s (ACU) board of directors. He was subsequently appointed. In 2012, at an irregular meeting of that organization, the board voted to dismiss accusations made against both Khan and Norquist by Frank Gaffney, head of the Center for Security Policy and a former defense official in the Reagan administration.
Gaffney has been hammered by the ACU and others for suggesting that the influence of the Muslim Brotherhood reached the highest levels of the U.S. government despite the reality that it was Gaffney who drew attention to Abdurahman Alamoudi and Sami Al-Arian, both of whom ended up as convicted felons for their terrorist activity. Yet it is Gaffney’s credibility that has been called into question for daring to draw attention to Norquist’s unseemly activity.
Wolf also pointed out that Norquist was “an outspoken advocate for moving Guantanamo Bay detainees to the United States,” and “led a public campaign to undermine Republican-led efforts to block the Obama Administration’s transfer of 9/11 mastermind Khaled Sheik Mohammed to New York City” in 2009.
In 2010, Norquist inserted himself into the Ground Zero Mosque controversy, which he characterized as a “Monica Lewinsky ploy,” distracting from the core Republican message heading into the 2010 elections. Yet according to Wolf, Norquist “used Americans for Tax Reform to circulate a petition in support of the ‘Ground Zero Mosque’” completely undermining his own contention that the issue was a distraction.
For years, Grover Norquist’s reputation as a staunch anti-tax advocate has overshadowed his dubious associations with Islamists, and anyone who has dared to criticize him for those associations has drawn rebuke from both sides of the aisle.
Thus, it is more than a little ironic that his ability to influence Republicans with respect to taxes is waning, even as Islamists, most notably Mohammed Morsi and the Muslim Brotherhood, who are attempting to establish a dictatorship in Egypt, are becoming ever more powerful.
Sen. Chambliss isn’t the only Republican distancing himself from Norquist. House Speaker John A. Boehner (R-OH) has referred to him as “some random person.” Sen. John McCain (R-AZ) noted that “fewer and fewer people are signing this, quote, pledge.” Sen. Tom Coburn (R-OK.) called the pledge a “tortured vision of tax purity.” House newcomer Rep. Ted Yoho, (R-FL), who declined to sign the pledge, was sarcastic. “I’ll pledge allegiance to the flag. I’ll pledge to be faithful to my wife,” he quipped.
Yet it was Rep. Peter King (R-NY) who best summed up the growing rebellion. “A pledge is good at the time you sign it,” he said. “In 1941, I would have voted to declare war on Japan. But each Congress is a new Congress. And I don’t think you can have a rule that you’re never going to raise taxes or that you’re never going to lower taxes. I don’t want to rule anything out.”
Republicans can resist raising taxes without signing a pledge should they choose to do so for the good of the nation. Yet without the pledge Grover Norquist has long wielded like a hammer, his leverage among Republicans is precipitously diminished. Considering his dubious ties to Islamists and their agenda, that’s more than a reasonable tradeoff.
Arnold Ahlert is a former NY Post op-ed columnist. He may be reached at atahlert@comcast.net
Copyright © 2009 Clarion Fund, Inc. All rights reserved.
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Costco's Dividend Tax Epiphany
Obama's fans in the 1% vote to beat Obama's tax increase..
When President Obama needed a business executive to come to his campaign defense, Jim Sinegal was there. The Costco COST -0.68%co-founder, director and former CEO even made a prime-time speech at the Democratic Party convention in Charlotte. So what a surprise this week to see that Mr. Sinegal and the rest of the Costco board voted to give themselves a special dividend to avoid Mr. Obama's looming tax increase. Is this what the President means by "tax fairness"?
Specifically, the giant retailer announced Wednesday that the company will pay a special dividend of $7 a share this month. That's a $3 billion Christmas gift for shareholders that will let them be taxed at the current dividend rate of 15%, rather than next year's rate of up to 43.4%—an increase to 39.6% as the Bush-era rates expire plus another 3.8% from the new ObamaCare surcharge.
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Associated Press
Vice President Joe Biden, left, standing next to Costco co-founder Jim Sinegal, right, in Washington on Thursday.
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More striking is that Costco also announced that it will borrow $3.5 billion to finance the special payout. Dividends are typically paid out of earnings, either current or accumulated. But so eager are the Costco executives to get out ahead of the tax man that they're taking on debt to do so.
Shareholders were happy as they bid up shares by more than 5% in two days. But the rating agencies were less thrilled, as Fitch downgraded Costco's credit to A+ from AA-. Standard & Poor's had been watching the company for a potential upgrade but pulled the watch on the borrowing news.
We think companies can do what they want with their cash, but it's certainly rare to see a public corporation weaken its balance sheet not for investment in the future but to make a one-time equity payout. It's a good illustration of the way that Federal Reserve Chairman Ben Bernanke's near-zero interest rates are combining with federal tax policy to distort business decisions.
One of the biggest dividend winners will be none other than Mr. Sinegal, who owns about two million shares, while his wife owns another 84,669. At $7 a share, the former CEO will take home roughly $14 million. At a 15% tax rate he'll get to keep nearly $12 million of that windfall, while at next year's rate of 43.4% he'd take home only about $8 million. That's a lot of extra cannoli.
This isn't exactly the tone of, er, shared sacrifice that Mr. Sinegal struck on stage in Charlotte. He described Mr. Obama as "a President making an economy built to last," adding that "for companies like Costco to invest, grow, hire and flourish, the conditions have to be right. That requires something from all of us." But apparently $4 million less from Mr. Sinegal.
By the way, the Costco board also includes at least two other prominent tub-thumpers for higher taxes— William Gates Sr. and Charles Munger. Mr. Gates, the father of Microsoft's MSFT -1.50%Bill Gates, has campaigned against repealing the death tax and led the fight to impose an income tax via referendum in Washington state in 2010. It lost. Mr. Munger is Warren Buffett's longtime Sancho Panza at Berkshire Hathaway BRKB -0.34%and has spoken approvingly of a value-added tax that would stick it to the middle class.
Costco's chief financial officer, Richard Galanti, confirms that every member of the board is also a shareholder. Based on the most recent publicly available data, they own more than 4.1 million shares and more than 1.3 million options to purchase additional shares. At $7 a share, the dividend will distribute roughly $29 million to the board, including Mr. Sinegal's $14 million—at a collective tax saving of about $8 million. Even more cannoli.
We emailed Mr. Sinegal for comment but didn't hear back. Mr. Galanti explained that while looming tax hikes are a factor in the December borrowing and payout, so are current low interest rates. Mr. Galanti adds that the company will still have a strong balance sheet and is increasing its capital expenditures and store openings this year.
As it happens, one of those new stores opened Thursday in Washington, D.C., and no less a political star than Joe Biden stopped by to join Mr. Sinegal and pose for photos as he did some Christmas shopping. It's nice to have friends in high places. We don't know if Mr. Biden is a Costco shareholder, but if he wants to get in on the special dividend there's still time before his confiscatory tax policy hits. The dividend is payable on December 18 to holders of record on December 10.
To sum up: Here we have people at the very top of the top 1% who preach about tax fairness voting to write themselves a huge dividend check to avoid the Obama tax increase they claim it is a public service to impose on middle-class Americans who work for 30 years and finally make $250,000 for a brief window in time.
If they had any shame, they'd send their entire windfall to the Treasury
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How is Warren Buffett Wrong on Tax Hikes?
Heritage Foundation - November 30, 2012.
Let’s talk taxes. In a New York Times op-ed yesterday, famed investor and Berkshire Hathaway CEO Warren Buffett once again argued that the wealthy should be taxed more.
This isn’t the first time Buffett has made the case for higher taxes, and it’s not the first time he’s been wrong. Here are four reasons he is wrong to push for tax hikes.
1. Buffett says tax hikes won’t hurt jobs.
Fact: Tax hikes, especially those he espouses, hurt jobs.
Buffett cites periods when tax rates were high and says that “Under those burdensome rates,” employment “increased at a rapid clip.”
This country has an employment problem right now, and tax rates aren’t even as high as Buffett wants. The tax increases President Obama champions would hit small businesses that create jobs. According to Treasury figures, 1.2 million Americans who employ people are paying their taxes through the individual income tax, and they would be hit head-on. The amount that their taxes would go up could be roughly equivalent to one employee’s salary, meaning that’s one person they can’t hire in the new year. A study by Ernst and Young estimates that these tax hikes would kill 710,000 jobs.
2. Buffett says tax hikes won’t stop investors from investing.
Fact: Any time you tax something, you get less of it.
Buffett says: “So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if—gasp—capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.”
Let’s think about what taxes are intended to do. The cigarette tax is intended to curb smoking. Proponents of a carbon tax want to curb the amount of carbon emissions we are producing. In Washington, D.C., a plastic bag tax is intended to curb the number of plastic bags people use.
When you tax something more, people do less of it. This is how taxes work. It doesn’t change because the behavior being taxed is investing rather than smoking.
3. Buffett says the wealthy aren’t even paying a minimum tax.
Fact: We already have an Alternative Minimum Tax.
Buffett says, “We need Congress, right now, to enact a minimum tax on high incomes.”
We already have this. It’s called the Alternative Minimum Tax. As Heritage’s Curtis Dubay explains:
Congress passed the Alternative Minimum Tax (AMT) in the early 1970s to ensure that a few high-income taxpayers did not reduce their tax liability too much by taking advantage of all the deductions, exemptions, and credits Congress put in the tax code. But Congress did not index for inflation the income threshold over which families qualify for this extra tax. So now Congress must annually “patch” the AMT by raising the threshold to correct this mistake. Even with the patch, the AMT still ends up falling on almost 4 million taxpayers; Congress initially intended for it to hit only a few hundred.
The top 10 percent of earners in the United States already pay more than 70 percent of federal income taxes. To move forward in this debate, those who argue that we just need to “tax the rich” will have to get real. We can’t close the budget deficit by taxing the rich. Even though Buffett also claims…
4. Buffett says we need to raise taxes to bring in more revenue for the government.
Fact: The problem is government spending, not government revenue.
Buffett says, “Our government’s goal should be to bring in revenues of 18.5 percent of [gross domestic product] and spend about 21 percent of G.D.P.”
Revenues are lower now today than normal, not because of tax rates, but because of the slow-growing economy. As the economy recovers, so will revenues. And they will continue to grow as the economy thrives. Why? Because more people are investing, saving, working, and enjoying higher wages. The nifty little benefit for the government of a strong, growing economy is that people pay more in taxes.
But on to spending. The White House already estimates that federal spending will be 23.1 percent of GDP this year—well above Buffett’s target. But, unlike taxes—which will return to the historical levels Buffett aims for, spending will continue to spiral ever upwards. In 25 years, spending will be 35.7 percent of GDP. In 2025, the big three entitlements will gobble up a full 18.5 percent of GDP—the entire amount of revenue that Buffett would like to raise.
In Buffett’s world, then, after funding entitlements, that leaves only 2.5 percent of GDP for everything else (assuming that interest rates don’t go through the roof). The fact is that ever-growing entitlements have put spending on a trajectory toward a European-level implosion. If they are not reined in, taxes on everyone will have to rise perpetually just to keep pace.
While Warren Buffett is right about many things, he is wrong about tax hikes. Which leads us to the real questions: Why are we even talking about tax hikes? Where are the spending cuts?
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What does Warren Buffet (and Barack Obama) say to THIS?
New data on tax hikes - from Britain: The tax went from 40% to 50% on millionaires in one year. The total number of millionaire tax filers plunged 60% to 6,000 in 2010-2011, from 16,000 in 2009-2010.
(Next year we can post similar data for California.)
Mr. Buffet, incentives and disincentives matter!
Does this business genius ever advertise that his flagship Geico brings in more customers and more revenues because of higher prices ... in 15 minutes or less we'll raise your cost of car insurance?
http://online.wsj.com/article/SB10001424127887323751104578148820012847656.html?mod=WSJ_Opinion_AboveLEFTTop
Britain's Missing Millionaires
Income tax rates rise but revenues fall.
A funny thing often happens on the way to soaking the rich: They don't stick around for the bath. Take Britain, where Her Majesty's Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before.
That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown's government introduced in its final days in 2010, up from the previous 40% rate. Lo, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010.
The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%.
The British press is abuzz with the notion that 10,000 millionaires left the country in the interim, and no doubt some did make for their chalets in Gstaad. Others may have brought forward more income in 2009-2010, knowing the higher rate was on its way. No doubt, too, the overall lousy economy took its toll.
Prime Minister David Cameron decided earlier this year to lower the 50% rate to 45%, meaning we may see at least some of the millionaires return to the U.K. But the figures are another reminder that incentives matter.
Politicians would love to lay the whole burden of their policies on a tiny minority of the rich, but you can't finance the welfare state on the shoulders of the 1%. That's something for the U.S. to remember as President Obama pretends he can fill a $1 trillion budget hole with tax hikes on "millionaires and billionaires."
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One excerpt on taxes:
RECOMMENDATION 2.1: ENACT FUNDAMENTAL TAX REFORM BY 2012 TO LOWER RATES, REDUCE DEFICITS, AND SIMPLIFY THE CODE. Eliminate all income tax expenditures [deductions and other tax preferences], dedicate a portion of the additional revenue to deficit reduction, and use the remaining revenue to lower rates and add back necessary expenditures and credits.
A “zero plan” could reduce income tax rates to as low as 8%, 14%, and 23%. Even after adding back a number of larger tax expenditures, rates would still remain significantly lower than under current law.
Link again: http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf
Another clause:
2.2.2 Eliminate all tax expenditures for businesses. Corporate tax reform should eliminate special subsidies for different industries. By eliminating business tax expenditures – currently more than 75 – the corporate tax rate can be significantly reduced while contributing to deficit reduction. A lower overall tax rate will improve American business competitiveness. Abolishing special subsidies will also create an even playing field for all businesses instead of artificially picking winners and losers.
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I disagree. Give Buraq everything he asks for. Vote present.
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A good case certainly can be made for exactly that proposition.
Indeed, one need not go quite so far. The Reps can give BO his tax rate increase on the rich with no strings attached, congratulate him on financing 8-9 days of govt (if the static revenue assumptions hold true, though the data out of the UK in recent days suggests strongly that they won't) and then demand from him a statement of what ratio of cuts to taxes he is willing to make before going into particulars-- the particulars being where Reps always get anally raped as the starvers of widows and children.
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The Looters and Moochers can't be bothered with details like that.
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"Give Buraq everything he asks for. Vote present."
They can vote no on bad ideas. They can go with stupidity about 2% up for income over a million and let those chips fall. The GOP House IMO cannot cross the line very far to support what they do not support. There is not much downside IMO for them using hard negotiations now at the fiscal cliff and during the debt ceiling crisis coming in only a month or two. If spending cuts are not going to happen, then tax rates going up for everyone as a consequence. Who is the party of bigger spending, bigger government, healthcare takeover and a bigger share of everyone's income going to pay for the high cost of bigger and bigger government? Not the GOP. Especially not the Republican House if they passed a number of better options that died in the Dem Senate or on the President's desk.
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Buraq wants the 'pubs to "make" him take us over the cliff. That's his best scenario. Defense gets gutted and taxes go up and republicans get all the blame.
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http://news.xinhuanet.com/english/china/2012-11/26/c_132000164.htm
Tax cut to benefit over 900,000 enterprises
English.news.cn 2012-11-26 19:45:00
NANJING, Nov. 26 (Xinhua) -- China's new round of structural tax cutting is likely to benefit more than 900,000 enterprises nationwide, according to a working conference held here on Monday to discuss the country's piloting of replacing business tax with a value-added tax (VAT).
About 710,000 enterprises have been covered by the tax-cutting program, and another 200,000 will be included starting from Dec.1 this year, according to the meeting jointly held by the Ministry of Finance and the State Administration of Taxation.
Shanghai piloted the program on Jan. 1 this year in an effort to decrease the overall tax burden and boost the transportation and service sectors. The pilot was then expanded to provincial regions including Beijing, Guangdong and Zhejiang later this year.
Tianjin, Hubei, Zhejiang and Ningbo will also join the program from next month, under previous plans.
All the works are progressing in an orderly and effectively manner, and the performances of the launched pilot programs have exceeded previous expectations, said representatives at the conference.
The reform has effectively promoted the growth of tertiary industry, especially the service sector, and encouraged the development of small and micro-sized enterprises, those present at the meeting agreed.
In Shanghai, the tax cut has helped reduce enterprises' tax burdens by 22.5 billion yuan (3.57 billion U.S.dollars) in the first 10 months of this year, while in Beijing, the new measure has cut tax revenue by 2.5 billion yuan in two months.
At the meeting, Vice Finance Minister Wang Jun urged further work to ensure full success of the pilot programs, following the development blueprint mapped out at the recently concluded 18th National Congress of the Communist Party of China and related government meetings.
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I wholeheartedly agree with G M. Let Barack plunge us over the so-called cliff. He's made it excruciatingly clear that is what he wants. The Republicans ought to stand back and let him do it. Yes - they will get blamed initially - but that will happen REGARDLESS. So - better to stand on principle and NOT "negotiate" actual spending cuts that will NEVER - I repeat - NEVER happen with Democrat Party consent. They have proven this for decades. Caving in even a little at the top for the 1% of income earners is not acceptable in my book. What good will it do? NONE - it's a class-warfare ploy which is ultimately corrosive to our society and our fiscal health.
As Rush Limbaugh commented on Friday - "This "fiscal cliff" is actual nirvana for liberal Democrats. They get everything they want - higher taxes on everyone, massive defense cuts, and more money to buy votes with. What's not to like? Clearly the President isn't concerned about unemployment or a robust economy. He's demonstrated that over the last four years beyond question." Obama's goal (along with the Democrats) is to create as much government dependency as possible. That is what they WANT to happen. This is something even many conservative pundits - Charles Krauthammer among them - do NOT understand. They insist on analyzing Obama's incentives/actions as though he actually wants to reduce unemployment and create growth in the economy. He doesn't. He is a Marxist.
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This matter of massive defense cuts as part of the cliff is far too important to be forgotten in frustrated petulance.
The Reps have utterly failed to have a sound bite answer to the sound bite question "What the hell is wrong to going back to the Clinton era tax rates?"
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This matter of massive defense cuts as part of the cliff is far too important to be forgotten in frustrated petulance...
The thing with the defense cuts is that Obama is President for the next 4 years. Defense cuts weaken our country but we just did that anyway.
A conservative view of defense is that we could be mean, scary, well-armed and still spend a lot less - through deterrence and more selective use of our forces. I am more interventionist but the country right now is not. Call it Iraq war fatigue.
The Clinton mistake was to gut intelligence. Gutting intelligence is stupid - no pun intended.
The other part of willingness to go over the fiscal cliff (back to tax policy themes) is that higher taxes is what people get for choosing to go down Obama Avenue. Big government costs big money. Not just for the guy behind the tree. Big cradle to grave, life of Julia, government will cost you and your family big money and here is your new bill.
If Obama refuses to budge on the budget deal, R's can refuse to budge on debt ceiling appeasement. Vote present - vote no. They say default but I say it means an instantly balanced budget. Bigger spending cuts than a libertarian-conservative's wildest dream. And it will all be Obama's fault.
There go the Obama second term initiatives (and first term programs like Obamacare) right down the drain - QE3,4,5 and everything else. He keeps Air Force One, the golf membership, Supreme Court appointments, and that's about it.
"The Reps have utterly failed to have a sound bite answer to the sound bite question, What the hell is wrong to going back to the Clinton era tax rates?"
Maybe so for them, but you and I have answered that. a) We aren't competing in a 1990's global economy anymore. b) There are many many many other new taxes. c) There are HUNDREDS OF THOUSANDS of new regulations that cripple production enacted since the 1990s that go beyond explicit taxation. d) Doesn't it follow that we also could go back to Clinton Gingrich SPENDING LEVELS?! The point of the fiscal cliff is the deficit and the deficit is ALL about spending. Maybe Clinton (or Eisenhower) had spending levels right.
e) Posted earlier, Did ANYONE notice that the UK lost 60% of its millionaires in one year by bumping up the tax rate. Static scoring is the biggest economic lie of our collective lifetimes.
Revenues to the US Treasury doubled in the 1980s when the top rate fell from 70% to 28% and the number of millionaires in the UK dropped by 60% in one year with falling revenues when the tax rate on millionaires went up 10%.
Do retailers bring in more people and more revenue than ever before on Black Friday by raising prices or by having sales? Ask them.
This should not be that hard to communicate.
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http://www.washingtonpost.com/blogs/the-fix/wp/2012/12/04/republicans-losing-blame-game-on-fiscal-cliff/?hpid=z1
Republicans losing blame game on fiscal cliff
Posted by Chris Cillizza, Aaron Blake and Sean Sullivan on December 4, 2012 at 7:00 am
A majority of Americans say that if the country goes over the fiscal cliff on Dec. 31, congressional Republicans should bear the brunt of the blame, according to a new Washington Post-Pew Research Center poll, the latest sign that the GOP faces a perilous path on the issue between now and the end of the year.
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... congressional Republicans should bear the brunt of the blame, according to a new Washington Post-Pew Research Center poll...
If Republicans hold to their principals, they risk losing the House in 2014. If they don't, they lose the House now.
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"This should not be that hard to communicate."
It isn't, which is why it is so infuriating that it isn't done.
That it isn't done is precisely why Doug may well be right about Rep prospects.
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http://www.newgeography.com/content/003289-the-blue-state-suicide-pact
The Blue-State Suicide Pact
by Joel Kotkin 12/05/2012
With their enthusiastic backing of President Obama and the Democratic Party on Election Day, the bluest parts of America may have embraced a program utterly at odds with their economic self-interest. The almost uniform support of blue states’ congressional representatives for the administration’s campaign for tax “fairness” represents a kind of bizarre economic suicide pact.
Any move to raise taxes on the rich — defined as households making over $250,000 annually — strikes directly at the economies of these states, which depend heavily on the earnings of high-income professionals, entrepreneurs and technical workers. In fact, when you examine which states, and metropolitan areas, have the highest concentrations of such people, it turns out they are overwhelmingly located in the bluest states and regions.
Ironically the new taxes will have relatively little effect on the detested Romney uber-class, who derive most of their income from capital gains, taxed at a much lower rate. They also have access to all manner of offshore dodges. Nor will it have much impact on Silicon Valley millionaires and billionaires, or the Hollywood moguls and urban land speculators who constitute the Democratic Party’s “good rich,” and enjoy many of the same privileges as their wealthy conservative counterparts.
The people whose wallets will be drained in the new war on “the rich” are high-earning, but hardly plutocratic professionals like engineers, doctors, lawyers, small business owners and the like. Once seen as the bastion of the middle class, and exemplars of upward mobility, these people are emerging as the modern day “kulaks,” the affluent peasants ruthlessly targeted by Stalin in the early 1930s.
The ironic geography of the Democratic drive can be seen most clearly by examining the distribution of the classes now targeted by the coming purge. The top 10 states with the largest percentage of “rich” households under the Obama formula include true blue bastions Washington, D.C., which has the highest concentration of big earners, Connecticut, New Jersey, Maryland, Massachusetts, New York, California and Hawaii. The only historic “swing state” in the top six is Virginia, due largely to the presence of the affluent suburbs of the capital. These same states, according to the Tax Foundation, would benefit the most from an extension of the much-lambasted Bush tax cuts.
The pattern of distribution of “the rich” is even more marked when we focus on metropolitan areas. Big metro areas supported Obama, particularly their core cities, by margins as high as four to one. Besides New York, the metro areas with the highest percentage of high-earning households include such lockstep blue cities as San Francisco, Washington, San Jose, Atlanta and Los Angeles.
The income tax hit may not be the only pain inflicted on these areas in the President’s drive for greater “fairness.” Moves to curb mortgage interest deductions for affluent households also would fall predominately on these same areas. The states with the highest listing prices — and the biggest mortgages on average – are the president’s home state of Hawaii, followed by the District of Columbia, New York, California and Connecticut. According to the Census Bureau and the Federal Housing Agency, median home values in California are 200% higher than the national median, and in New York they’re 150% higher; in contrast, red Texas’ prices are below the median.
The contrast in prices is even greater between metropolitan areas. The highest prices — and thus largest mortgages — are in the deep blue havens of San Francisco, New York and Los Angeles. If the mortgage interest deduction is capped for loans, say, over $300,000, homeowners in these cities will suffer far more than in key red state cities like Dallas or Houston, where homes are at least half the price.
The curbing of the mortgage interest deduction constitutes only one part of a broader effort to cut back on all itemized deductions. This would hit states with the highest rates of people taking such deductions: California, New York, the District of Columbia, Connecticut and New Jersey, according to the Wall Street Journal. In contrast, the states least vulnerable to this kind of leveling reform would be either red states such as Indiana, Alaska or Kentucky, or classic “swing” states such as Iowa and Ohio.
Of course, one can argue that these changes follow the precepts of social justice: Rich people and rich regions should pay more. Yet being “rich” means different things in different places, due to vast differences in costs of living. The cost of living in New York and Los Angeles, for example, is so high that the adjusted value of salaries rank in the bottom fifth in the nation. In other words, a couple with two children with a $150,000 income in Austin or Raleigh may be, in terms of housing and personal consumption, far “richer” than one making twice that in New York or Los Angeles.
What would a big tax increase on the “rich” mean to the poor and working classes in these areas? To be sure, they may gain via taxpayer-funded transfer payments, but it’s doubtful that higher taxes will make their prospects for escaping poverty much brighter. For the most part, the economies of the key blue regions are very dependent on the earnings of the mass affluent class, and their spending is critical to overall growth. Singling out the affluent may also reduce the discretionary spending that drives employment in the personal services sector, retail and in such key fields as construction.
This prospect is troubling since many of these areas are already among the most unequal in America. In the expensive blue areas, the lower-income middle class population that would benefit from the Administration’s plan of keeping the Bush rates for them is proportionally smaller, although the numbers of the poor, who already pay little or nothing in income taxes, generally greater. Indeed, according to a recent Census analysis, the two places with the highest proportions of poor people are Washington, D.C., and California. By far the highest level of inequality among the country’s 25 most populous counties is in Manhattan.
Finally we have to consider the impact of the new tax rates on the fiscal health of these states. Four of the five states in the poorest shape fiscally, according to a recent survey by 24/7 Wall Street, all have congressional delegations dominated by Democrats — California, New Jersey, Rhode Island and Illinois (the one red state is Arizona). Slower economic growth brought about by higher taxes — compounded by high state taxes — is unlikely to make their situation any better.
So what can we expect to happen if the fiscal cliff appears, or if the President and his party get their taxes on the rich? One can expect a proportionally greater impact on citizens and the budgets of the already expensive, high-tax states, where the new kulak class is concentrated. It may also spark a greater migration of people and companies to less expensive, lower-tax areas.
Perhaps the greatest irony in all this is that the Republicans, largely detested in the deep blue bastions, are the ones most likely to fall on their swords to maintain lower rates for the the mass affluent class in the bluest states and metros. If they were something other than the stupid party, or perhaps a bit more cynical, they would respond to the President’s tax proposals by taking a line from their doddering cultural icon, Clint Eastwood: make my day.
Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.
This piece originally appeared at Forbes.
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AT the moment my thinking is that the Reps should give BO the rates on the rich onw which he campaigned and won , , , and the static assumption 8-9 days of government that they will pay for. Then have it out over the rest of it.
PS: I HATE HATE HATE the use of RED (the color for communists, socialists, and deficits around the world) as the color for the Rep Party. How stupid of the Reps to let the Pravdas get away with this!!! :x :x :x
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"AT the moment my thinking is that the Reps should give BO the rates on the rich on which he campaigned and won , , , and the static assumption 8-9 days of government that they will pay for. Then have it out over the rest of it."
That makes some PR and conciliatory tone sense, is tempting, and is probably what Speaker Boehner is thinking, but...
That 10% increase isn't the only increase coming. You will be signing on with taking down the economy.
Giving on that point does NOT make you more likely to win on the other points.
By the same logic (on which he campaigned and won), each House Republican campaigned on the opposite - and won. If the President's win was on issues, specifically raising any tax rates, and not on personality, negative mudslinging etc., then where were his coat tails?
Congress is a competing, co-equal branch on these divided issues, not a cooperative branch. They are a check and a balance against all that he wants. If the President was right, then fine, lesson learned, but each Republican House member knows better. Rate hikes kill off growth and jobs. Each needs to vote what they believe is the best interest of the country. Each will face a worse electoral challenge if they don't.
The constitution gives appropriations and revenue raising authority first to the congress, if I understand it correctly. The constitution, by my reading, defines the size and scope of government as the least of what the House, Senate, Executive and Judiciary can accept. The President is in a stronger position only to the extent that he may be the only one with a spine.
Tip O'Neill's members gave votes to Reagan tax cuts because either the individual representative or the constituents sided with Reagan, not out of deference to the national election. Many of those districts I think were southern or rural and were becoming Democrat in name only. Gingrich, just mentioned, shut down the government twice instead of playing nice and violating their principles. They were reelected.
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The Internal Revenue Service has released new rules for investment income taxes on capital gains and dividends earned by high-income individuals that passed Congress as part of the 2010 healthcare reform law.
http://www.reuters.com/article/2012/12/03/us-usa-tax-irs-idUSBRE8B21HA20121203
The 3.8 percent surtax on investment income, meant to help pay for healthcare, goes into effect in 2013. It is the first surtax to be applied to capital gains and dividend income.
The tax affects only individuals with more than $200,000 in modified adjusted gross income (MAGI), and married couples filing jointly with more than $250,000 of MAGI.
The tax applies to a broad range of investment securities ranging from stocks and bonds to commodity securities and specialized derivatives.
The 159 pages of rules spell out when the tax applies to trusts and annuities, as well as to individual securities traders.
Released late on Friday, the new regulations include a 0.9 percent healthcare tax on wages for high-income individuals.
Both sets of rules will be published on Wednesday in the Federal Register.
The proposed rules are effective starting January 1. Before making the rules final, the IRS will take public comments and hold hearings in April.
Together, the two taxes are estimated to raise $317.7 billion over 10 years, according to a Joint Committee on Taxation analysis released in June.
To illustrate when the tax applies, the IRS offered an example of a taxpayer filing as a single individual who makes $180,000 in wage income plus $90,000 from investment income. The individual's modified adjusted gross income is $270,000.
The 3.8 percent tax applies to the $70,000, and the individual would pay $2,660 in surtaxes, the IRS said.
The IRS plans to release a new form for taxpayers to fill out for this tax when filing 2013 returns.
The new rules leave some questions unanswered, tax experts said. It was unclear how rental income will be treated under the new rules, said Michael Grace, managing director at Milbank, Tweed, Hadley & McCloy LLP law firm in Washington.
"The proposed regulations surely will increase tax compliance burdens for individuals," said Grace, a former IRS official. "There's clearly some drafting left to be done."
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Reason Magazine calls this The Bush Tax Cut Issue in One Chart
Federal outlays and receipts in the last two years of the Clinton Administration, all eight years of George W. Bush and Barack Obama’s first term:
(http://media.reason.com/mc/ekrayewski/2012_11/bushchart.jpg?h=341&w=500)
The tax cuts took effect in 2003. The congress sworn to end them was sworn in Jan. 2007. During that time, revenues exploded and deficits plummeted.
Spending marches upward no matter who is in office or how much money we take in. Both revenues and spending are much worse in recession. So to solve the budget shortfall, we choose to trigger another recession.
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No ‘Fiscal Cliff’ Middle Ground
Posted By Arnold Ahlert On December 7, 2012 - www.frontpagemag.com
The latest machinations surrounding the so-called fiscal cliff, a combination of tax increases and spending cuts many economists insist would put the nation back into recession, continue. Ironically, the current impasse has far less to do with economic realities than ideological intransigence. The lion’s share of that intransigence belongs to the president, who has made it increasingly clear that any deal, even one that includes increased revenue, is DOA unless it includes higher taxes on the “rich.” Treasury Secretary Tim Geithner illuminated the administration’s position on Sunday. “There’s no path to an agreement that does not involve Republicans acknowledging that rates have to go up on the wealthiest Americans,” he said on NBC’s “Meet the Press.”
Yet on Monday, Republicans made an offer described as a “savvy tactical move,” or an effort to regain the high ground in the debate. House Speaker John Boehner (R-OH) sent a letter to the president that embraced many of the ideas put forward by Democrat Eskine Bowles, who was part of the Simpson-Bowles Commission put together in 2010 by Obama himself. It was an ostensible effort to rein in the nation’s burgeoning debt, currently standing at more than $16.2 trillion. The commission came up with a series of recommendations, including a cap on discretionary spending, some tax increases, and overall tax reform. It was subsequently rejected by the president, likely due to the reality that it recommended cutting individual tax rates to as low as 23 percent, and capping federal spending and revenue at 21 percent of GDP. It is the latter proposal that likely irked a president determined to maintain government spending and revenue at the current 24 percent of GDP, matched only by FDR during WWll.
The proposal offered by Boehner endorsed a 10-year plan, including $800 billion in new tax revenues, $600 billion in health savings, another $600 billion in a combination of “mandatory” and “discretionary” savings, and a revision of the Consumer Price Index (CPI) used to calculate future Social Security benefits that would save another $200 billion. Such savings total $2.2 trillion. It was a genuine compromise, as evidenced by the reality that it irritated many Republicans.
In his letter, Boehner explained the rationale for such a plan. After noting that the election essentially maintained the status quo of a Republican House, along with a Democratic Senate and presidency, Boehner contended that “the American people rightly expect both parties to come together on a fair middle ground and address the nation’s most pressing challenges.” He further emphasized that the plan Obama submitted to Congress last week was a re-hash of the president’s ”Plan for Economic Growth and Deficit Reduction,” submitted in September 2011. ”We cannot in good conscience agree to this approach, which is neither balanced nor realistic. If we were to take your Administration’s proposal at face value, then we would counter with the House-passed Budget Resolution [Paul Ryan's budget plan].”
Boehner then put the proverbial ball in the administration’s court. “This is by no means an adequate long-term solution, as resolving our fiscal crisis will require fundamental entitlement reform. Indeed the Bowles plan is the kind of imperfect but fair middle ground that allows us to avert the fiscal cliff without hurting our economy and destroying jobs. We believe it warrants immediate consideration.”
The administration did consider it — sort of. Senior administration officials contended the plan wasn’t serious enough to merit a counter-proposal. White House Communications Director Dan Pfeiffer claimed it “does not meet the test of balance. In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill.” He then reiterated the administration’s immutable demand. ”Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won’t be able to achieve a significant, balanced approach to reduce our deficit,” he added. CNN then laid out the administration’s real aims: “Senior administration officials said they are confident the public will blame Republicans and not the president if the United States reaches the end of the year without a deal to avert the fiscal cliff.”
With ample assistance from the mainstream media, that is virtually certain. But such thinking reveals an almost unprecedented level of cynicism. In effect, administration officials have admitted that what benefits Democrats politically trumps what benefits the nation. So much so, they are willing to let the country slide back into recession, as long as Republicans get blamed for it.
In an interview with MSNBC’s Andrea Mitchell, Rep. Tom Price (R-GA) revealed the disingenuousness of the administration’s insistence that taxing the rich is a panacea. “The president’s plan to increase taxes on the upper two percent covers the spending by this federal government not for eight years, not for eight months, not for eight weeks but for eight days. Eight days only,” said Price. “It’s not a real solution. So, again, I’m puzzled by an administration that seems to be more interested in raising tax rates than in gaining economic vitality.”
Furthermore, a usually reliable media is not marching in lockstep with Democrats. Politico’s Ben White called the GOP’s proposal “significant,” noting that it is “less fanciful than the original administration request, which included phony savings (the war wind-downs), a gratuitous fork-in-the-eye (unlimited debt ceiling authority) and some new stimulus (just to make GOP blood boil and warm liberal hearts).” Bloomberg’s Josh Barro also saw the cynicism expressed by the aforementioned senior officials, contending that “if the White House really is willing to risk an austerity crisis unless it gets its way on an unrelated policy matter — then the Obama Administration is as irresponsible as it often accuses Republicans of being.”
The Washington Post’s Robert Samuels laid it out even better. “Put Social Security on the table — clearly and irrevocably,” he writes. “Protecting retiree benefits is the left’s political equivalent of the right’s ‘no new taxes’ pledge. Congressional Republicans are abandoning their untenable position. Now it is time for President Obama and congressional Democrats to do the same. As long as they don’t, they aren’t bargaining in good faith, or in the national interest.”
Even Erskin Bowles, who insisted that the GOP plan was not representative of his efforts, or those of the Simpson-Bowles plan, called for compromise. ”Every offer put forward brings us closer to a deal, but to reach an agreement, it will be necessary for both sides to move beyond their opening positions and reach agreement on a comprehensive plan which avoids the fiscal cliff and puts the debt on a clear downward path relative to the economy,” he said in a statement.
The Congressional Budget Office (CBO) offers a sobering look as to why such an agreement is necessary. In 2012, non-interest federal spending totaled $3.25 trillion. $762 billion was for Social Security, $469 billion for Medicare, $251 billion for Medicaid, and $651 billion for defense. These expenditures account for 66 percent of the federal budget. Since the federal government borrows forty cents of every dollar it spends, America is already in the red financing just these four programs – and that’s before the bulk of the Baby Boomer generation retires, driving at least three of these costs far higher.
Interest payments on America’s outstanding debt are also part of the mix. In 2012 that payment was $359 billion, financed at record low interest rates of approximately 2.8 percent. The Federal Reserve claims it will keep interest rates at near-zero until 2014. Based on current rates of spending, the national debt will likely approach $20 trillion by then. If interest rates return to a historical average of 4 percent, a staggering $800 billion will be needed just to pay the interest on that debt. There is also the “unfunded obligations” problem. Unfunded obligations are promises the government has made to such entities as seniors, veterans and retired employees. By 2011, America’s unfunded obligations totaled $61.6 trillion.
In short, the idea that “taxing the rich” is a make or break part of any deal — even as entitlement reform remains off the table — borders on insanity.
Yet two realities are readily apparent. First, that insanity is ideologically driven. This was made clear during the 2008 Democratic primary debates, when ABC’s Charlie Gibson asked the president why he supported an increase in the capital gains tax rate, given a historical record that repeatedly shows the government losing revenue as a result. ”Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness,” he answered. This goes a long way towards explaining why the president would rather kill a deal than accept tax reform as a viable alternative for raising revenue.
If such “fairness” precipitates a recession–or worse–in 2013, due to an inability to reach a compromise? As long as Republicans get blamed, all is well. That Democrats as a party, or the president as an individual, see themselves as the ultimate arbiters of fairness–for the entire nation–demonstrates a breathtaking level of arrogance.
Second, whether they realize it or not, it is this combination of arrogance and fiscal irresponsibility that Americans re-empowered on November 6. Despite an election that reinforced the status quo, Obama and Democrats believe they were given a mandate, and that Republicans are nothing more than an inconvenient impediment in their efforts to transform the nation into a Euro-style welfare state, even if another recession is necessary to do so.
Finally, Americans need to realize that President Obama’s campaign pledge to raise taxes on “millionaires and billionaires” is really targeting individuals making $200K, and families making $250K — right now. Since that additional revenue would only run the government for eight days, the public might want to consider what other sources of revenue the president and his party will subsequently target. That is worth remembering when the definition of millionaires and billionaires is “revised” once again. Perhaps in the not-too-distant future, anyone earning $150K — or less — will be surprised find themselves on the “wrong” side of the Democrats’ never-ending class warfare campaign. They shouldn’t be. To paraphrase Willie Sutton, the middle class will be the next target because, “that’s where the money is.”
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I support Rand Paul's plan here 100%. Republicans need to realize they are being played for fools (as always) and grow a set of gonads. Sadly, I don't think John Boehner has any intention of doing this. He's too busy spouting meaningless rhetoric while he caves in to every Democrat wet dream. Sickening.
www.realclearpolitics.com/video/2012/12/06/sen_rand_paul_we_should_let_dems_raise_taxes_and_then_let_them_own_it.html
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Let's bring the tax policy issues of the most recent entries on Media Matters over to here.
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"By mid- 1955, the country had pulled out of the previous year's recession and gross national product was growing at a rate of 7.6 percent. The boom was so great that the budget for 1956 predicted a surplus of $4.1 billion. With the surges in production and the economy, the 1950s is often recognized as the decade that eliminated poverty for the great majority of Americans" (http://homepages.gac.edu/~jcullip/workexamples/mea.html).
How is that possible since the tax rates in the 1950's were the highest in history:
http://www.ntu.org/tax-basics/history-of-federal-individual-1.html
**As a history professor, can you think of any reason why things might be different now as opposed to 1955 on a geopolitical and economic basis?
Taxes didn't seem to kill the economy then. Taxes didn't seem to kill the inventive spirit of America then. Taxes didn't seem to lead unpatriotic people to relocate then.
**Ah, so if you wish to deprive the Looters and Moochers of your property, then you are unpatriotic? Interesting definition.
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http://online.wsj.com/article/SB10001424127887324705104578151601554982808.html
Peter Schiff: The Fantasy of a 91% Top Income Tax Rate
A liberal article of faith that confiscatory taxes fed the postwar boom turns out to be an Edsel of an economic idea
By PETER SCHIFF
Democratic Party leaders, President Obama in particular, are forever telling the country that wealthy Americans are taxed at too low a rate and pay too little in taxes. The need to correct this seeming injustice is framed not simply in terms of fairness. Higher tax rates on the wealthy, we're told, would help balance the budget, allow for more "investment" in America's future and foster better economic growth for all. In support of this claim, like-minded liberal pundits point out that in the 1950s, when America's economic might was at its zenith, the rich faced tax rates as high as 91%.
True enough, the top marginal income-tax rate in the 1950s was much higher than today's top rate of 35%—but the share of income paid by the wealthiest Americans has essentially remained flat since then.
In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%.
So if the top marginal tax rate has fallen to 35% from 91%, how in the world has the tax burden on the wealthy remained roughly the same? Two factors are responsible. Lower- and middle-income workers now bear a significantly lighter burden than in the past. And the confiscatory top marginal rates of the 1950s were essentially symbolic—very few actually paid them. In reality the vast majority of top earners faced lower effective rates than they do today.
In 1958, an 81% marginal tax rate applied to incomes above $1.08 million, and the 91% rate kicked in at $3.08 million. These figures are in unadjusted 1958 dollars and correspond today to nominal income levels that are at least 10 times higher. That year, according to Internal Revenue Service records, just 236 of the nation's 45.6 million tax filers had any income that was taxed at 81% or higher. (The published IRS data do not reveal how many of these were subject to the 91% rate.)
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.In 1958, approximately 28,600 filers (0.06% of all taxpayers) earned the $93,168 or more needed to face marginal rates as high as 30%. These Americans—genuinely wealthy by the standards of the day—paid 5.9% of all income taxes. And now? In 2010, 3.9 million taxpayers (2.75% of all taxpayers) were subjected to rates that were 33% or higher. These Americans—many of whom would hardly call themselves wealthy—reported an adjusted gross income of $209,000 or higher, and they paid 49.7% of all income taxes.
In contrast, the share of taxes paid by the bottom two-thirds of taxpayers has fallen dramatically over the same period. In 1958, these Americans accounted for 41.3% of adjusted gross income and paid 29% of all federal taxes. By 2010, their share of adjusted gross income had fallen to 22.5%. But their share of taxes paid fell far more dramatically—to 6.7%. The 77% decline represents the single biggest difference in the way the tax burden is shared in this country since the late 1950s.
The changes came about not so much by movements in rates but by the addition of tax credits for the poor and the elimination of exemptions for the wealthy. In 1958, even the lowest-tier filers, which included everyone making up to $5,000 annually, were subjected to an effective 20% rate. Today, almost half of all tax filers have no income-tax liability whatsoever, and many "taxpayers" actually get a net refund from the government. Those nostalgic for 1950s-era "tax fairness" should bear this in mind.
The tax code of the 1950s allowed upper-income Americans to take exemptions and deductions that are unheard of today. Tax shelters were widespread, and not just for the superrich. The working wealthy—including doctors, lawyers, business owners and executives—were versed in the art of creating losses to lower their tax exposure.
For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership. Huge numbers of professionals signed up for all kinds of money-losing schemes. Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss.
Those 1950s gambits lowered tax liabilities but dissuaded individuals from engaging in the more beneficial activities of increasing their incomes and expanding their businesses. As a result, they were a net drag on the economy. When Ronald Reagan finally lowered rates in the 1980s, he did so in exchange for scrapping uneconomical deductions. When business owners stopped trying to figure out how to lose money, the economy boomed.
It's hard to determine how much otherwise taxable income disappeared through tax shelters in the 1950s. As a result, direct comparisons between the 1950s and now are difficult. However, it is worth noting that from 1958 to 2010, the taxes paid by the top 3% of earners, as a percentage of total personal income (which can't be reduced by shelters), increased to 3.96% from 2.72%, while the percentage paid by the bottom two-thirds of filers fell to 0.51% in 2010 from 2.7%. This starker division of relative tax burdens can be explained by the inability of upper-income groups to shelter income.
It is a testament to the shallow nature of the national economic conversation that higher tax rates can be justified by reference to a fantasy—a 91% marginal rate that hardly any top earners paid.
In reality, tax policies that diminish the incentives and capacities of innovators, business owners and investors will not spur economic improvement. Such policies will, however, satisfy the instincts of those who want to "stick it to the rich." Never mind that the rich have already been stuck fairly well.
Mr. Schiff is the author of "The Real Crash: America's Coming Bankruptcy" (St. Martin's Press, 2012) and host of the daily radio program "The Peter Schiff Show."
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GM: Hat tip for an excellent pertinent find in response to BD's reference to the rates of the Eisenhower era.
I would add the matter of tax shelters as well. The higher the rate the more they make sense, hence when the Reagan rate cuts kicked in the number of "millionaires" increased dramatically. "Increasing concentration of wealth!" screamed the progressives. No, you fiscal illiterates, the wealth came out of hiding in the shelters because they no longer made sense and allowed itself to be taxed.
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BD,
What was JFK's position on taxes? Why?
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See my post from 11/2011 from this thread:
CW:
Thank you for your question.
I think it was Cong. Dirk Evertson or Cong Wilbur Mills (1960s?) who said "Don't tax you. Don't tax me. Tax that fellow behind the tree."
My knowledge in this area is given a boost by the fact that my step father made a goodly amount of money syndicating real estate tax shelters in the 1960s and 1970s. His business model was destroyed by the Reagan tax rate cuts of 1980-82.
The politician says to the poor ”Vote for me and I will tax the rich.”
To the rich he says “Don’t worry, it is all a charade. Give me money and support and I will provide shelters and loopholes for you.”
To the special interests he says “Give me money and support and I will funnel rich people’s money into your hands.”
I will use the 90% rate from 1950s that you cite. (President JFK proved the Laffer Curve before it had a name by increasing revenues by cutting the rate from 90 to 70%. Reagan took it down from there.)
The numbers are greatly simplified so as to clarify the concepts involved.
The first thing to understand, is that at a 90% tax rate, the income earner keeps 10 cents.
The next thing to understand is the concept of “non-cash expenses”-- for example, depreciation on a building. It requires no outlay of money, but is considered a cost. Thus under a 90% tax rate regime, a dollar of depreciation puts 90 cents of TAX FREE CASH into the hand of the taxpayer. Reflect upon this.
With this in mind, lets run through a hypothetical.
Lets say normally a building is given by the tax code 20 years to depreciate. Thus for a $10M building the depreciation (on a “straight line basis”) is $500K per year. If rents equal costs (mortgages, insurance, electricity, upkeep, employees, etc.) i.e. if the building is cash flow breakeven, for the 90% bracket taxpayer the building yields $450 per year because the building is counted as a “loss” of $500k.. (.90 X $500K=$450K). With me so far? If the taxpayer has bought the building with $1M (i.e. 10% down) he is out of pocket $100M (remember the IRS would have gotten $900k of the $1M) and he is getting to keep $450K tax free! Minus the $100K investment, in the first year he has $350K. In subsequent years, this goes up to $450 because he only had to make the down payment on the building one time.
Pretty bitchin’, yes? Isn’t it great sockin’ it to the 1%?
Now Congress gets into the act and says “We need to create more housing for the poor! Vote for us! Give us money!” Then they create ACCELERATED DEPRECIATION for projects that meet the specified criteria. Naturally the criteria tend to be strongly influenced by who is donating money to them.
AD came in various forms such as “double declining balance”, “sum of the years” digits, etc. Basically this means more depreciation in the early years, less depreciation in the later years.
For simplicity sake, let us assume that the early years yield double the depreciation of straight line depreciation (and this was roughly the case). Thus in the first year, the “loss” (remember, this is a non-cash loss) would be $1M and thus instead of $350K more, the taxpayer has $750K more cash in his pocket! ($350+$450=$750K). However due to the depreciation formula this $750 goes down a bit each year.
So what happens next?
Why he sells his building to someone else and buys another building and starts all over again in the sweet spot of the accelerated depreciation curve!!! The person who sold him the building does likewise!!!
But that’s not all!!! If it makes sense for them to do so (and this will be a function of the capital gains rate in relation to the income tax rate) they get to defer the gain on the sale of the building through Section 1031 (reduction of basis in the new building by the amount of the deferred gain)!!!
Isn’t taxing the rich to pay their fair share fun?
But “Wait!” you say “We must stop this!”
Best to batten down the hatches for the squalls of how mean and cold-hearted you are for opposing public-private partnerships on behalf of the poor (for whom the housing in question was “built”.
Don’t tax you. Don’t tax me. Tax that fellow behind the tree.
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This is roughly what I was going to write to add to Crafty's story but it was already posted by GM in the Peter Schiff piece:
"For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership."
That's right. Rich people knew how to take 'losses' that weren't cash losses and then keep all of what they made. What a sick, unproductive game it was. If the economy was good then, think how much better it could have been with an undistorted playing field.
The smartest guy from my class was a Yale trained lawyer who ended up working in employee benefit law for a utility company. No offense to him and his choice to be able to go home at a good hour and be with his kids growing up but what a loss to America that so many of the best and the brightest are out working in tax code and regulation compliance instead of inventing, innovating, creating, producing curing diseases and all of that. Why is there a law about employee benefits? Shouldn't it be legal to hire with them or without them? Why is it in the tax code? Why are there 18 pages in federal regulations just defining a full time employee? Why is it any of their business if you are full time or not? They should only have a right to tax a dollar of income at the going rate and otherwise let you be. That is not how it is.
The cost of the tax isn't the tax. It is the compliance time and cost too. It is the loss of productive activities from this whole industry set up to comply and to get around it. Worst of all it is the loss of the productive activities that never occur because of the excessive taxes or the excessive regulations. Because these costs are impossible to measure does not mean they don't exist, aren't huge and threatening to our economic survival and well-being. Besides the time the rich spend darting and weaving, 36% of our workforce doesn't even work. How heavy a load is that for the remaining workers to carry? Could there be a less efficient system? Yes. We are working on that right now.
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One other very important point:
If a lower rate like a 28% tax rate yields the same amount of revenue as a 90% tax rate, which one resulted in a larger national income?
Think about it - and do the math.
National income times the tax rate equals revenues to the Treasury, if income were really taxed at that rate.
Let's simplify and say a 90% tax rate brought in a trillion in revenues. The national income would only be 1.11 trillion at that level of taxation.
Now assume we lowered the rate to 28% and still were able bring in a trillion in revenues. That could come true only if income grew by three and half times. In this extreme example, take home income grows by 25-fold. Yet that is what the experts say is true. In many cases the lower rate brings in more revenue, but worst case we keep getting roughly the same revenue result no matter whether the tax rates is at 70%, 90% or 28%. If so, lock in the lower rate, and keep the change!
When candidate Obama admitted that dramatically higher capital gains rate won't bring in more revenues, he was admitting that the amount of capital gain income earned in the country would fall precipitously because of his spiteful tax rate hike.
Is this idiocy or is it treason?
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GM: Of course I can think of differences. So, then, are you suggesting that there is more to initiative than taxes? And, yet, sometimes you seem to make it that simple. Unless of course it doesn't suit you. Or to revenue? Or to loopholes? I can't tell.
"John Kennedy was no Ronald Reagan on taxes, despite what some conservatives might claim": http://www.usnews.com/opinion/articles/2011/01/26/the-myth-of-jfk-as-supply-side-tax-cutter. Make you address all the part of JFK's taxing views, not just the cherry picked ones.
"The tax code of the 1950s allowed upper-income Americans to take exemptions and deductions that are unheard of today. Tax shelters were widespread, and not just for the superrich. The working wealthy—including doctors, lawyers, business owners and executives—were versed in the art of creating losses to lower their tax exposure." So Romney, to choose but one famous recent example, had never heard of exemptions and deductions while he was paying taxes?
Doug: "It is the compliance time and cost too." I would have zero issue with flat taxes with clearly spelled out rules. I didn't know that was what we were talking about though.
Math? Now I am now a history professor.
Some quotes suggesting another view (JKR!!!)...
When there is an income tax, the just man will pay more and the unjust less on the same amount of income.
Plato
I pay a lot of tax, and I feel, one of the reasons I stay and pay why I'm not based in Monaco... I think my country helped me.
J. K. Rowling
"Taxes are the price we pay for civilization." O.W. Holmes
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Thanks Bigdog for challenging people here. Good points made. That said, I found the US News/Robert Schlesinger piece more muddled and cherry picked than the cherry picking he tries to refute. Yes all these Presidents at different times speak out of different sides of their mouths. As Schlesinger knows, they also speak through different speechwriters and audiences, as well as to different circumstances.
Schlesinger writes, perhaps in jest: "But if ever advocating a tax cut makes someone a supply-sider, then JFK joins the ranks of other conservative economists like Bill Clinton and Barack Obama (the tax cuts in the stimulus package, for example, were arguably the largest in history)".
The first part is a farce, he shows no awareness of a distinction between demand side and supply side thinking or policies. The difference may be subtle, but supply side policies aim at getting people to produce more and demand side policies aim at getting people to consume more. Obama's tax cut was explicitly demand side and he has been anti-production on so many other policies. JFK was eloquent on the supply side. All policies admittedly have an effect on both supply and demand.
Maybe JFK said privately to my old Prof Walter Heller that spending was what JFK wanted and the supply side tax cuts were Heller's, but publicly the supply side view is his, including spending restraint. What he would do in today's circumstance is unknown, but what he said here is not:
[youtube]http://www.youtube.com/watch?v=qmHdqWPB_S8[/youtube]
"It is a paradoxical truth that tax rates are too high today and tax revenues are too low - and the soundest way to raise revenues in the long run is to cut rates now.''
http://www.nytimes.com/1984/09/18/business/rationale-for-kennedy-s-tax-cut.html
Today we don't have marginal rates of 91% that apply to incomes over $30 million, but we have combined rates coming that are over 50, 60, 70% and apply to a wide range of people. The tax burden on the economy is higher today IMO.
It is good that JK Rowling is appreciative of what she received when in need and willing to give back in such large amounts. That does not mean the policy was helpful to the budget or economy of Britain. They repealed half the increase so someone must believe it they went too far.
Bigdog wrote: "I would have zero issue with flat taxes with clearly spelled out rules."
The beer summit, conducted long distance, has resulted in extraordinary agreement! :-)
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Peter Ferrara at Forbes following the discussion on the forum and filling in more details:
http://www.forbes.com/sites/peterferrara/2012/12/06/why-america-is-going-to-miss-the-bush-tax-cuts/
Why America Is Going To Miss The Bush Tax Cuts
President Obama seems to have a strategy to terminate all of the Bush tax cuts, not just those for “the rich,” as he has been saying since 2008. He is offering the Republicans exactly zero concessions in the “fiscal cliff” negotiations. No spending cuts, no entitlement reform, no compromise on the rates. It is entirely my way or the highway, and if the Republicans refuse to do everything exactly as he demands, he will let the Bush tax cuts expire entirely, for the middle class and working people as well as the upper incomes, and blame the Republicans for refusing to go along with him, and for the economic results.
It is a cynical game worthy of an undeveloped, third world country, not the United States of America. But this is just one more reason, with many more to come, for the American people to regret the mistake they made on Election Day.
Because so many major media institutions, like the New York Times and the Washington Post, have been so duplicitous and dishonest in discussing the Bush tax cuts, most Americans don’t know much about them, even though they have been living with them for 10 years or more now. Indeed, most of what they think they know is not true. But the American people will understand them better, when they see what life is like without them.
President Bush and his Congressional Republican majorities at the time cut taxes for everyone in the 2001 and 2003 tax cuts. Indeed, they cut more for lower and middle income taxpayers than they did for “the rich,” as Obama calls the nation’s job creators, investors, and successful small businesses. The top tax rate was cut by only 13%, while the lowest rate was cut by one-third, 33%.
According to official IRS data, the top 1% of income earners paid $84 billion more in federal income taxes in 2007 than in 2000 before the Bush tax cuts were passed, 23% more. The share of total federal income taxes paid by the top 1% rose from 37% in 2000, before the Bush tax cuts, to 40% in 2007, after the tax cuts.
In contrast, the bottom half of income earners paid $6 billion less in federal income taxes in 2007 than in 2000, a decline of 16%. The share of federal income taxes paid by the bottom 50% declined from 3.9% in 2000 to 2.9% in 2007.
The Bush tax cuts also included a doubling of the child tax credit from $500 per child to $1,000 per child. Because of that, and the 33% cut in the bottom tax rate, nearly 8 million more people dropped off the federal income tax rolls entirely, paying zero federal income taxes. Indeed, under the Bush tax cuts, the bottom 40% of all income earners not only paid no federal income taxes, as a group on net. By 2009, they were being paid cash by the IRS equal to 10% of all federal income taxes.
These Bush tax cuts did not explode the deficit, as Obama and his echo chamber have alleged. By 2007, the deficit was down to $160 billion, less than 15% of Obama’s deficits today. Total federal revenues soared from $793.7 billion in 2003, when the last of the Bush tax cuts were enacted, to $1.16 trillion in 2007, a 47% increase. Capital gains revenues had doubled by 2005, despite the 25% capital gains rate cut adopted in 2003. Federal revenues rose to 18.5% of GDP by 2007, above the long term, postwar, historical average over the prior 60 years. CBO was projecting surpluses to return indefinitely in 2012 through the end of its projection period in 2018.
Bush did increase federal spending as a percent of GDP by one-seventh, erasing the federal spending cuts enacted by the Republican Congressional majorities in the 1990s. But even with that, deficits during the Bush years averaged just 2% of GDP, one-third less than the average over the prior 50 years. President Obama’s deficits have averaged 5 times as much, at 9.1% of GDP.
The proof is in the pudding over the Bush tax cuts. They were followed by a record 52 straight months of job creation, producing 8 million new jobs, with the unemployment rate falling to 4.4%. Business investment spending, which had declined for 9 straight quarters, reversed and increased 6.7% per quarter, producing all those new jobs.
Because of that increased investment, labor productivity soared by 2.5% annually from 2003 to 2007, higher than the averages of the 1970s, 1980s, and 1990s. As a result, real after tax income per capita increased by more than 11%.
Manufacturing output soared to its highest level in 20 years. The stock market revived, creating almost $7 trillion in new shareholder wealth. From 2003 to 2007, the S&P 500 almost doubled. After the Bush tax cuts started in 2001, quickly ending the 2001 recession, the economy continued to grow for another 73 months. From 2000 to 2007, real GDP grew by more than 17%, meaning an additional $2.1 trillion for the American people.
This was mostly the opposite of what President Obama has produced, with his neo-Marxist Obamanomics, particularly unemployment more than twice as high, declining middle class incomes, soaring poverty, weak job growth, stagnant stock market values, collapsing business investment, and negligible growth in GDP.
Of course, the Bush tax cut boom was ended by the 2008 financial crisis. But as discussed in many previous columns, that was caused by the excessive overregulation of President Clinton’s home ownership promotion policies, creating the subprime mortgage market and the housing bubble, and by President Bush’s cheap dollar monetary policies. Obama’s foolish argument that the Bush tax cuts caused the 2008-2009 recession is so dishonest that abusive propaganda alone should disqualify him from office.
Obama’s gleeful termination of the Bush tax cuts will produce just the opposite results of those tax cuts. The combination of all the tax rate increases, along with Obama’s abusive overregulation, and the Fed’s continued mischief, will throw the economy back into recession next year. Unemployment will soar back into double digits, breaking the post depression record of 10.8%. The deficit will soar to over $2 trillion, setting new all time world records. The national debt as a percent of GDP will gallop past Greece.
Middle class incomes will plummet further. Poverty will soar to new all time records.
We can’t afford the Bush tax cuts, as Obama says? We can’t afford to terminate them. Over the past 45 years, every time the capital gains tax rate has been increased, capital gains revenues have declined rather than increased. Obama’s nearly 60% increase in that rate will have the same effect. After the Bush cut in taxes on dividends, dividends paid soared, and so did taxes paid on those dividends. Obama’s near tripling of that tax will have the opposite effect as well. Indeed, if the economy declines back into renewed recession, total federal revenues will decline rather than increase.
Obama’s ploy of blaming all of this on the Republicans will not work this time. The public knows the Bush tax cuts were adopted into law by the Republicans, with complete Republican control of Congress and the White House at the time. It will be too obvious that it took President Obama and his new neo-Marxist Democrat Party to let them expire.
Enjoy the new Obama recession. You and your neighbors voted for it.
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Thomas Sowell, Hoover Institute/Stanford Prof and author of dozens of great books including "Basic Economics" wrote a column a couple of weeks ago called 'An Overdue Book' http://townhall.com/columnists/thomassowell/2012/11/28/an_overdue_book/page/full/, referring to WSJ's Stephen Moore's new book "Who's The Fairest of Them All?: The Truth about Opportunity, Taxes, and Wealth in America" http://www.amazon.com/Whos-Fairest-Them-All-Opportunity/dp/1594036845
Sowell writes: "If everyone in America had read Stephen Moore's new book, "Who's The Fairest of Them All?", Barack Obama would have lost the election in a landslide."
...
The title "Who's The Fairest of Them All?" is an obvious response to liberals' claim that their policies are aimed at creating "fairness" by, among other things, making sure that "the rich" pay their "fair share" of taxes. If you want a brief but thorough education on that, just read chapter 4, which by itself is well worth the price of the book.
A couple of graphs on pages 104 and 108 are enough to annihilate the argument about "tax cuts for the rich." These graphs show that, under both Republican President Calvin Coolidge and Democratic President John F. Kennedy, high-income people paid more tax revenues into the federal treasury after tax rates went down than they did before.
There is nothing mysterious about this. At high tax rates, vast sums of money disappear into tax shelters at home or is shipped overseas. At lower tax rates, that money comes out of hiding and goes into the American economy, creating jobs, rising output and rising incomes. Under these conditions, higher tax revenues can be collected by the government, even though tax rates are lower. Indeed, high income people not only end up paying more taxes, but a higher share of all taxes, under these conditions.
This is not just a theory. It is what hard evidence shows happened under both Democratic and Republican administrations, from the days of Calvin Coolidge to John F. Kennedy to Ronald Reagan and George W. Bush. That hard evidence is presented in clear and unmistakable terms...
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The rich pay more when rates are lower. What today's Dems don't like is that in times of rapid growth the rich are also making more, and growing in numbers.
Charts from another article, link below:
(http://www.manhattan-institute.org/assets/images/ir_22f1.gif)
(http://www.manhattan-institute.org/assets/images/ir_22f2.gif)
(http://www.manhattan-institute.org/assets/images/ir_22f3.gif)
(http://www.manhattan-institute.org/assets/images/ir_22f4.gif)
(http://www.manhattan-institute.org/assets/images/ir_22f5.gif)
(http://www.manhattan-institute.org/assets/images/ir_22f6.gif)
(http://www.manhattan-institute.org/assets/images/ir_22f7-8.gif)
chart link: http://www.manhattan-institute.org/html/ir_22.htm
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translation from the original Arabic:
"In the early stages of the state, taxes are light in their incidence, but fetch in a large revenue...As time passes and kings succeed each other, they lose their tribal habits in favor of more civilized ones. Their needs and exigencies grow...owing to the luxury in which they have been brought up. Hence they impose fresh taxes on their subjects...[and] sharply raise the rate of old taxes to increase their yield...But the effects on business of this rise in taxation make themselves felt. For business men are soon discouraged by the comparison of their profits with the burden of their taxes...Consequently production falls off, and with it the yield of taxation."
Excerpt from 'Muqaddimah', by Tunisian Historian Ibn Khaldun, 1377
(Posted previously on 'Economics': http://dogbrothers.com/phpBB2)/index.php?topic=1023.msg16968#msg16968
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Doug, likewise I appreciate the ongoing discussion that is had on this forum. You know well that I too could paste graphs and tables and arguments. These would include many from peer reviewed economics journals that would take your posts to task. We both know, however, that no matter the evidence that I post, minds are not changed. This discussion began on the media forum with a post about how 6000 millionaires had left the UK. Despite the fact that there is zero evidence to that effect, with the front loading of revenue and the economic downturn, for example, leading to the loss of revenue, and hence NO REASON to run the story, there was a shift in the conversation to the Laffer curve. The Laffer curve has its critics, and as I posted Murray Weidenbaum himself has issues with strict adherence to that idea. That fact apparently doesn't resinate with those here. That's fine, but it leads me to wonder why not. I conclude that perhaps he is unknown on this board. And that is a concern to me.
As for the article I posted re: JFK. Perhaps it was the author's father, or given how his father was, perhaps the author himself overheard conversations that were less than public.
I do look forward to name dropping our former professors, though!!! If only I had known we were able to do that on this forum. Not quite the same thing, but I have had a former president compliment my beard.
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"This discussion began on the media forum with a post about how 6000 millionaires had left the UK. Despite the fact that there is zero evidence to that effect, with the front loading of revenue and the economic downturn, for example, leading to the loss of revenue, and hence NO REASON to run the story, there was a shift in the conversation to the Laffer curve."
Certainly a case can be made that it was all (really? all?) a matter of front loading (something which the Laffer Curve also predicts), but just as surely the results of decreased revenues and economic downturn are also precisely what the Laffer Curve predicts so I confess that the notion that there was "NO REASON" to run the story eludes me; quite the contrary! -- the decreased revenues and downturn are EXACTLY why the media coverate should have been there. Of course said coverage should also mention that some ascribe the decrease in revenues to forestalling and the (unbacked by data as far as I know) assertion that in a year or two it would all balance out.
"The Laffer curve has its critics, and as I posted Murray Weidenbaum himself has issues with strict adherence to that idea. That fact apparently doesn't resinate with those here. That's fine, but it leads me to wonder why not. I conclude that perhaps he is unknown on this board. And that is a concern to me."
The Laffer Curve says that at 0% tax rate and 100% tax rate, revenues are neutral and that at some rate, to be empirically determined, revenues are maximized. Does anyone disagree with this?!?
AS for the appeal to authority of Murray Wedenbaum, I am not a badly educated man about political economics but I confess that his name only rings a vague bell. By all means please refresh my memory!
As far as this goes:
"You know well that I too could paste graphs and tables and arguments. These would include many from peer reviewed economics journals that would take your posts to task. We both know, however, that no matter the evidence that I post, minds are not changed."
Well, certainly in most places minds being changed is a rarity :lol: but I would submit that it is a simple fact that the essence of the Laffer Curve is a simple truism and that there is also plenty data such as that posted by Doug, which backs up the theory with emprirical data so in the absence of something/anything to the contrary why should minds be changed on this point?
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1. The article was about 6000 people leaving the UK. They didn't. Why run the story?
2. "The" Laffer curve suggests that there is one. Proponents of the idea suggest that the curve depends on the economy.
3. Weidenbaum is searchable. And important.
4. But it isn't. See 2 here and econ journals.
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I thought the story was about a dramatic decline in revenues (and an economic downturn), apparently in response to a tax rate increase?
The Laffer Curve is a concept and a truism. As I stated, what the point of maximum revenues is, is an empirical matter. No doubt it varies according the various variables.
Weidenbaum: Since you ARE familiar with him, may I ask you be the one to give us a good URL or two?
"4 But it isn't. See 2 here and econ journals": Not sure to what you are referring here.
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I think the argument over the Laffer curve is about where we are on the curve and what the elasticity is at that point. Hopefully no one including Reagan's first chief economic adviser believes people produce full speed as tax rates approach 100% or that taxes have no effect on production.
Take one example, the federal capital gains rate max is pretty low at 15% - for 21 more days. If that were the only tax on capital gains (ignoring that state tax, federal corp tax, state corp tax and the inflation tax) lowering the rate might not increase revenues - from that tax. Some Republican candidates wanted capital gains tax rates droped to zero. That may bring in revenue from other taxes by spurring other activities like hiring and plant expansions, but 0% doesn't bring in more revenue - from that tax. My problem isn't the 15% tax or that 20% total would be too high, but that states tax capital gains as ordinary income. As the combined tax rate goes up, the number of people choosing to incur the tax goes down. What the revenues will do depends on the shape of the curve and where you are on it. Does that make sense?
An aside for a story attempting analogy: My old boss in the export business (a less famous former Prof of mine) used to explain to our manufacturers the following regarding product price strategy. He drew his own 'Laffer curve' and said that there is a perfect or optimum price for the product that maximizes revenues and profits and we can't know precisely what that perfect or optimum price is. If we set the price too high, we incur (and waste) all of the same marketing and sales costs but lose sales and miss out on these revenues. If we set the price too low, we have left money on the table, people were willing to pay more, but we bought market share and gained customers with our error. The strategy is to set the price as close as possible to the unknown optimum price without going above it. Same I think applies to taxation, though we have made it enormously and unnecessarily complex. We have all these costs of governing that we need to cover whether people produce or not. Some workers with fixed pay and fixed hours have no elasticity in production - no choice to work more, less, faster or smarter in response to whatever government or their employer throws at them. The rich most certainly do have options, as demonstrated in the UK story. That doesn't mean we should tax the rich lower or the same as paycheck to paycheck working people, but it means we need to be more aware of the likely responses to our policies as we design them. In general, the lower the marginal tax rate, the less incentive one has to change behavior to avoid the tax.
Dems like Obama think (or say) a 36% federal tax rate (plus 9-10% state in some cases) is no hindrance to productive activity and that bumping that up to 44.6% (+12.3 Calif) plus embedded tax, corporate taxes, etc is still no hindrance. Simple arithmetic will calculate the increase or decrease in revenue. They are wrong. (An admittedly close minded statement!) Bush's 1.6 or 3.9 trillion dollar tax cuts claim is a lie or amazingly naive untruth. Federal revenues grew by 44% in 4 years when they were fully implemented. Who knew? (Not the readers of the NYT front page or lead editorials. Not the viewers of CBS network news.) It was a percentage rate cut, but not a tax cut at all. It was a tax increase on the rich if we are measuring taxes in dollars.
The honest question or argument is how much will people in the aggregate, not one author, change their productive behavior, not whether the will make adjustments. If people don't change behavior to different circumstances, what is the point of studying economics?
The amount of change people make seems to always surpass expectations. That means the expectations were wrong, not the change. The change documented in the U.K. is phenomenal, even the part that was from frontloading.
"This discussion began on the media forum with a post about how 6000 millionaires had left the UK."
You mean 10,000 'left' and 6,000 stayed. The data tells a story that is true. 10,000 left that income bracket comparing one year to the previous. Some of the coverage of the data had statements that were false, saying or implying people physically left the U.K.
The so-called forestalling of the income implies the data exaggerates the phenomenon, but it is still part of the evidence that the rich have an amazing ability to make adjustments to their income producing behavior in response to different marginal tax rates. Timing of a taxable event is only one of the adjustments they make. As Crafty noted, we don't know that all those elective tax events, sale of an asset would have just happened later anyway, no matter the tax rate. It doesn't all come back because that wasn't the only thing going on. The UK became a worse place to make a productive investment. Regarding forestall, the velocity of these transactions, moving consumption, investment, hiring, construction and revenues forward (velocity of money) is crucial to revenues and economic well being. High tax rates slow things down. So do excessive regulations. So does uncertainty. When you slow things down, your income, tax revenues (and hiring) are all lower in any given period than they would otherwise be.
To doctors they say do no harm. Taxes do harm; tax something and you get less of it. One point of tax policy is to do as little harm as possible to raise the needed revenues. Our current strategy is the opposite. Do maximum harm and raise no new revenues.
The forestalling phenomenon supports my argument about the financial crash of 2008. People make investment and hiring decisions decisions today based on what they see coming tomorrow. The economy, especially employment, peaked around the Nov 2006 to Jan 2007 timeframe when Pelosi-Reid-Obama-Hillary-Biden-Keith Ellison and company were elected and sworn in to take the majority in congress. George Bush had two years left in office (divided government) and so did the tax rate cuts. By the fall of 2008, triggered by failed government intervention in housing, investors could see it was time to sell and capture any remaining gains and put money on the sidelines in the face of higher tax rates, a slowing economy and rapidly increasing excesses in regulations. The higher tax rates kept getting delayed but were always in plain view as tomorrow's tax rate on today's investment. The onslaught of new regulations with even more on the way (Obamacare!) were taxes in themselves.
Back to the U.K., one question would be - what revenue projections did their CBO (PBO?) make to foster the passing of these failed tax rate increases. Why do these 'experts' keep getting it wrong? How does it help in the US to keep information from the voters just because thoughtful analysis will be required to fully understand the implications. For whatever it means, the number of returns in the top bracket dropped 60% in one year precisely at the time of a significant tax rate hike. Revenues didn't rise less than expected year to year on the top bracket - they fell! Can we use that strategy again, forestall income every year by raising the rates for the next year, again and again? What could possibly go wrong with that? See the Laffer curve for the answer. Revenues approach zero as tax rates percentages approach 100.
Bigdog, my famous Prof name dropping from the big public university starts and ends with Heller, and it was Schlesinger who brought him up. I like to call one Supreme Court Justice Crafty's old Prof, (yours too perhaps). As a hockey player I'll take the assist for setting you up for the ex-President story. If it was ex President Hayes, Garfield or Benjamin Harrison who made the beard comment I will be all the more impressed. :-)
"I too could paste graphs and tables and arguments. These would include many from peer reviewed economics journals that would take your posts to task. We both know, however, that no matter the evidence that I post, minds are not changed."
Of course close mindedness is a problem, but all people here still want to have a better informed minds! Please post as time permits. I did not intend to overwhelm with so many charts telling roughly the same story. Just take the first one for example, re-posted below. What do you have, peer reviewed, that refutes this, that the rich pay more - in dollars or share of dollars of revenues to the Treasury, not percent of a diminished GDP - when the top marginal tax rate is lower? Looking forward to it.
(http://www.manhattan-institute.org/assets/images/ir_22f1.gif)
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http://www.nationalreview.com/articles/335317/embarrassing-metric-disappears-jim-pettit#
December 11, 2012 4:00 A.M.
An Embarrassing Metric Disappears
Why are government statistics on taxpayer migration being discontinued?
By Jim Pettit
As the din of America’s falling headfirst over the fiscal cliff reverberates across the nation, the Obama administration is quietly killing a key economic metric that tells how, and how many, people are voting with their feet. Since 1991 the Internal Revenue Service has been compiling statistics on filers’ addresses, which the agency’s Statistics of Income division uses to show who is moving into and out of every county and state in the nation. As you’d expect, the IRS also knows the aggregate income levels of those who move. So the movements of the most fundamental productive components of the economy — taxpayers — can be analyzed by journalists and economists, or could until now.The IRS and the U.S. Census Bureau (which provides technical support in reporting tax migration data) have not made an official announcement as to why the program is being discontinued. So we are left to speculate why such vital economic statistics suddenly got canceled.
Some would be glad if the IRS data simply went away. Blue states with high state and local tax burdens have come out looking bad in recent years. California and New York have been embarrassed publicly, as a steady exodus is underway from both.
Regarding California, the free-market Manhattan Institute for Policy Research concluded in September that “this exodus represents a huge reversal to established patterns of domestic migration, and suggests that the Golden State is no longer perceived by most Americans as the land where dreams come true.”
The think tank, which analyzed ten years of IRS data to show that California’s population is fleeing to Texas, characterizes the agency’s data as the “most useful tool” among sources identifying migration patterns. The public-policy ramifications of a declining tax base are clear, according to the Institute: Economic damage ensues when companies, fearing inevitable tax increases, get cold feet in jurisdictions with declining revenues.
Speaking of companies: The state of New York is running a high-profile ad campaign suggesting that businesses are coming back to the Empire State. Maybe some untold numbers are, but more telling is that taxpayers are leaving. In May, the New York Post published “Outgoing Income, Millions Flee New York’s Tax Burden,” whose lead was “New York state tops the nation in one key export — people fleeing high taxes.” The article cited the IRS tax-migration numbers, which the conservative Tax Foundation makes available in a web-based application that allows anyone to see easily how many taxpayers there are in each state.
The Post article, which found Florida to be the most popular destination for fleeing New Yorkers, spawned coverage on Fox Business News, where economist Arthur Laffer said: “You have two locations, A and B. If you raise taxes in B and you lower them in A, producers and manufacturers and people are going to move from B to A.” Media Matters, a liberal organization, responded with hostility, calling Laffer a “serial misinformer” who makes dubious claims supporting lower tax rates.
Change Maryland, an organization that has clashed with Governor Martin O’Malley, reported IRS tax-migration findings in July, determining that Maryland accounted for the largest taxpayer-migration exodus of any state in the region between 2007 and 2010, with nearly 31,000 residents having left. The report also identified Maryland’s key competitor in attracting taxpayers: Lower-taxed Virginia is now home to 11,455 former Marylanders, taking $390 million in taxable incomes during this three-year period.
After receiving widespread attention from prominent media, including National Review, the report’s findings prompted a personal, partisan political attack on Change Maryland and its founder, Larry Hogan, by the O’Malley administration.
While it remains to be seen what the official position of the IRS is, unofficially it is suggesting that the problem lies in coordinating with the Census Bureau. It is asking for comments on how people use the data and how important it is, presumably so that higher-ups at the agencies can reverse their decision if necessary.
The very idea of people voting with their feet is uncomfortable to some politicians. Fortunately, others realize the damage that a declining tax base causes and prefer transparency over attempting to delete statistics that reveal the problem.
— Jim Pettit, a communications and public-policy consultant, provides research services for various clients, including Change Maryland.
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Good catch of yet another Orwellian manuever GM.
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Barack Obama admits that he got the Bush tax cuts all wrong.
That's not how he would put it, of course—and it's plainly not what's being reported. Even so, President Obama's recent statements about the expiration of these tax cuts on Dec. 31 have put paid to the most widely accepted political slander of the past decade: that the Bush tax cuts rewarded the wealthy at the expense of the middle class.
That proposition simply cannot be reconciled with President Obama's latest position, which is that America's middle class will find itself hammered if Congress doesn't extend President Bush's middle-class tax cuts.
Here's how President Obama put it during a recent White House event with a group of middle-class Americans: Unless Congress acts, he said, "starting Jan. 1, every family in America will see their taxes automatically go up."
Related video.
Columnist Bill McGurn on the liberal fiction that Republicans gave away tax cuts for the rich at the expense of the middle class. Photo credit: Getty Images.
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He went on: "A typical middle-class family of four would see its income taxes go up by $2,200. That's $2,200 out of people's pockets. That means less money for buying groceries, less money for filling prescriptions, less money for buying diapers. It means a tougher choice between paying the rent and paying tuition. And middle-class families just can't afford that now."
To emphasize that these cuts are a big deal, he asked people to "tell members of Congress what a $2,000 tax hike would mean to you." He is now taking his message on the road, telling a group of Michigan auto workers on Monday that the end of the Bush cut would be "a hit you cannot afford to take."
In any honest universe, this would be news. President Obama says the middle class benefits mightily from the Bush tax cuts and cannot afford to see them expire. Which provokes a question: Where has our press corps been these past 10 years?
For most of that time, Democrats have been hollering that the only people to benefit from the Bush tax cuts were Bill Gates, Wall Street bankers, and the guy with the top hat and monocle who appears on our Monopoly sets. Now the same press that accepted, approved and amplified the "Bush tax cuts for the wealthy" trope leaves unchallenged a president who today tells us, oh, by the way, those Bush tax cuts are vital for America's middle class—and claims that the opposition to middle-class tax cuts proposed and put into law mainly by Republicans comes from . . . Republicans.
Perhaps the American people will accept this new Obama story line. If so, it will be because after years of assailing the GOP as the party of the plutocracy, this is the first time the American people have heard Mr. Obama or any Democrat in the party leadership concede that the Bush tax cuts benefited anyone save the über-wealthy. For the original complaint that Mr. Bush's tax cuts favored the rich over the middle class has morphed into the orthodoxy we know today: Tax cuts for the rich came at the expense of the middle class.
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Certainly this has been Nancy Pelosi's accusation. At various times the California Democrat has spoken of "Bush tax cuts for the super-rich," of Republicans "taking food out of the mouths of children to give tax cuts to America's wealthiest," of how Republicans were using "tax dollars paid by middle-class Americans" to pay for tax breaks for "millionaires."
Sen. Harry Reid of Nevada, Ms. Pelosi's counterpart in the Senate leadership, voiced a similar complaint. Republicans, he said, "drew up their program to benefit the very, very, very few and eliminate the majority from any"—yes, any—"benefit of these tax cuts." In November 2008, he described the Bush economy as "built on a foundation for eight years that basically just value tax cuts for the very wealthiest."
Candidate Obama banged that same drum in his bid for the White House. Early in 2008, he declared that "we owe it to" the middle class "to end the Bush-McCain tax cuts for the wealthiest 2% and put a tax cut into the pockets of the families who need it." Though Mr. Obama has always said he wants to keep the Bush tax cuts for the middle class, he has always been careful not to suggest that these amounted to anything more than peanuts.
Today we are told a different story. Today Mrs. Pelosi tells us the "clock is ticking" on the fate of the Bush tax cuts for the middle class. Today Sen. Reid tells us "it's really important that this holiday season the middle class is not going to be burdened with the thought that they may get a $2,200 a year tax increase." And today President Obama tells us that the Bush tax cuts put some serious money in the pockets of our middle class—a benefit they will lose if Congress lets the Bush tax cuts expire.
Don't expect the admission that the Bush cuts are vital to the middle class to provoke any challenges at the president's next press conference. Like the assertion that Republicans hate women, the GOP preference for tax cuts for the rich at the expense of the middle class has become accepted scientific fact. Even when President Obama himself shows just how wrong that is.
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Prescott and Ohanian: Taxes Are Much Higher Than You Think
The combined levies on labor income and consumer spending have seriously reduced the hours that Europeans work. The U.S. isn't too far behind..
By EDWARD C. PRESCOTT
AND LEE E OHANIAN
President Obama argues that the election gave him a mandate to raise taxes on high earners, and the White House indicates that he won't compromise on this issue as the so-called fiscal cliff approaches.
But tax rates are already high—much higher than is commonly understood—and increasing them will likely further depress the economy, especially by affecting the number of hours Americans work.
Taking into account all taxes on earnings and consumer spending—including federal, state and local income taxes, Social Security and Medicare payroll taxes, excise taxes, and state and local sales taxes—Edward Prescott has shown (especially in the Quarterly Review of the Federal Reserve Bank of Minneapolis, 2004) that the U.S. average marginal effective tax rate is around 40%. This means that if the average worker earns $100 from additional output, he will be able to consume only an additional $60.
Research by others (including Lee Ohanian, Andrea Raffo and Richard Rogerson in the Journal of Monetary Economics, 2008, and Edward Prescott in the American Economic Review, 2002) indicates that raising tax rates further will significantly reduce U.S. economic activity and by implication will increase tax revenues only a little.
High tax rates—on both labor income and consumption—reduce the incentive to work by making consumption more expensive relative to leisure, for example. The incentive to produce goods for the market is particularly depressed when tax revenue is returned to households either as government transfers or transfers-in-kind—such as public schooling, police and fire protection, food stamps, and health care—that substitute for private consumption.
In the 1950s, when European tax rates were low, many Western Europeans, including the French and the Germans, worked more hours per capita than did Americans. Over time, tax rates that affect earnings and consumption rose substantially in much of Western Europe. Over the decades, these have accounted for much of the nearly 30% decline in work hours in several European countries—to 1,000 hours per adult per year today from around 1,400 in the 1950s.
Changes in tax rates are also important in accounting for the increase in the number of hours worked in the Netherlands in the late 1980s, following the enactment of lower marginal income-tax rates.
In Japan, the tax rate on earnings and consumption is about the same as it is in the U.S., and the average Japanese worker in 2007 (the last nonrecession year) worked 1,363 hours—or about the same as the 1,336 worked by the average American.
All this has major implications for the U.S. Consider California, which just enacted higher rates of income and sales tax. The top California income-tax rate will be 13.3%, and the top sales-tax rate in some areas may rise as high as 10%. Combine these state taxes with a top combined federal rate of 44%, plus federal excise taxes, and the combined marginal tax rate for the highest California earners is likely to be around 60%—as high as in France, Germany and Italy.
Higher labor-income and consumption taxes also have consequences for entrepreneurship and risk-taking. A key factor driving U.S. economic growth has been the remarkable impact of entrepreneurs such as Bill Gates of Microsoft, MSFT +1.39%Steve Jobs of Apple, Fred Smith of FedEx FDX -0.31%and others who took substantial risk to implement new ideas, directly and indirectly creating new economic sectors and millions of new jobs.
Entrepreneurship is much lower in Europe, suggesting that high tax rates and poorly designed regulation discourage new business creation. The Economist reports that between 1976 and 2007 only one continental European startup, Norway's Renewable Energy Corporation, achieved a level of success comparable to that of Microsoft, Apple and other U.S. giants making the Financial Times Index of the world's 500 largest companies.
U.S. growth is currently weak, and overall output is 13.5% lower than what it would be had we continued on the pre-2008 trend.
The economy now faces two serious risks: the risk of higher marginal tax rates that will depress the number of hours of work, and the risk of continuing policies such as Dodd-Frank, bailouts, and subsidies to specific industries and technologies that depress productivity growth by protecting inefficient producers and restricting the flow of resources to the most productive users.
If these two risks are realized, the U.S. will face a much more serious problem than a 2013 recession. It will face a permanent and growing decline in relative living standards.
These risks loom as the level of U.S. economic activity gradually moves closer to that of the 1930s, when for a decade during the Great Depression output per working-age person declined by nearly 25% relative to trend. The last two quarters of GDP growth—1.3% and 2.7%—have been below trend, which means the U.S. economy is continuing to sink relative to its historical trend.
We have lost more than three years of growth since 2007, and our underachievement will continue unless pro-productivity policies are adopted and marginal tax rates are stabilized or lowered to prevent a decrease in work effort across the board. That means lifting crushing regulatory burdens such as those imposed by Dodd-Frank, and it means reforming immigration policies so that we can substantially increase our base of entrepreneurs by attracting the best and brightest creators from other countries.
Economic growth requires new ideas and new businesses, which in turn require a large group of talented young workers who are willing to take on the considerable risk of starting a business. This requires undoing the impediments that stand in the way of creating new economic activity—and increasing the after-tax returns to succeeding.
Mr. Prescott, co-winner of the 2004 Nobel Prize in Economics, is director of the Center for the Advanced Study in Economic Efficiency at Arizona State University. Mr. Ohanian, the associate director of the center, is a professor of economics at UCLA and a senior fellow at Stanford University's Hoover Institution.
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"Prescott and Ohanian: Taxes Are Much Higher Than You Think"
Good piece Crafty!
People need to combine the taxes and tax rates (and regulations) to accurately measure the damage.
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180 Economists oppose further tax increases:
"To best foster a strong economy, Congress should ultimately create a simpler system of taxation with a broader base and low rates on income and investment. Simultaneously, it should prioritize government programs and pursue entitlement reforms that bring the budget to sustainable balance."
http://www.ntu.org/news-and-issues/budget-spending/no-fiscal-cliff-tax-hikes-economist-letter-12-2012.html
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Sixteen Democratic senators who voted for the Affordable Care Act are asking that one of its fundraising mechanisms, a 2.3 percent tax on medical devices scheduled to take effect January 1, be delayed. Echoing arguments made by Republicans against Obamacare, the Democratic senators say the levy will cost jobs — in a statement Monday, Sen. Al Franken called it a “job-killing tax” — and also impair American competitiveness...
http://online.wsj.com/public/resources/documents/MedDeviceLetter12102012.pdf
Raising taxes to pay for healthcare kills jobs, puts even more people in need of healthcare. WHO KNEW??!
Delay them? The economic concept that excessive taxation kills off private employment won't apply later? How will they repeal THAT rule?
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Helping out Bigdog and in the interest of balance and full coverage on the board, this may be the study he was looking for, purporting to show that high tax rates don't impede economic growth.
As you might imagine, I see flaws in the study - and will follow up.
20 page pdf, concludes no appearance of correlation between the top tax rate and the size of the economic pie.
http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf
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Perhaps, Doug, and thank you for the aid.
Following up on the CRS Resport: http://krugman.blogs.nytimes.com/2012/11/03/the-ultimate-zombie-idea/
More Follow up on the CRS Report itself: http://www.politico.com/story/2012/12/dems-seize-on-re-issued-crs-tax-report-85067.html.
And, by the way, the Congressional Budget pretty much agrees: http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-08-12-FiscalTightening.pdf
"Laughing at the Laffer Curve": http://economistsview.typepad.com/economistsview/2012/06/laughing-at-the-laffer-curve.html
Or: http://blog.supplysideliberal.com/post/25998407302/mark-thoma-laughing-at-the-laffer-curve
Or: http://www.nytimes.com/2010/09/17/opinion/17krugman.html
Or: http://rricketts.ba.ttu.edu/Tax%20Rates%20and%20Revenues.htm
Or: Economists Agree: Tax Cuts Cost Revenue, http://www.usnews.com/opinion/blogs/economic-intelligence/2012/06/29/economists-agree-tax-cuts-cost-revenue---
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BD,
Let's boil this down to it's essence. Do higher costs effect behavior?
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I am in a hotel lobby in AZ at the moment and so must apologize for not having the time at the moment for reading BD's contributions. That said, I have been following the issue of tax rates for some thirty years now (beginning with Jude Wanniski's "The Way the World Works") and feel like I have been exposed to pretty much all the pros and cons along the way and so will endeavor a post without having read BD's posts yet (though I will read them when I get home for I do respect what he brings to our conversation)
GM's pithy question seems quite on point to me.
Ultimately all this seems to me as simple as the first graph we learn in microeconomics class-- the one showing supply and demand. When prices go up, so does supply. Of course when the government captures a portion of the price, the return to the supplier is less and hence supply is lessened. Of course the question presented, and it is one to be answered empirically, is at what rates is the effect de minimis, and at what rates are revenues maximized?
Whether rates should be maximized is a separate question!!!
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Good points already made. Of course costs affect behavior, and when you tax something you get less of it - to varying degrees. With half the country favoring tax increases, the burden is not on one poster to defend the merits of high taxes...
What did this study measure and how did they manage to miss basic truths - finding no link between disincentive and output?? And how is this study being mis-used by people like Paul Krugman, Chris Van Hollen and President Barack Obama to draw conclusions not studies or demonstrated?
First a reply to the Laughing at the Laffer curve series. It is a straw argument, Laffer did not say all tax rate cuts lead to higher revenues. They chart the opinions of 40 economists on a different question than we face today. The question today is tax increases, not tax cuts. But go to the source of the data and see that for 'Question A', only 8% of the same respondents disagree with the statement that tax cuts made today will grow the economy. That is the conclusion purportedly refuted in the Hungerford / CRS study, a pretty big contradiction, assuming the opinions of these economists is of significance.
Paul Krugman (former Economist?) writes a column called Conscious of a [Lying] Liberal where he gloats about the Hungerford revelation. When I read liberals, I look for two things, a lie or deception in the first statement and then a logic string where they build further on the foundation that was false in the first place. Krugman, referring to CRS, begins: "a report showing no connection between tax cuts for the rich and economic growth...". I read the entire study. It did not study tax cuts. It studied output as it correlates to the top, published marginal tax rate over very different times. When you study the most significant tax rate cuts, you get a very different conclusion.
Politico writes: "At the crux of the debate is the question of whether to increase tax rates for the wealthiest 2 percent of Americans." Really the question is whether you can raise taxes on only the wealthiest without hitting the rest of the people and without tanking the economy. Democrats in speeches claim with confidence that you can. Rep. Chris Van Hollen says the CRS report “put a stake in the heart of the Republican argument that small increases in the marginal tax rate for wealthy individuals somehow hurt economic growth. No it didn't say that at all. Another quote: "...a tax ONLY on the wealthiest among us. Folks like me", says Barack Obama who privately employs only his mother in law, implying it won't hurt anyone but the rich who can afford it. Democrats in peer reviewed work argue quite differently, see Romer and Romer (Christina Romer was chief economic adviser to Pres. Obama until this was published): http://elsa.berkeley.edu/~dromer/papers/RomerandRomerAERJune210.pdf "Our results indicate that tax changes have very large effects on output. Our baseline specification implies that an exogenous tax increase of one percent of GDP lowers real GDP by almost three percent."
So what are the flaws in Obama campaign donor, Thomas L. Hungerford's report, released right before the election? Asked more precisely, what exactly did it study? Did it study or demonstrate that if we raise the top tax rate today to 1950s levels, we will experience the growth rates of the 1950s, as inferred by former Enron adviser Paul Krugman? No.
From the report: "Data is analyzed to illustrate the association between the
tax rates of the highest income taxpayers and measures of economic growth. ...
Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. ... The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced."
The report does not look at causation whatsoever, the "65-year steady reduction" in tax rates is a falsehood, they did not study tax cuts and they made no study of tax rate increases, the question we face today. Instead they run a series of regression analyses looking for and not finding correlation between top published tax rate at different times and other measures like output.
Another way to do that would to study years that start with 195x and to compare with years that start with 197x. What would be wrong with that comparison? The obvious answer is that the top tax was lower but MANY other things changed. The data would show a better economy in the 1950s (with a higher top tax rate). It would not demonstrate, as Hungerford does not and cannot demonstrate, that output in the 1970s would be the same if top rates were 90% (1950s levels) instead of 70%, or if they were 35% (mid 2000s levels) instead of 70%. Why not? Different times and MANY different factors.
Bigdog acknowledged what Hungerford does not about different times, the 1950s for example: "Of course I can think of differences." But what was different economically about the 1950s that is not true today. My thoughts off the cuff: 1) The top tax rate then applied to almost no one so it is not a good measure of the burden of government. The top rate today hits the owners of the businesses that employ more than 50% of the people who work for small businesses, the sector that in good times creates most new job growth. 2) The overall burden of taxation was a LOT smaller then. 3) Businesses did not face anywhere near the same regulatory burden as today. 4) U.S. manufacturers faced very little foreign competition. 5) There was much less mobility of capital. Your choice was how to invest in America, not where to invest. Today investment is global. 6) Investors did not face the same uncertainty of tax rates, not shown in the numbers. The 1950s were relatively stable times. 7) State tax rates were lower, the combined burden of all taxation was much lower. And 8 ) Workers did not have the same options not to work in the 1950s as they had after the war on poverty began and expanded. If you built a business, workers would come. Today you face the competition of workers not taking work for pretty good pay and workers leaving the workforce in record numbers. Again not shown or measured in the study.
Is the top tax rate today the same as it was in 2003-2004? The Hungerford data says yes, but it's not true. For the rich it is the future tax rate that applies to business and investment decisions. Early in the full implementation of the Bush tax cuts, tax rates would stay at that level for as far as the eye could see and investors could rely on that. With the changeover of congress, then a new President committed to repeal coming, then the expiration date impending every two years for four years, investors and business owners have faced higher future rates for investments not shown in current rate data. For 2003 Hungerford takes the output out of recession in higher tax years, with no context or weight to the fact that investments being made at that time in response to the policy change would lead to revenues growing 44% in 4 years. Instead 2003 was just another dismal year to average out the peak years that followed.
A more useful study would be to isolate similar policy changes the best you can and study their effects.
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As a reminder, this discussion has morphed dramatically. I began this discussion in the Media Issues thread, when a post was made about why the US media wasn't covering this story: "The British press is abuzz with the notion that 10,000 millionaires left the country in the interim, and no doubt some did make for their chalets in Gstaad." As I noted, the probable reason why the story didn't receive consideration from the US media, except the Breitbarts, was because there was no story there. The claim that millionaires relocated to avoid taxes was false. The discuss was then morphed by someone (Doug, I think) then changing the story from the notion that these wealthy individuals had moved (literally) to saying that OF COURSE they had moved... from that millionaire tax bracket. That is NOT the same thing as was originally posited in the article mentioned in the post I originally responded to.
What I have done is to post position papers, blog posts and articles by profession economists calling your positions into question, because there is not a general consensus among professional economists that the positions that many of you support is correct. You can call those positions and studies into question all that you want (and Doug, I appreciate the time that you put into your very thoughtful, thorough posts... and the discussions elsewhere), but the fact remains that the effectiveness of the positions you extol is not as cut and dry as you believe.
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BD,
When we tax tobacco and Alcohol, we do so knowing taxes discourage that activity. So, when we tax economic success, we are doing what?
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http://hotair.com/archives/2012/12/17/depardieu-goes-galt/
Depardieu goes Galt?
posted at 8:51 am on December 17, 2012 by Ed Morrissey
Not exactly, although I love Instapundit’s headline. Going Galt means removing your talents from the world altogether until the world comes to its senses. The French film icon has instead decided to continue providing the world his talents, but for the future having a Belgian address from which to provide them:
Gérard Depardieu has said he is handing back his French passport and social security card, lambasting the French government for punishing “success, creation, talent” in his homeland.
A popular and colourful figure in France, the 63-year-old actor is the latest wealthy Frenchman to seek shelter outside his native country by buying a house just over the border in Belgium in response to tax increases by the Socialist president, François Hollande.
The prime minister, Jean-Marc Ayrault, described Depardieu’s behaviour as pathetic and unpatriotic at a time when the French are being asked to pay higher taxes to reduce a bloated national debt.
“Pathetic, you said pathetic? How pathetic is that?” Depardieu said in a letter to the weekly newspaper le Journal du Dimanche.
“I am leaving because you believe that success, creation, talent, anything different must be sanctioned,” he said.
The arguments in this dispute are very revealing. Depardieu’s critics in France are heaving volcanoes of emotion, tossing out accusations of unpatriotism and “pathetic” selfishness. Depardieu, on the other hand, offers the rational argument that (a) he has the resources to choose his tax regime, (b) he has no particular reason to fund Hollande’s socialist tax policies, so (c) he’s moving to Belgium.
To paraphrase from a movie in which Depardieu did not appear — it’s not personal, mon cher. It’s business. Except, of course, the French government wants to make it personal. They want to appeal to patriotism, as if anyone ever pledges allegiance to a tax code, precisely because they can’t win the argument on either rationality or business. Hiking taxes in France will do exactly what it will do in the US — force the wealthy who are already providing the lion’s share of income-tax revenue to decide whether to stay put, push capital into markets where it’s welcomed rather than punished, and drive revenues down instead of up when the economy declines as a result of both.
So no, Depardieu isn’t going Galt. He’s simply choosing a better market for his capital.
And one last question, prompted by the commenters in our Headline thread: What government in history has ever “asked” its citizens to pay taxes?
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http://taxprof.typepad.com/taxprof_blog/2012/12/the-states.html
States That Spend Less, Tax Less—and Grow More
Wall Street Journal op-ed: States that Spend Less, Tax Less—and Grow More, by Dave Trabert & Todd Davidson (both of the Kansas Policy Institute):
States with an income tax spent 42% more per resident in 2011 than the nine states without an income tax. States in the bottom 40 of the Tax Foundation's Business Tax Climate Index (which assesses business, personal, property and other taxes) spent 40% more per resident. In the American Legislative Exchange Council's Rich States, Poor States Economic Outlook (based on 15 policy variables), the bottom 40 spent 35% more than the top 10 states. ... [T]he states with no income tax, plus those included in the Tax Foundation and Rich States, Poor States rankings (18 in all) are quite diverse: large, small, coastal, inland, bordering Canada and Mexico, densely and sparsely populated. ...
States that allow taxpayers and employers to keep more of their earnings are reaping the benefits. States without an income tax have significantly better growth in private sector GDP (59% versus 42%) over the last 10 years. They increased the number of jobs by 4.9% while jobs in the rest of the states declined by 2.6%. States without an income tax gained population (+5.5%) from domestic migration (U.S. residents moving in and out of states) while all other states as a whole lost 1.3% of population between 2000 and 2009. ... The path to superior economic growth and job creation is clear.
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Warren Buffett Knows That Tax Rates Matter
The bond market shows that people focus on after-tax cash flows when making investments..
By CLIFFORD S. ASNESS
There are important questions we need to answer about taxes. How progressive or regressive? How should rates vary on different forms of income? How much of fixing our fiscal problems should come from raising revenue versus cutting spending? I have my opinions and you are entitled to yours. But some basic truths, old fashioned as it may sound, really aren't subject to opinion.
Nevertheless, in an effort to support raising taxes, particularly capital-gains taxes, and to head off the argument that such hikes would be a drag on the economy, billionaire investor Warren Buffett argued in a New York Times op-ed last month that tax rates don't matter to investment decisions. He wrote that if someone comes to you with a good investment idea, no one says, "If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent."
In the field of economics and finance you would be hard-pressed to find something more patently wrong.
Consider how every business-school student, investment banker and investment analyst on Earth has been taught to choose whether to invest in a specific project or company. You make a spreadsheet (a napkin will do sometimes). You put in your best guess of the future cash flows, and you discount those cash flows back to the present at some required rate of return you believe reflects the risk entailed. Of course, opinions about the future cash flows and the proper discount rate can vary widely, but the essential methodology is ubiquitous.
Now here's the kicker: Nobody who pays taxes and has ever done this exercise has failed (while sober) to use after-tax cash flows in this calculation. Somewhere in the spreadsheet there is a number, say 20%, or 28%, or a Gallic 75%, representing the taxes you'll pay on the assumed cash flow—and you only count the amount you'll get after paying this tax. If you turn the tax rate up high enough, projects or companies that looked like good investments become much less attractive and vice versa.
Mr. Buffett is undoubtedly right that rich people will continue to invest some amount in something regardless of the tax rate (except for a 100% rate!). He's also undoubtedly right that an investment that easily clears all hurdles will likely still be attractive after a small tax increase. But life, and the investment decision, occurs at the margin. Fewer and smaller investments will be made if the after-tax prospects are worse. It's just math and logic, unassailable and commonly accepted regardless of one's political persuasion.
Some recent commentators have actually tried to prove the illogic that Mr. Buffett merely asserts. They argue that if an investment was profitable at a 15% tax rate, it will still be profitable at, say, a 35% tax rate—just less so. Therefore investors will still go ahead with it. But here, as in so many things, the government doesn't play fair. It taxes gains, but losses are deductible only under certain conditions and circumstances. In finance-speak, the government grants itself a call option on your profits. This fact alone will make investments that were profitable at one tax rate decidedly not so at a higher one.
The bond market offers particularly compelling evidence that people focus on after-tax cash flows when making investments and that they will, contrary to Mr. Buffett's assertion, alter their investment behavior based on tax rates. The yield on tax-free municipal bonds is almost always considerably lower than the before-tax yield on taxable corporate bonds of similar risk. Despite his claim that taxes don't matter, we can be sure that Mr. Buffett would not hold corporate bonds in his taxable portfolio if, before taxes, they yielded only the rate on otherwise similar tax-free munis.
This sort of investment decision is just one example of how taxes affect our actions. Consider that George Lucas sold Lucasfilm Ltd., including the Star Wars franchise, to Disney DIS +0.79%this year at least partially to avoid a likely coming hike in the capital-gains tax. While Mr. Buffett is telling us taxes don't matter, here's proof that taxes are stronger than The Force.
Also consider the choice of where to retire. Opinions vary widely on how much state tax rates, high or low, affect this decision, but does anyone claim there is no effect? One simple visit to Florida dispels this misconception. When retirees choose Florida over California, it's not the heat—it's the progressivity.
I have great admiration for Warren Buffett as an investor. He has also been smart about minimizing his tax bill. From making sure his profit is in the form of long-term capital gains and not, for instance, dividends, to how he structures his bequests and charitable contributions, Mr. Buffett is perhaps our premiere national example that tax rates and tax structure affect people's investment decisions in a very real way.
Taxes matter. They matter to business and life decisions alike. They matter to the rich and to the poor. They are, or at least they should be, incorporated into nearly every financial decision made. Discussing tax policy without acknowledging this fundamental reality is bizarre. Actually asserting the opposite is willful ignorance.
Mr. Asness is the managing and founding principal of AQR Capital Management .
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Of Liberals and Loopholes
The current tax code favors high-tax states. .
One post-election budget surprise has been President Obama's resistance to John Boehner's proposal to get $800 billion in new revenue by closing tax loopholes. Here's one likely reason: the high tax rates of his blue-state Democratic brethren.
One of Mr. Boehner's ideas, taking a cue from Mitt Romney, would impose a limit on annual deductions. During the campaign Mr. Romney suggested a range for a deduction cap, anywhere from $17,000 to $50,000 a year, and many liberal pundits praised the idea on equity grounds.
Since the affluent tend to itemize their deductions more than do average taxpayers, and since the affluent pay higher marginal tax rates, they tend to benefit more from deductions. Ergo, limit deductions and you raise the effective tax rate (not the marginal rate) of the affluent. (The effective tax rate is the share of total income paid in taxes, while the marginal rate is the tax on the next dollar earned.) Such a reform would help tax efficiency and equity, and the economy would benefit from fewer investment distortions.
But suddenly liberals are having second thoughts, and our guess is that this is because residents of high-tax Democratic-run states are about twice as likely to take advantage of tax loopholes as taxpayers in low-tax states. For example, 44% of Connecticut filers itemize their deductions, but only some 21% of North and South Dakota residents do.
One tax writeoff in particular illustrates the point: the deduction for state and local income taxes. This allows a high-income tax filer who pays, say, $20,000 in state and local income taxes to deduct those payments from his federal taxable income.
Because the highest federal tax rate is 35%, the value of the state and local deduction is enormous for high-tax states. If President Obama succeeds in raising the federal tax rate to 39.6%, the value of those deductions rises to nearly 40 cents on the dollar. This deduction certainly eases the pain of New Jersey's 8.97% top tax rate, or Hawaii's 11%.
One pernicious effect, however, is to favor high-tax states at the expense of the nine states with no income tax and those with low rates. That's clear from looking at the IRS tax return data for the 50 states and the District of Columbia. In 2010, the deduction for state and local income taxes for all states amounted to $249.7 billion.
But here's the blue-state kicker: $51 billion of those writeoffs were claimed by residents of one state, California. And five liberal states—California, New York, New Jersey, Maryland and Massachusetts—accounted for about $121.8 billion. A mere five states accounted for nearly half the federal revenue lost from this tax deduction.
The inequity is especially stark if we compare this to states without an income tax. The average state and local income-tax deduction claimed per tax return in 2010 was $4,109 in New York and $3,819 in Connecticut. But the average Texan claimed only about $100, and the average Florida deduction was a mere $219. No wonder New York Senator Chuck Schumer opposes tax reform.
Residents of states without an income tax can also deduct some of their sales tax payments. But in 2010 those deductions only reduced taxable income for individuals in all states by $17.9 billion, and in Texas by $4.3 billion and Tennessee a mere $1.2 billion. State and local property taxes are also deductible from federal income tax, and those also tend to be higher in high-tax states. The nearby table illustrates how much more residents of high-tax states benefit overall from the state and local tax loophole.
We believe in federalism, and if affluent liberals want to pay 13.3% of their income to live in San Francisco, that's their foolish privilege. But it becomes everyone's problem if some of that tax burden is effectively borne by residents of Knoxville, Lubbock and Orlando because of the federal tax deduction.
To put it another way, when Californians voted to raise their top rate to 13.3% last month, they were voting to reduce revenue for the federal Treasury and thus increase the political pressure to raise tax rates on all Americans. The state and local tax loophole helps disperse and disguise the real cost of big government. As Mr. Obama likes to say, this is reverse Robin Hood.
All of which helps to explain what appears to be the ebbing liberal support for a tax reform that reduces rates in return for fewer deductions. Democrats in Congress once supported that kind of reform. But these days they tend to represent states with ever-higher tax rates that prop up state and local governments dominated by public unions that demand ever-higher pay and benefits. The resulting state tax burden would be intolerable if much of it weren't passed off on Uncle Sam.
Mr. Obama wants to raise tax rates, rather than eliminate deductions, so his fellow Democrats can keep raising state and local taxes without bearing the full economic and political cost. Tax equity and economic growth are the big losers.
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Note: This is aimed at the partisans in the White House, not in response to reasonable posts made here.
The tax cuts in debate now are the law of the land because of a bill that President Obama signed in compromise with a Democrat majority House and a Democrat majority Senate in December 2010.
The Bush tax cuts are way past their expiration date now.
These so-called tax cuts for the rich and for everyone else who pays taxes were passed by a Democrat majority House, a Democrat majority Senate and signed into law by Democrat President Barack Obama. They were nervous about putting the fragile economy back into recession and did not have the Democratic votes, even among the people who passed healthcare, to make this any worse. The growth rate then was slightly better than the growth rate now.
This was nearly 2 years after George Bush left Washington and a month before Republicans assumed majorities in congress.
The President announced his reasons for signing the tax cut bill: "My number one priority is to do what's right for the American people, for jobs, and for economic growth." President Obama said [these tax cuts] "will make a real difference in the pace of job creation and economic growth. In other words, it's a good deal for the American people."
http://tpmlivewire.talkingpointsmemo.com/2010/12/transcript-of-obamas-remarks-on-tax-cut-deal.php
That was true then. But not true now?
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BD,
When we tax tobacco and Alcohol, we do so knowing taxes discourage that activity. So, when we tax economic success, we are doing what?
Are you equating addictive drugs to economic success? That's pretty liberal.
What is the elasticity of economic success? Is it more or less than that of tobacco and alchohol?
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I'm not GM but until he steps in I'd like to take a swing at that one.
The point is that the point of taxing alchohol and tobacco is to discourage their use. The question presented is then why the same people do not realize that taxing work, profit, and success has the same effect?
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I'm not GM but until he steps in I'd like to take a swing at that one.
The point is that the point of taxing alchohol and tobacco is to discourage their use. The question presented is then why the same people do not realize that taxing work, profit, and success has the same effect?
Does it? And if so, why? Most people can do without a post work drink. If one is driven by an "economic success" goal, then even would they stop trying? Or, are they not as goal driven as I am being led to believe?
And there is a big difference between what is being compared here. I've heard many more people say they want to be "rich" when they grow up than a 2 pack a day smoker.
Again, what is the elasticity of a "good" versus a goal?
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I get the point about elasticity BD-- in a sense it is what the Laffer Curve says :lol: i.e. that there is a rate which maximizes revenues.
As best as I can tell though, and I say this without condescension, what you are not getting is that ultimately your argument denies the basics of supply and demand. other things being equal, the greater the price the greater the supply and the less the demand.
If the price I get for Job Y is $X and the government takes 25% I get $.75X. If the government increases that to , , , lets choose a random number here, say 39%, then I get $61X for the same work. O the whole it seems to me an obvious truism that less people will be willing to do Job Y for $.61X than will be willing to it at $75X. The principle is the same when the cost of something (e.g. alcohol and tobacco) goes up. People will buy less of it at the higher price.
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Good arguments all of you. I can't resist adding: my answer is yes and yes.
To the comparison of cigarettes and economic success, yes - the tax on success is being sold as a sin tax, and yes we are seeing less of it. If you reject the idea that being driven to succeed is comparable to smoking two packs a day then welcome to our side! Tax it and you will get less of it.
I keep posting (unrefuted) that startups are happening now at a record low rate in history.
I also see regulations as a bigger tax than taxes and corporate taxes in America as highest in the world. So take regulatory burdens, federal individual taxes, state individual taxes, federal corporate taxes, state corporate taxes, the uncertainty of it and all the other taxes like commercial property taxes and add them all together when you make the calculation of why people aren't starting up new startups and why they aren't expanding the businesses they already have. When you combine these, Crafty's number of 61% is more like having 30% to keep or re-invest. And a 70% reason to not reinvest. Add in the elements of risk, that most of these ventures fail, and you get one mathematical conclusion: don't do it.
The best economic indicator I ever read I can't find right now, goes something like this. We need to start in this country every year at least 130 companies that will someday grow to become billion dollar companies employing at least a thousand people. One man companies like myself are great but they sadly never amount to much and don't turn around national economies. We aren't starting real companies right now which means we are looking at a generation of economic disappointment ahead.
In a good economic climate, success of a startup is a leap of faith, the deck is stacked against you with a myriad of risks that can go wrong. In this climate it goes from improbable to you've got to be kidding. Odds of failure are near 100%. If you succeed you will be demagogued and your winnings will be confiscated. Explain that to the wife or husband, why you are going to work 16 hour days 7 days a week in the early years to get it all going and walk away with nothing more than what a good civil servant makes.
I posted a while back that one of my buddies did that, started a company from scratch in 2002, built it up, it took 6 years to show any profit. That's a lot of perseverance - believing that it's worth it. They took the company public, made it the best in the world in their product segment, and sold it for a billion dollars in 2011. http://en.wikipedia.org/wiki/Dell_Compellent Try doing that now. What is he doing now? Not another startup! His politics may be JK Rowling but his action is - I'm not going through that again.
Instead of demagoguing and punishing success, the best thing we could do for our economy is treat the successful with some semblance of equal protection under the law and hope they keep doing what they do for as long as they can!
How many people like that are there in the country? Bill Gates, Steve Jobs, etc. I know one guy with that capability and most people know no one who can do that. Pres. Obama calls them the wealthiest among us and say get them stopped. We need enough great entrepreneurs to step forward every year and dedicate themselves to innovation on a new idea and are committed to building it up to make one more American success story. It takes thousands trying to get a hundred to succeed. But why should they?
If your whole focus in life is the public sector, public spending and giving to those in need, we still need a vibrant private sector to fund that.
The problem isn't just in America. In Japan they had Canon and Honda and Toyota and a few others that became phenomenal companies. What would their economy be without them and where are the new Hondas and Toyotas building new empires in new industries? Few and far between. I'm sorry but an economy that cannot replicate success is a failure.
High marginal tax rates don't kill off wealth already accumulated, they kill off the spirit of building new wealth. The evidence is all around us. Why are we so willing to shoot down entrepreneurs before they get started? I will never understand.
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A small story of importance to me because it is mine.
I had an opportunity to become THE representative of a gun accessories company in a NATO nation owned by a friend who is completely friendly to the US. Unfortunately the minimum annual tax (and this would come on top of the minimum CA corporate tax of $900) was $3000. Even though I would only be selling domestically (so as to avoid the super strict export regime) I had to pay the export tax!!! In other words, throw in some transaction costs and before I would make a penny I would be out $4,000! Every year! Add in VERY large taxes/fees/licenses per transaction and the fact that I had no idea how much business the company would do, and I simply saw no way I could take the risk of going into what would have and should have been a nice little sideline business that I could have grown over time. No way I could commit to $4K a year when the business might not have made even that, not to mention the value of my time.
Martial arts is a very, very tough way to earn a living and at the age of sixty developing a sideline business surely would have made sense, but thanks to high tax rates it would have be foolish of me to try.
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Thank you for sharing your story.
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Interesting to note that Democrats opposed cutting the rates that will now be re-imposed if there is no deal - and they will blame Republicans for the increase.
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The Reps are so incompetent. Boener needs to be replaced, perhaps by Paul Ryan.
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RAHN: Obama’s hidden-tax heist
Fed policy erodes productivity gains
By Richard Rahn
The Washington Times
Monday, December 24, 2012
How is it possible that the government can spend almost twice as much as it takes in without having high inflation? The fact is that over a long period of time, it can’t. In the short run, which can be a few years, the government can paper over its fiscal irresponsibility by expropriating most of the productivity gains in the private sector through regulatory and central bank actions. This is precisely what has been happening in the United States.
The reason real, after-tax, per capita incomes have been able to increase year by year for most Americans for the past two centuries is that productivity has been growing — that is, the amount of goods each worker produces per hour has risen steadily. The reason productivity rises is that workers tend to be better trained, the amount of productive capital per worker rises, and there is a steady flow of innovation, which reduces costs and improves goods and services.
To understand productivity growth, look at the advances of farm and construction machinery — which enable one worker to do more, better and with greater safety. Wal-Mart, Amazon and FedEx have made amazing developments in reducing distribution costs by instituting better equipment and systems. Magnify these individual company and industry gains throughout the economy, and the result is a steady national gain in worker productivity.
Over the past few decades, worker productivity growth has averaged more than 2 percent. Most of this gain eventually ends up in worker paychecks, with some being siphoned off to support people who are not working and pay for various government schemes. Even so, for the quarter-century preceding 2007, after-tax, real (inflation-adjusted) per capita, disposable income grew at about 2 percent per year.
Since 2007, worker productivity growth has slowed, in part because of the lack of new investment. The big change has been that real, per capita, disposable income has slowed sharply since the end of the recession, being less than 1 percent per year, which has yet to make up for the 3.64 percent loss in 2009. By contrast, in the three years after the end of the Reagan recession in 1982, real, per capita, disposable income grew by almost 4 percent per year.
The recent gains in productivity growth have been taxed away by government. The increases in taxes are all non-legislated taxes, largely invisible to most people. First, there is the inflation tax imposed by the Federal Reserve, which currently taxes away about 2 percent of the purchasing power of the individual’s money each year. There is nothing new in this tax; the Fed has been in the business of creating inflation since it was formed in 1914.
What is new is the big tax on savings, again imposed by the Fed. By artificially holding down interest rates to lower-than-expected real market rates, the Fed is, in effect, expropriating interest income (an implicit tax) that savers normally would be expected to enjoy. This interest manipulation enables the government to fund its debt at less than what would be real market rates at the expense of savers, making the deficit appear much smaller than it really is.
There also has been huge growth in the unseen “regulatory tax” over the past four years. A regulatory tax is the cost of regulation imposed on the productive sectors of the economy when the costs of the regulation exceed the benefits. The Obama administration continues to ignore legislative mandates, both on comment periods and cost-benefit analysis, for the tidal wave of new regulation that is hitting businesses — and individuals.
The Fed also imposed the hidden tax of capital allocation as a result of its artificial low-interest-rate policies. Simply put, large institutions with strong balance sheets or companies that have been designated “too big to fail” (a few major financial institutions) can obtain all the loans they want at virtually zero interest. Smaller companies, particularly new ventures, are being restricted in their ability to get funds because of all the new regulations supposedly designed to reduce risk. Those regulations have the same effect as imposing a high tax on smaller firms and startups — which also happen to be the big job creators and innovators. In effect, we have created a system in which small, innovative firms are being “taxed” to subsidize large or government-favored enterprises.
Despite the fact that the government (including the Fed) has managed to heist almost all of the private sector’s productivity gains through hidden taxation, the amount of continued deficit spending is too great to avoid a future great inflation. The Obama administration has made it clear that it is not serious about reining in spending. Its tax-increase proposals would not fund the government for more than a few days at most and would do real damage to the economy. The Republicans, rather than being unified and insisting on ending this scam, which they could do by refusing to vote for all of the spending, seem to be content to slightly slow the rate of the nation’s fall.
The bleak outlook is that most Americans can expect a continued decline in their real, after-tax incomes. History shows that at some time, the monetary bubble will burst. The longer the Fed continues to mask what it is really doing, the bigger the bust will be — only the exact day of reckoning is uncertain.
Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.
Read more: http://www.washingtontimes.com/news/2012/dec/24/obamas-hidden-tax-heist/#ixzz2GAbt4JJh
Follow us: @washtimes on Twitter
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http://www.washingtonpost.com/business/fiscal-cliff/democrats-now-pushing-for-tax-cuts-they-once-opposed/2012/12/25/bc318a84-4df4-11e2-950a-7863a013264b_story.html
a remarkable turnaround for Democrats, who had staunchly opposed the tax breaks when they were written into law about a decade ago. - WashPost 12/25/12
Where have we seen that before?
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg68596#msg68596
"Interesting to note that Democrats opposed cutting the rates that will now be re-imposed..." - 12/21/12
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Obama's Tax Bill Comes Due .
Article Comments (60) more in Opinion | Find New $LINKTEXTFIND$ ».
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The headlines say the Senate has passed a bill to avoid the tax cliff, hallelujah. This is the way to look at it if you have a pre-Copernican view of politics where Washington is the center of the economic universe. The better way to see it is that the tax bill on the private, productive part of the economy is now coming due for President Obama's first-term spending and re-election.
The Senate-White House compromise is a Beltway classic: The biggest tax increase in 20 years in return for spending increases, and all spun for political purposes as a "tax cut for the middle class." But taxes on the middle class were only going up on January 1 because the politicians had set it up that way, manufacturing a fake crisis. The politicians now portray themselves as scrambling heroically to save the day by sparing the middle class while raising taxes on small business, investors and the affluent.
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The nearby table shows the taxes that are going up this year. The best that can be said is that Senate Republicans managed to moderate the increase in the death tax from what it would have been, and to spare some upper middle-class families from even higher taxes by raising the income threshold for the new 39.6% top rate. But even those families will still see their taxes raised because couples making more than $300,000 will begin to have their deductions and exemptions phased out as their income rises.
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The bill also makes most of the tax provisions (including a fix to the Alternative Minimum Tax) permanent, which removes some uncertainty from business and investment decisions. So much for the good, or shall we say the less bad, news.
On the other hand, the tax rate on capital gains will rise to 23.8% (including the 3.8% ObamaCare surtax), the highest rate since 1996, and at a time when business investment is mediocre. This contrasts with countries like Singapore and the Netherlands that compete with the U.S. for capital and have a capital-gains tax rate of zero.
The estate tax deal is a reprieve only compared to the 45% that Mr. Obama wanted and the 55% that would have hit without a deal. Republicans still had to agree to a rate increase to 40% from 35%, and the $5 million exemption is a pittance for 50 years of work and thrift.
After paying a lifetime of taxes on wages and salaries, business and farm profits and capital gains, Americans who save their money rather than spend it get the reward of giving 40% to Uncle Sam. As a political matter, the GOP also gave a big break to Democratic Senators running in 2014 who would have had to defend the 55% rate.
As for small business, the overall tax increase this year is substantial. The new listed top rate of 39.6% doesn't include the phaseout of deductions that will take the actual rate to 41% or so for many taxpayers. Add the ObamaCare surtaxes on investment income (3.8%) and Medicare (0.9%), as well as the current Medicare tax of 1.45% (employee share), and the real top marginal tax rate on a dollar of investment income from a bank savings or money-market account will be about 46%. Throw in state taxes, and the marginal rates in many places will be in the mid-50%-or-higher-range.
Meanwhile, even as Democrats claim these tax rates won't matter to investment, Senators stuffed their bill full of tax subsidies for special business interests. The wind tax credit survived (cost: $12.1 billion), and so did the tax breaks for cellulosic ethanol ($59 million) and the impoverished producers of Hollywood ($248 million).
Mr. Obama said on New Year's Eve that he wants to pursue "tax reform" this year, but the Senate-White House bill is a walking repudiation of the concept. It's especially embarrassing that Republicans went along with this, given their 2012 campaign support for fewer loopholes in exchange for lower rates. We trust the CEOs who pushed for these special-interest provisions realize they can kiss goodbye their hopes of reducing the 35% corporate tax rate any time soon.
Keep in mind that this entire exercise was also supposed to promote "deficit reduction." But the bill's special-interest favors give away much of the alleged new tax revenue of $600 billion over 10 years, which is surely an overstatement as the rich change their behavior to avoid the higher rates.
In any event, this bill increases spending by at least $30 billion by extending extra jobless benefits for another year. It also postpones for two months the automatic spending cuts that were set to begin this week, so in February we can all witness the delights of another phony showdown that will result in more phony deficit reduction. Maybe they can combine those with a phony debt-limit fight too.
The private economy is growing, so perhaps it can absorb these tax shocks and keep moving. The tailwinds from the housing recovery and oil and gas revolution are helping, and the stock market is rising on a tide of easy money. But the higher rates will make the U.S. less competitive and keep growth slower than it might have been. As we learned in the 1980s and 1990s, faster growth than the anemic Obama recovery is the only real way to reduce deficits.
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If there is a silver lining to this fiasco, it is that this may be the high-water mark of Mr. Obama's redistributionist tax agenda. The President has had unusual leverage over Republicans because he just won re-election and because taxes were going to go up even if they did nothing. The GOP wanted to avoid the blame for not sparing the middle class from the higher rates.
But we hope the GOP has learned, after two failed attempts, that Mr. Obama is not someone with whom it can do a "grand bargain." Even as the Senate deal was taking shape, Mr. Obama gave a speech literally taunting Republicans for agreeing to raise tax rates. He also made clear that the price of any future spending cuts or entitlement reform will be another tax increase. He doesn't want to reform government. He wants to expand it and destroy GOP opposition to his agenda in the bargain.
Whether or not the House today passes this Senate special-interest heap, Speaker John Boehner should from now on cease all backdoor negotiations and pursue regular legislative order. House Republicans should pursue their own agenda and let Mr. Obama and Senate Democrats pursue theirs. Mr. Obama has his tax triumph. Let it be his last.
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http://thehill.com/homenews/senate/275101-senate-fiscal-cliff-deal-in-trouble-in-house
http://www.tnr.com/blog/plank/111527/is-fiscal-cliff-deal-good-biden-mcconnell-obama-boehner-bush-tax-cut-debt-ceiling#
http://reason.com/archives/2013/01/01/to-revive-the-economy-cut-federal-spendi
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"To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it." --Thomas Jefferson
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"To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it." --Thomas Jefferson
Can you imagine a leader today with a thought that deep? Now we have the Choom gang setting the course.
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[Overtaxing the rich] "hurts aspiring Americans more than it hurts those who have already made it."
This is a very important point that I wish had been made persuasively by Romney, House Republicans, and those who will follow.
This deal is almost all about taxes. The Republicans will have another chance to cut spending, if they even want to, at the edge of the debt ceiling. Malpass is right, after we don't cut spending or reform entitlements, it is just more debt and more taxes forever.
One important piece of the deal that may never have been otherwise corrected is the estate tax. When we surrender all we ever earned and saved, even at death, we have lost.
The highest federal tax rate including surcharges is now 44-46%. In a high tax state that means approaching 60%. Combine the cost of regulations and you might as well round it to 100.
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David Malpass: Nothing Is Certain Except More Debt and Taxes
The Senate fiscal-cliff bill still means higher taxes on every working American. So much for just going after 'the rich.'
By DAVID MALPASS WSJ excerpt
Whatever ultimately emerges from the fiscal-cliff negotiations over the past 48 hours, the country will survive. But the damage can't be undone. Taxes are going up for all working Americans. And so is the size of government.
Businesses have been waiting to see whether a second Obama administration will encourage the economy. During the fiscal-cliff negotiations, however, the president made clear that his goal isn't to get business going again but instead to expand government and redistribute income. He offered no real spending cuts and instead used the year-end deadline to divide America into classes—to the point of campaigning on New Year's Eve against higher earners. Though the president talks about fairness, his policies penalize profit and investment. This hurts aspiring Americans more than it hurts those who have already made it.
The deal that emerged from the Senate early Tuesday morning is being sold as a tax cut for the middle class, but the expiration of the two-percentage-point payroll tax holiday means that working Americans' take-home pay will drop. The bill reduces the value of tax deductions for upper incomes and, with the new open-ended 3.8% Medicare tax that was enacted under ObamaCare, income-tax rates on families and small business owners earning over $450,000 have been pushed above 44%.
The Senate bill makes the tax code more complex, provides for no spending cuts and creates four deadlines—for the debt-limit increase within weeks, the March 1 automatic spending cuts known as the sequester, a second sequester on March 27 (to make up for overspending since the first sequester) and the March 30 expiration of government spending authority. These deadlines will keep Washington negotiations on the front page for months but with little likelihood that government will cut programs, sell assets or downsize the 1,300 federal agencies and commissions.
No wonder many House Republicans balked at what was presented. The New Year's Day legislation is breathtaking in its largess. The Senate bill extends 52 tax credits, mostly for one year, ensuring huge annual lobbying fees and political contributions. Section 206 provides a juicy capital-gains tax exemption for contributions of property for conservation, meaning wealthy environmentalists with extra acreage will be able to take a tax deduction for the appreciated property and have the environmental organization preserve it, adding to the value of the primary property. Section 312 provides faster tax deductions for "motorsports entertainment complexes." Section 317 allows expensing of film and television productions, meaning lower taxes for Hollywood.
The bill devotes much space to tax credits for government-approved energy schemes, providing taxpayer subsidies for energy-efficient new homes, existing homes, appliances, cellulosic biofuel and "Indian coal facilities." Underscoring the complexity of the tax code, the bill takes seven pages to index the alternative minimum tax for inflation because it takes side trips to curry favor with the owners of plug-in electric vehicles and with first-time home-buyers in the District of Columbia.
The pattern across the developed world is for politicians to negotiate with each other and, after much drama, make the brave decision to downsize jobs through taxes and mandates rather than downsizing government. This country is no different: Whatever tax and spending decisions Washington makes over the next few months, the likelihood is that government will be bigger in 2013 and the fiscal problems even more urgent.
There has emerged from the budget negotiations no process to cut government programs, limit the debt or reform the tax code. Many tax rates have now gone up and almost no spending restraint has been implemented, hurting 2013 investment and hiring. Even if the spending sequester is allowed to proceed on March 1 or substitutes are found, the cuts will be a small fraction of the spending binge in recent years that left a string of $1 trillion deficits.
The Congressional Budget Office scores the Senate bill as adding $4 trillion to the national debt by 2022. That assumes the sequester or equivalent spending cuts are fully implemented in March, which seems unlikely. Some are hoping that during the coming confrontation over the debt-limit increase fiscal conservatives will be able to recover lost ground on spending. That won't work, because the debt limit doesn't provide much leverage.
The debt-limit statute was written specifically to make it easier to increase the debt, not as a way to limit the debt. It should be repealed and replaced with a law that cuts spending when there is too much debt. While Republicans rightly want to stop the unending growth in debt, the current debt-limit statute gives most of the power to the president, allowing him to shut down parts of the government and blame holdouts until he gets enough votes for more debt.
Rather than rejecting an increase in the debt limit, fiscal conservatives should offer a lasting remedy. This would be a debt-to-GDP limit that, when exceeded, would give the president the power to underspend congressional appropriations and to propose fast-track reductions in entitlements—but would also require him to make monthly reports to the public on excess spending and prohibit raises for government employees making over $100,000.
Fighting under the current rules isn't working and leaves government inexorably bigger. The country can't afford this approach. Demographics are making it harder each year to restrain spending or win elections on the platform of limited government. The rules pit fiscal conservatives against themselves, leading to bigger government.
Regardless of how the current crisis is ultimately resolved, there is sure to be another. Republicans and fiscally conservative Democrats should use every opportunity to strengthen the framework for limited government, in order to restrain federal spending and allow the private economy to grow.
Mr. Malpass, a deputy assistant Treasury secretary and legislative manager for the 1986 Tax Reform Act in the Reagan administration, is president of Encima Global LLC.
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http://www.aljazeera.com/news/europe/2013/01/20131314570244930.html
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http://hotair.com/greenroom/archives/2013/01/03/surprise-obamacare-wary-employers-not-hiring-cutting-hours/
Surprise: Obamacare-wary employers not hiring, cutting hours
posted at 1:16 pm on January 3, 2013 by Guy Benson
The real knife twist in this USA Today piece is the money quote from Mark Zandi, The One’s go-to “independent” economist:
Many businesses plan to bring on more part-time workers next year, trim the hours of full-time employees or curtail hiring because of the new health care law, human resource firms say. Their actions could further dampen job growth, which already is threatened by possible federal budget cutbacks resulting from the tax increases and spending cuts known as the fiscal cliff. ”It will have a negative impact on job creation” in 2013, says Mark Zandi, chief economist of Moody’s Analytics…The so-called employer mandate to offer health coverage doesn’t take effect until Jan. 1, 2014. But to determine whether employees work enough hours on average to receive benefits, employers must track their schedules for three to 12 months prior to 2014 — meaning many are restructuring payrolls now or will do so early next year.
How widespread will the fallout be? Very:
About a quarter of businesses surveyed by consulting firm Mercer don’t offer health coverage to employees who work at least 30 hours a week. Half of them plan to make changes so fewer employees work that many hours. The health care law will particularly affect companies with 40 to 45 workers that plan to expand and hire. Many are holding off so they don’t cross the 50-employee threshold, says Christine Ippolito, principal at Compass Workforce Solutions, a human resource consulting firm in Melville, N.Y. Ernie Canadeo, president of EGC Group, a Melville-based advertising and marketing agency with 45 employees, planned to add 10 next year but now says he may add fewer so he’s not subject to the mandate…Others already over the 50-employee threshold plan to add more part-time workers or cut the hours of full-timers, says Rob Wilson, head of Employco, a human resource outsourcing firm. Many, he says, will hire more temporary workers, whom they won’t have to cover.
Nearly half of retailers, restaurants and hotels will be affected by the law, according to Mercer. They employ large numbers of part-time and seasonal employees, including many who work about 30 hours a week. Since such low-wage workers are widely available, it often hasn’t been cost-effective or necessary for employers to offer them coverage. Providing them benefits could be costly because employees must pay no more than 9.5% of their wages in insurance premiums, forcing employers to contribute significantly more than they do for higher-wage workers. ”I think you may see employees with fewer hours as a consequence,” says Neil Trautwein, vice president of the National Retail Federation.
So the law sets an arbitrary cap on the percentage of wages workers are permitted to contribute to their health benefits — the initial intent of which, presumably, was to compel employers to shell out to help cover more employees. But instead of complying with the mandate and spending money they either (a) don’t have or (b) need for other purposes, cash-strapped small business owners are planning to shave hours and provide less work for their employees. That’s not greed; it’s business reality in a stagnant economy. The clumsy and meddlesome heavy hand of Big Government strikes again, hurting many of very the people it set out to “help.” None of this should surprise anyone, of course. Obamacare opponents have long argued that this project would spike spending and debt, deprive Americans of liberty, and destroy jobs. These predictions are being vindicated with each passing day, hence the law’s enduring unpopularity. And as the article notes, many of the most onerous mandates don’t cycle in until 2014, so the pain is just beginning. For what it’s worth, the CBO has estimated that the president’s signature legislative accomplishment will kill 800,000 jobs.
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GM: Would you please post this on the Politics of Health Care thread? TIA.
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Surprise: Obamacare-wary employers not hiring, cutting hours
...”It will have a negative impact on job creation” ...The health care law will particularly affect companies with 40 to 45 workers that plan to expand and hire. Many are holding off so they don’t cross the 50-employee threshold...
Whether it is taxes or regulations or the piling on of both, we follow the path of France: (posted previously) "Why France Has So Many 49-Employee Companies
http://www.businessweek.com/articles/2012-05-03/why-france-has-so-many-49-employee-companies
Maybe the oaths of office for President, Congress or IRS agent should include swearing to "do no harm".
http://classics.mit.edu/Hippocrates/epidemics.1.i.html
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We have discussed this point previously. Here is a piece from today's Pravda on the Hudson. There is both logic and great danger here methinks , , ,
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By ROBERT H. FRANK
Published: January 5, 2013
NO one enjoys paying taxes — and no politician relishes raising them. Yet some taxes actually make us better off, even apart from the revenue they provide for public services.
Taxes on activities with harmful side effects are a case in point. Strongly favored even by many conservative Republican economists, these levies are known as Pigovian taxes, after the British economist Arthur C. Pigou, who advocated them in his 1920 book, “The Economics of Welfare.” In today’s deeply polarized political climate, they offer one of the few realistic hopes for progress.
To see how Pigovian taxes work, consider a driver checking out the offerings at his local auto dealership. He is trying to decide between two vehicles, one weighing 6,000 pounds and the other, 4,000 pounds. After comparing sticker prices, mileage estimates and other features, he views the choice as roughly a tossup. But because he has a slight preference for the larger vehicle, he buys it. His decision, however, could be viewed as a bad choice for society as a whole, because of the side effects. The laws of physics tell us that heavier vehicles tend to cause more damage in crashes. They also spew more emissions into the air and cause more wear and tear on roads.
By providing an incentive to take those external costs into account, taxing vehicles by weight would make the total economic pie larger. Those who don’t really need heavier vehicles could buy lighter ones and pay less tax. Others could pay the extra tax as fair compensation for their heavier vehicles’ negative side effects.
But the mere fact that Pigovian taxes produce greater benefits than costs doesn’t make them an easy sell politically. Like other changes in public policy, a Pigovian tax produces winners and losers. And it’s an iron law of politics that prospective losers lobby harder to block change than prospective winners do for its adoption. That asymmetry creates a powerful status-quo bias that makes even broadly beneficial policy changes hard to achieve.
Yet, in principle, any change that makes the economic pie larger makes it possible for everyone to enjoy a bigger slice than before. The practical challenge is to slice the larger pie so that everyone comes out ahead. A first step toward a vehicle-weight tax would be to make it revenue-neutral — for example, by returning its revenue in the form of lump-sum rebates to each buyer. That would soften the blow, while preserving the incentive to buy lighter vehicles.
For example, if the tax were 20 cents a pound, a 6,000-pound vehicle would be taxed at $1,200, as opposed to $800 for a 4,000-pound one. If an equal number of vehicles of each weight were sold, all buyers would get a $1,000 rebate when the total tax income was redistributed. The buyer in our example would thus be making a net payment of $200 because of the tax, but his total outlay would have been $400 lower if he’d bought the smaller vehicle instead.
Although revenue neutrality would help, buyers who really need large vehicles might feel aggrieved. Paradoxically, the key to mollifying them is to propose Pigovian taxes not just on vehicle weight but also on a swath of other activities that cause undue harm to others. We could drivers tax contributing to traffic congestion, for example, on the grounds that entering a crowded roadway causes delays to others. We could tax noise, carbon emissions and other specific forms of air and water pollution. Although some people would end up as losers under any single one of these measures, virtually everyone would come out ahead under a broad suite of Pigovian taxes.
That’s because adopting a large number of them is like repeated flips of a coin whose odds are stacked heavily in your favor. If someone offered a chance to flip a coin that paid $10 for heads and lost $1 for tails, would you take it? It’s an attractive gamble, obviously, but if there is only a single flip, there’s a 50 percent chance that you’ll be a loser. After many flips, however, you’d almost certainly be a net winner.
Likewise, any single Pigovian tax is an attractive gamble for the average taxpayer, who would get a rebate equal to the amount she’d paid in tax and would benefit from the resulting reduction in harm. Under a collection of such taxes, the odds of being a net winner go up sharply. Only the minuscule minority who cause much more than average amounts of harm in almost every category might end up paying more total tax than before. And even those few would still be net winners, because of the corresponding reductions in harm.
A BROAD slate of Pigovian taxes would thus meet the challenge of how to divide the larger pie so everyone comes out ahead. And because the prospect of a continued divided government makes short-run legislative progress unlikely on other fronts, why not pick this low-hanging fruit right now?
The case for Pigovian taxes isn’t easily reduced to bumper-sticker slogans. Still, the basic ideas are not complicated, and President Obama has the biggest megaphone on the planet. It should be easy for him to persuade rational voters to embrace policies that would make virtually everyone better off.
But he must also persuade House Republicans. Getting their votes will be the real test of his celebrated rhetorical skills.
Robert H. Frank is an economics professor at the Johnson Graduate School of Management at Cornell University.
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The Stealth Tax Hike
Why the new $450,000 income threshold is a political fiction. .
Anyone still need a reason to abandon "grand bargains" and deals negotiated between this President and GOP Congressional leaders? Here it is: The revival of two dormant provisions of the tax code means the much ballyhooed $450,000 income threshold for the highest tax rate is largely fake.
The two provisions are the infamous PEP and Pease, which aficionados of stealth tax increases will recognize immediately as relics of the 1990 tax increase. Those measures, which limit deductions and exemptions for higher-income taxpayers, expired in 2010. The Obama tax bill revived them this week. It isn't going to be pretty.
Under the new law, some of the steepest tax increases may fall on upper-middle class earners with incomes just above $250,000. Here's why:
During the negotiations, the White House won a concession from Republicans to allow phaseouts for personal exemptions and limitations on itemized deductions, starting at an income of $250,000 for individuals and $300,000 for joint filers.
The Senate Finance Committee informs us that in effect the loss of the personal exemptions, currently $3,800 per family member, can mean a 4.4 percentage point rise in the marginal tax rate for a married couple with two kids and incomes above $250,000. A family with four kids in that income range faces about a six percentage point marginal rate hike. The restored limitations on itemized deductions can raise the tax rate by another one percentage point.
High-income Americans with incomes of more than $1 million may lose up to 80% of their itemized deductions for home mortgage payments, health care, state and local taxes—and charities. Cue the local symphony's development office.
Add it together and families in the 33% tax bracket could see their effective marginal rate paid on each additional dollar earned rise to above 38%.
A store manager married to a dentist with a combined income of, say, $350,000 may pay a higher tax rate under the new law than if the tax code had simply reverted back to the Clinton-era rates that Mr. Obama championed. Those earning more than $450,000 would see their de facto tax rate rise to about 41% under the new law, not 39.6%. Add in the new ObamaCare investment taxes and the tax rate on interest income is close to 45%.
How did this happen? Recall that early in the fiscal-cliff negotiations House Speaker John Boehner offered to cap itemized deductions to raise $800 billion, in lieu of raising tax rates, if the President would agree to spending cuts. The White House rejected that.
Mr. Obama then insisted on reviving PEP and Pease, thereby recapturing much of the income he claimed to be "compromising" away by agreeing to a higher income threshold for the top bracket. But instead of using phaseouts to offset higher rates as Mitt Romney proposed, Mr. Obama insisted on raising tax rates too.
Democrats are advertising the higher $400,000-$450,000 threshold as a victory for affluent taxpayers in blue states. But with PEP and Pease these Democrats are hammering their own constituents via the backdoor.
Taxpayers in blue states claim roughly twice as much in itemized deductions as those in red states. Income tax rates are steeper in California and New York than Texas and Utah. Chuck Schumer just put a tax bull's-eye on upper-income Manhattanites, and Barbara Boxer whacked Silicon Valley. Some $150 billion, about one-quarter of all the money raised by this tax bill, will come from this stealth tax hike.
Mr. Obama purports this is merely "a return to the Clinton-era tax rates." But capital-gains rates will be about three to five percentage points higher than in the 1990s, the Medicare tax is higher, and his stealth tax will raise personal rates higher than advertised. Forget the golden Clinton memories. Mr. Obama is pushing the U.S. back to the Carter era.
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I read the reasons proposed.
There is just no end to the imagined wasy to make people cough up more money.
It appears to be limitless. :cry:
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Former Vermont Governor and Democratic Party Chairman Howard Dean conceded in December on MSNBC that "this may seem like heresy" but "the truth is, everybody needs to pay more taxes, not just the rich."
http://online.wsj.com/article/SB10001424127887324581504578231721868759336.html?mod=WSJ_Opinion_LEADTop
Nancy Pelosi declared on January 6 on CBS's "Face the Nation" that the fiscal-cliff deal was "not enough on the revenue side."
Michigan's Sandy Levin, the ranking Democrat on the Ways and Means Committee, recently reassured his liberal colleagues on the House floor that "additional revenues" are sure to come in future budget deals and that "this [tax hike] sets that important precedent."
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http://www.journalofaccountancy.com/News/20137209.htm
FATCA final regulations cover all the bases
By Sally P. Schreiber, J.D.
JANUARY 18, 2013
On Thursday, the IRS issued final regulations providing rules on information reporting by foreign financial institutions (FFIs) and withholding on certain payments to FFIs and other foreign entities (T.D. 9610).
Under the Foreign Account Tax Compliance Act of 2009 (FATCA), enacted as part of the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147, U.S. withholding agents are required to withhold tax on certain payments to foreign financial institutions (FFIs) that do not agree to report certain information to the IRS regarding their U.S. accounts and on certain payments to certain nonfinancial foreign entities (NFFEs) that do not provide information on their substantial U.S. owners to withholding agents.
The regulations finalize the proposed rules issued last February (REG-121647-10), making a number of changes in response to comments. As a result, the 389-page proposed regulations have become 544-page final rules, with a lengthy discussion of which comments prompted changes from the proposed regulations.
One area of simplification in the final regulations is the integration of model intergovernmental agreements into the reporting requirements of the regulations. There are two types of intergovernmental agreements: reciprocal agreements and nonreciprocal agreements (see “Treasury Releases Model Intergovernmental Agreement for FATCA”), which are called Model 1 IGAs and Model 2 IGAs. A jurisdiction signing a Model 1 IGA agrees to adopt rules to identify and report information to the IRS that meets the standards in the Model 1 IGA. FFIs that are in Model 1 IGA jurisdictions report the information about U.S. accounts required by FATCA to their respective governments, which then exchange this information with the IRS. FFIs in Model 2 IGA jurisdictions must comply with the FATCA regulations except to the extent the relevant IGA provides otherwise.
The IRS announced that, to date, seven countries have entered into model agreements with the United States: Norway, Spain, Mexico, the United Kingdom, Ireland, Denmark, and Switzerland. Discussions with more than 50 countries are ongoing, and more agreements are expected to be signed in the near future.
In recognition of the burden that complying with FATCA entails, the final regulations, among many other things:
• Phase in over an extended transition period the timelines for withholding, due diligence, and reporting and align them with the IGAs.
• Expand and clarify the types of payments subject to withholding, particularly for certain grandfathered obligations that are not subject to the rules and certain payments made by NFFEs.
• Expand and clarify the treatment of certain low-risk institutions, such as government entities and retirement funds, provide that certain investment entities may be subject to being reported on by FFIs with which they hold accounts rather than being required to register as FFIs with the IRS, and clarify the type of passive investment entity that financial institutions must identify and report.
• Streamline the compliance and registration requirements for groups of financial institutions, including commonly managed investment funds.
The regulations will be effective when published in the Federal Register (scheduled for Jan. 28, 2013).
—Sally P. Schreiber (sschreiber@aicpa.org) is a JofA senior editor.
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The Grip Gets Tighter, IRS Finalizes FATCA
by Nick G, International Man
January 22, 2013
Dear fellow International Men and Women,
The grip continues to get tighter.
Last week the IRS finalized the widely unpopular FATCA regulations, a monstrosity of 544 pages. Unpopular with everyone but the US government and the financial advisers who are set to profit from the stacks of paperwork that FATCA creates. "Stimulating" the economy I suppose.
The final regulations include a step-by-step process for identifying US accounts, information reporting, and withholding by foreign financial institutions. The ability to threaten cutting off access to the US financial system and the world's most important reserve currency is the main reason why the US government can get away with absurdities like FATCA and others governments cannot.
Imagine if Mexico decided to implement a FATCA-like law, requiring all foreign financial institutions to incur large compliance costs to disclose certain information about Mexican clients, regardless if such disclosures would violate local laws. Those countries that refused this dictate from the Mexican government would be cut-off from the Peso and the Mexican financial system. I imagine not many countries would comply in this hypothetical scenario.
The circumstances are quite different if the government in question controls the world's premier reserve currency and the de facto access to international trade that it entails. I suspect that the US will be able to continue to get away with forcing other countries to comply with FATCA and other overreaching regulations as long as it retains this status.
These costly regulations make the world a smaller place for Americans. Most foreign banks want nothing to do with American clients and it is no wonder why. The benefits do not outweigh the costs; any rational business owner would make the same decision.
Perhaps it is a desired effect.
Edicts like FATCA serve as an indirect form of capital controls, as they effectively create significant barriers for capital to leave the US.
We shouldn't be surprised that broke governments everywhere are finding all sorts of dastardly creative ways to squeeze their citizens more and more.
Take California for example, which is seeking to hit businesses with an absurd retroactive tax going back 5 years.
You'll find these stories and other current events you need to know about below, as well as a couple of interviews with Doug Casey.
Also, new IM articles include an overview of the best offshore banks used for business or personal purposes written by an international consultant, an overview of why gold royalty companies have good risk/reward profiles, and Jeff Thomas' take on one of the most overlooked factors by expats when choosing a suitable country for expatriation.
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Continuing our conversation about tax rates and economic performance...
In the 1950s in the US, the U.S. had a very high top marginal rate that almost no one paid and we had relatively good economic performance. Since it will be hard to replicate the rest of the factors of the 1950s, decimated global competitors, stronger work ethic than now, intact families, very little welfare etc., it might be more interesting and informative to take a look around the globe right now.
The country we are most emulating right now is France where they just raised the top tax rate to 75% and the richest person just moved to Belgium where it is only 50%! Leftists are winning elections with similar themes to Obama's. The unemployment rate in France is over 10%, just slightly worse than California. http://articles.latimes.com/2012/dec/28/world/la-fg-wn-jobless-climbs-france-20121228
Meanwhile, unemployment is 1.9% in Singapore. Why?
Tax rates in Singapore for individuals range from 0 to 20% max. Corporate tax rates are less than half of those in the U.S. Capital Gains taxes are ZERO.
Above are only two examples. There are exceptions, places where relative prosperity co-exists with high tax rates, Norway comes to mind. Good luck duplicating Norwegian economic culture here.
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From "One From One Leaves Two" (1934), by American poet Ogden Nash (1902-71):
Abracadabra, thus we learn
The more you create, the less you earn.
The less you earn, the more you're given,
The less you lead, the more you're driven,
The more destroyed, the more they feed,
The more you pay, the more they need,
The more you earn, the less you keep,
And now I lay me down to sleep.
I pray the Lord my soul to take
If some Soul Commission hasn't got it before I wake.
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WSJ
By ARTHUR LAFFER
It is tempting to dismiss the role played by incentives in economics, but the persistence of poverty in the inner city and elsewhere is difficult to explain with any other view of human behavior. Poor people, like everyone else, respond to incentives. The dilemma is how to introduce market incentives while still maintaining a generous system of helping those in need.
The first step is to consider the role played by disincentives, whether they are disincentives to work because government benefits fall away as income rises, or disincentives that make employers reluctant to hire entry-level workers likely to come from the ranks of the young unemployed.
More than three decades ago, I began enumerating a myriad of government "needs tested" programs that diminished welfare benefits as their recipients earned more income. The loss of government benefits made earning more income less attractive to many low-income families, an effect similar to that of raising marginal tax rates.
In the intervening years, alas, very little has changed. Gary Alexander, secretary of public welfare for the State of Pennsylvania, made that quite clear in a July presentation to the American Enterprise Institute entitled "Welfare's Failure and the Solution," an analysis of the welfare benefits plus wages of a single mother of two young children living in Pennsylvania.
Mr. Alexander reports that a single mother of two in the Keystone State earning no wages will obtain welfare benefits—such as food stamps, child care and Medicaid services—worth more than $45,000 annually. If the woman begins earning wages, her total annual income, including the value of her welfare benefits, will rise as well—up to about $9,000 in wages. But the next $5,000 in wages will not increase her total income, because she will lose some Medicaid and other benefits. In short, she faces the equivalent of a 100% marginal tax.
From about $14,000 to $29,000 of gross wages, she will also lose government benefits such that her total annual income will rise only about $5,000—an effective marginal tax rate of 67%. At $29,000 of wages, the woman will realize a little less than $57,000 in net income plus benefits. Once she earns more than $29,000 in wages her housing subsidies and food subsidies drop way down. With wages above $43,000, her child-care subsidies disappear, and once her wages top $57,000 her family will no longer qualify for the Children's Health Insurance Program.
What this means is that her total income—welfare benefits plus wages, minus taxes—won't reach $57,000 until her gross wage income rises to $69,000. In other words, the money earned by her between $29,000 and $69,000 faces a marginal tax rate, on average, of 100%. She receives no net benefit from her labor. Now if that doesn't motivate you to get up and go to work, I don't know what will.
This example is particular to a single mother in Pennsylvania with two children, but the principles apply generally across the country. People with low incomes who receive various forms of welfare subsidies in any number of states—with and without children, whether married or not—face enormous disincentives in trying to improve their lives by working. And these barriers to self-improvement through work have been rising over time.
According to the most recent Census Bureau data, the percentage of the American population in 2011 living below the poverty line was 15%, tied for a 50-year high and well above the 11.4% in the late 1970s when I began calling attention to "needs tested" disincentives to work.
Using employment as a share of total population for especially vulnerable demographics, the consequences of poorly thought-out policies are stark.
Consider the predicament of teenagers 16 to 19 years old, whose employment-to-population ratio has been 26%—about one in four young people employed—for the past three years. In the period 1975-2002, the ratio was in a healthier 40%-50% range. For African-Americans 16 to 19 years old, the employment-to-population ratio for the past four years has been in the anemic 14.5% to 16.5% range. Minimum-wage laws ostensibly intended to help the young and poor may have put a bit more money in the pockets of those who found work, but study after study indicates that governmental minimum-wage interventions discourage employers from hiring.
How to counter these disincentives? My preferred solution is to enact a form of enterprise zone where marginal tax rates would be greatly lowered for both employers and employees in areas with high poverty. For starters, employer and employee payroll taxes could be eliminated for people who both live and work in the enterprise zones. There would be scant revenue loss to the U.S. Treasury because few people are working in these areas anyway.
Second, tax rates on corporate profits and personal income could also be reduced in the enterprise zones for businesses and employees whose principal residence is in the enterprise zone. Potential workers need employers after all. Once these residents see that their pay will not be whittled away by payroll and income taxes, they will not be so disinclined to sacrifice the government benefits that would recede as their income increases.
Developing business and life skills through on-the-job training is crucial for populations suffering generational poverty. To help make youth employment in the country's poorest areas more attractive, enterprise zones should eliminate job-killing state and federal minimum wage requirements for workers under 21. (The "youth minimum wage" provision allows payment of $4.25 an hour to workers under age 20 instead of the federal $7.25 minimum wage, but the rate expires after 90 days.)
After being unemployed for a number of years, poor, unskilled youths often become unemployable. And, after being unemployable for a number of years, many of them quite understandably become hostile to the world, and society has to spend fortunes protecting itself from them. It is a dispiriting Catch-22.
In the spirit of the late, great New York Rep. Jack Kemp, the time is right to take up the cause of a bipartisan pro-growth agenda for America's pockets of poverty.
Mr. Laffer, chairman of Laffer Associates and the Laffer Center for Supply-Side Economics, is co-author, with Stephen Moore, of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
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Prof. Laffer analyzes the problem superbly IMO, recognizing that the disincentives are on both sides, the employer and the potential employee.
It is astounding to know that a small family in ordinary circumstances makes $45,000 (after taxes) without working at all. You could stop the search for the disincentives right there but that isn't the worst of it. He gives a specific example where a single mother of two faces marginal tax rates of 67 - 100% as they try to better themselves above that level. The massive disincentive to improve one's lot ought to catch the attention of everyone who cares about either side of the problem, revenues to the government or the human side of getting people onto a more productive track. It is the dilemma of these programs that should concern everyone involved, yet seldom is it written or spoken, especially in terms this precise. (Maybe David Gregory will confront Dick Durbin with this tomorrow, or Steve Kroft will follow up with the President about real failure and solutions.)
Laffer skips one other key component: it is about risk, not just money. A potential new job especially with a new company involves very high risk. What if you don't like the work? What if you aren't good at it? What if the company goes under? What if the company does fine and you like the job but they let you go for all the wrong reasons? The answer is that you just gave up your food, housing or healthcare subsidy for a high risk and a very low return. It isn't happening. Recipients of section 8 for example know you don't give up your qualification in a program, once you land it. Far more likely under these perverse disincentives if you are conscientious and responsible is that you learn to live within the guidelines that are housing your family and keep reported income within the requirements. and stay on the program. If not for yourself, you do it for the children.
If 67% is too high for the Phil Mickelson family, how does a 67-100% rate work for an unworking single mom of two? We know the empirical answer, people are migrating onto these programs, not off of them. Baseline thinking acknowledges that and understates it. People don't need a calculator to see the impact of a marginal tax rate over 50%, sometimes approaching 100%. They know it isn't worth it.
I have mixed feelings about enterprise zones. I don't like creating uneven rules for taxation, but he is correct to point out we have virtually no current revenues there to lose and everything to gain.
A smaller idea is to just waive many of these things, certain taxes and payroll regulations, in the start up of a new business. Give them a moment to get going before throwing the book at them on most things. No withholding and limited payroll compliance requirements in the first calendar year of a new business, especially where they are hiring someone who wasn't previously working. Let the business get started, build a product, perform a service and get some revenues coming in before they have to pay taxes and staff and house a payroll department, human resources, accountants and attorneys.
With all the compliance requirements, only a rich person can start a business and those very few are the ones we chase away.
Government will get plenty of forms and revenues from new businesses in the long run if they first launch and survive the startup.
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Calvin Coolidge for President
Silent Cal was an "economic general" who cut taxes and produced a run of surpluses. .
By ROBERT MERRY
'Debt takes its Toll.' Thus does Amity Shlaes begin her biography of Calvin Coolidge, the laconic, flinty-faced New Englander who became America's 30th president upon the death of Warren Harding in 1923 and then captured the office in his own right in 1924. Ms. Shlaes, the author of a best-selling history of the Great Depression, "The Forgotten Man" (2007), issues her debt admonition in the course of introducing Oliver Coolidge, a brother of Silent Cal's great-grandfather, who went to jail in 1849 because he couldn't pay a $29.48 debt to a neighbor. She then glides briskly from Oliver's plight to the problem of government debt, particularly when it reaches proportions that threaten the public fisc and undermine national confidence. "There have been times," Ms. Shlaes writes in the introduction to "Coolidge," "when debt pinned down the United States as it once pinned down Oliver.''
Coolidge
By Amity Shlaes
Harper, 565 pages, $35
Calvin Coolidge lived in such a time—as do we. At the end of World War I, the national debt stood at $27 billion, nine times its level before the war. But Coolidge, and Harding as well, slashed the country's credit obligation to just $17.65 billion. They did it by cutting taxes, generating economic growth and, in the process, flooding federal coffers with surplus dollars. This accomplishment merits attention today, with the national debt exceeding $16 trillion—more than 70% of gross domestic product. If that number hits 90%, some economists warn, it will squeeze the national economy inexorably.
And if that crisis hits, the country will face a binary choice. It can return to a free-market system of lower taxes, smaller government and the curtailment of the Federal Reserve's promiscuous fiat monetary policies—in short, abandoning Keynesian sensibilities and the trend toward European-style social democratic governance. Or it can opt for what energy-industry executive Jay Zawatsky has called "increasing financial repression"—further federal spending and intrusion into the economy, rising tax rates on the wealthy, ever greater federal debt financed by Fed money creation and, eventually, rising inflation.
To understand the first option, it is necessary to understand the 1920s. And we can't understand the 1920s without peering into the life and politics of Calvin Coolidge—"principally a man of work," as Ms. Shlaes describes him, "a minimalist president, an economic general of budgeting and tax cuts." Her biography is thus both timely and important.
Coolidge was born in 1872 in Plymouth Notch, Vt., where folks frowned on showy talk and artifice. Its physical and cultural center was the country store, run by Calvin's father, John, who also farmed and served in the Vermont legislature. Young red-haired Calvin was a quiet lad—and painfully shy. He "found it agonizing to meet even the adults who entered his parents' front rooms,'' Ms. Shlaes writes. But in that austere environment he learned the skills needed "for the eternal combat with the landscape." Life was harsh in that place and time: His mother died when Calvin was 12, his sister six years later.
At the Black River Academy, a boarding school in Ludlow, Vt., young Calvin posted mediocre grades initially and demonstrated little skill for athletics or the arts of social advancement. He loved to read, and legend had it that he devoured every book in the school library. By graduation he had managed to boost his marks to a respectable level, demonstrating a characteristic trait: He was a slow starter, disoriented in new situations but increasingly impressive as he gained comfort with his surroundings.
The pattern repeated itself at Amherst College. "I think I must be very home-sick,'' he wrote his father after his arrival on campus, "my hand trembles so I can't write so any one can read it.'' But over time he advanced academically and socially. "I am confident," he later wrote home, "I have gained a power of grappling with problems that will stand by me all my life.'' By graduation he had opted for a legal career, with an inclination toward politics.
After an apprenticeship, he joined a law firm in Northampton, Mass., where locals warmed to his terseness of expression (they didn't like being billed for long-winded advice) and his skill settling disputes without litigation. Small-town legal work didn't make him rich, but it gave him a base for political pursuits. In 1898, at age 26, he became a city councilman and thereafter interspersed his legal practice with ever-higher electoral positions—city solicitor, clerk of courts, state representative, Northampton mayor, state senator, Senate president, lieutenant governor. In 1918, at age 46, he was elected Massachusetts governor.
Along the way he gained a wife, Grace Goodhue, a pert and lovely graduate of the University of Vermont. A Coolidge exchange with Grace's father reflects the spare mode of New England expression: "Up here on some law business, Mr. Coolidge?'' "Come to see about marrying Grace.''
When the couple married in 1905, the wife of one friend observed, "I don't see how that sulky red-haired little man ever won that pretty, charming woman.'' Living simply, the Coolidges avoided debt, renting their home to avoid even the burden of a mortgage. "Coolidge,'' writes Ms. Shlaes, "did not like to be beholden to bankers or anyone else.''
As a politician, Coolidge came under the sway of the Republican progressive movement, personified with dramatic flair by Theodore Roosevelt. In the state Senate, Coolidge voted for women's suffrage, a state income tax, a minimum wage for female workers and salary increases for teachers. Like Roosevelt, he calculated that Republicans could thwart Democratic inroads on such causes by pre-empting them.
But Coolidge soon began to question progressivism, including Roosevelt's resolve to regulate railroad rates through his Hepburn Act. He saw that railroads, though rich and powerful, operated on the margin. As Ms. Shlaes explains: "The blow Roosevelt had struck to reduce the power of the railroads might be crippling them instead.'' And by undermining the profitability of cross-country shipping, the act undermined U.S. trade with China and Japan.
Coolidge was struck by the radicalism of some labor leaders when, as a state senator, he helped broker an employment agreement between woolen workers and their managers. In a letter he wrote that the leaders of the Industrial Workers of the World, the famed Wobblies, were "socialists and anarchists'' bent on destroying "all authority, whether of any church or government.''
As Massachusetts governor in 1919, Coolidge gained widespread fame when Boston policemen went on strike, unleashing looting, property destruction and street thuggery. A crippling general strike loomed, and violence was on the rise. A watchful nation feared spreading lawlessness. After trying a conciliatory approach, Coolidge turned implacably decisive. Working through the police chief, he fired the striking policemen and moved to restore order by calling in steel-helmeted state guardsmen. "There is no right to strike against the public safety,'' he declared, "by anybody, anywhere, any time.''
Ms. Shlaes's story, constructed as a kind of chronological diary, has a disjointed quality, as descriptions of powerful events that generate mounting reader interest get interrupted by less consequential matters that break the narrative. This is not a biography for those in search of gripping drama. But the research is exhaustive, and the political and economic analysis sound. These aspects come to the fore especially in the concluding sections of the book, as the White House comes into view.
In 1920, Coolidge emerged as the running mate to Republican presidential candidate Warren Harding, an intellectually lethargic man who nonetheless understood the need to remake the GOP into a more conservative party and move the country in a new direction. President Woodrow Wilson's postwar economy was in free fall, and the country needed a new economic philosophy to get beyond the Wilson mess.
Harding's watchword was "normalcy''—meaning, as Ms. Shlaes describes it, "low taxes, tariffs, less central government, and stability.'' He won in a landslide, a clear repudiation of Wilson's progressive policies, and quickly moved, at the counsel of Treasury Secretary Andrew Mellon, to cut taxes and restore the economy. The aim, says Ms. Shlaes: "to retire debt, not to expand it.''
The new direction was well-established by August 1923, when Harding died unexpectedly at age 57, most likely from congestive heart failure. But Mellon believed the new president could generate continuing economic growth through greater application of a "scientific taxation'' concept—"supply side'' economics, in today's parlance—designed to generate economic activity, and federal revenue, by reducing top marginal tax rates. In Coolidge's time, as today, the concept stirred widespread skepticism.
Coolidge sent to Congress a "scientific taxation" bill that he hoped to get passed before he faced the voters in 1924—proposing to lower the top tax rate to 30% or even 25% from 50% (it had been 77% when Harding took office). The party establishment in Congress watered it down, leaving the top tax rate at 43.5% and directing most of the tax relief to middle-income Americans. Though disappointed, Coolidge signed the bill with a resolve to revisit the matter after his election, in which he defeated Democratic candidate John W. Davis by a decisive margin.
He eventually got the top rate down to 25%. The GDP soared, increasing by 25% during the Harding-Coolidge years. The result, coupled with fiscal austerity, was a nation flush with tax receipts—surpluses of $100 million in 1925, $375 million in 1926 and nearly $600 million the next year.
The Coolidge years represent the country's most distilled experiment in supply-side economics—and the doctrine's most conspicuous success. That success is the central Coolidge legacy, brought home with telling authority in Ms. Shlaes's work. This book's time is propitious. As the nation faces a looming economic crisis wrought in large measure by mounting public debt, the Coolidge experiment offers insights into what an alternative course might look like. Ms. Shlaes has given us a detailed examination of that alternative course.
Mr. Merry, editor of the National Interest, is the author of "Where They Stand: The American Presidents in the Eyes of Voters and Historians."
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"Coolidge
By Amity Shlaes
Harper, 565 pages
Amity Shlaes built a great credibility IMO with her extensive research and journalism, breaking against conventional thought on the economics of the Great Depression: http://www.amazon.com/Forgotten-Man-History-Great-Depression/dp/0060936428
The Coolidge story can be added the list of other supply side economic successes in our short, federal income tax history. Along with evidence that the Kennedy tax rate cuts lifted all vessels, Reagan's tax rate cuts doubled revenues inside a decade, Clinton-Gingrich capital gains rate reductions balanced the budget, and the 50 month hiring surge and 44% revenue surge after the Bush tax rate cuts, this I think closes the argument against the challenge that marginal tax are not as closely tied to economic performance as some of us claimed.
Abject failure of current policies, opposite of supply side, makes the same case.
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http://www.theatlantic.com/business/archive/2013/02/how-the-100-year-old-income-tax-unleashed-the-modern-us-economy/273470/
From the article:
"Progressive politicians embraced the income tax as way to raise money for the federal government without burdening the average household with the high living costs imposed by duties. Anyone who believed in free trade, who wanted to end protectionism and allow American markets to develop without obstruction, had to offer some revenue that didn't come from tariffs. Ratification of the Sixteenth Amendment let reformers finally welcome an alternative source of tax revenue: American incomes."
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http://www.theatlantic.com/business/archive/2013/02/how-the-100-year-old-income-tax-unleashed-the-modern-us-economy/273470/
From the article:
"Progressive politicians embraced the income tax as way to raise money for the federal government without burdening the average household with the high living costs imposed by duties. Anyone who believed in free trade, who wanted to end protectionism and allow American markets to develop without obstruction, had to offer some revenue that didn't come from tariffs. Ratification of the Sixteenth Amendment let reformers finally welcome an alternative source of tax revenue: American incomes."
Is that the pre-collapse or post-collapse America the income tax was to have created?
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http://scottgrannis.blogspot.com/2012/11/how-federal-largesse-traps-poor.html
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http://scottgrannis.blogspot.com/2012/11/how-federal-largesse-traps-poor.html
Excellent work by Scott G on a very important topic.
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http://enews.earthlink.net/article/top?guid=20130303/cda94938-e315-42b3-b339-7a0b8d742782
Tax bills for rich families approach 30-year high
By STEPHEN OHLEMACHER
From Associated Press
March 03, 2013 7:38 AM EST
WASHINGTON (AP) — The poor rich.
With Washington gridlocked again over whether to raise their taxes, it turns out wealthy families already are paying some of their biggest federal tax bills in decades even as the rest of the population continues to pay at historically low rates.
President Barack Obama and Democratic leaders in Congress say the wealthy must pay their fair share if the federal government is ever going to fix its finances and reduce the budget deficit to a manageable level.
A new analysis, however, shows that average tax bills for high-income families rarely have been higher since the Congressional Budget Office began tracking the data in 1979. It's middle- and low-income families who aren't paying as much as they used to.
For 2013, families with incomes in the top 20 percent of the nation will pay an average of 27.2 percent of their income in federal taxes, according to projections by the Tax Policy Center, a research organization based in Washington. The top 1 percent of households, those with incomes averaging $1.4 million, will pay an average of 35.5 percent.
Those tax rates, which include income, payroll, corporate and estate taxes, are among the highest since 1979.
The average family in the bottom 20 percent of households won't pay any federal taxes. Instead, many families in this group will get payments from the federal government by claiming more in credits than they owe in taxes, including payroll taxes. That will give them a negative tax rate.
"My sense is that high-income people feel abused by being targeted always for more taxes," said Roberton Williams, a fellow at the Tax Policy Center. "You can understand why they feel that way."
Last week, Senate Democrats were unable to advance their proposal to raise taxes on some wealthy families for the second time this year as part of a package to avoid automatic spending cuts. The bill failed Thursday when Republicans blocked it. A competing Republican bill that included no tax increases also failed, and the automatic spending cuts began taking effect Friday.
The issue, however, isn't going away.
Obama and Democratic leaders in Congress insist that any future deal to reduce government borrowing must include a mix of spending cuts and more tax revenue.
"I am prepared to do hard things and to push my Democratic friends to do hard things," Obama said Friday. "But what I can't do is ask middle-class families, ask seniors, ask students to bear the entire burden of deficit reduction when we know we've got a bunch of tax loopholes that are benefiting the well-off and the well-connected, aren't contributing to growth, aren't contributing to our economy. It's not fair. It's not right."
The Democrats' bill included the "Buffett Rule," named after billionaire investor Warren Buffett. It gradually would phase in a requirement that people making more than $1 million a year pay at least 30 percent of their income in federal taxes.
The rule targets millionaires who make most of their money from investments — capital gains and qualified dividends, which have a top tax rate of 20 percent.
"It's fairness," said Sen. Claire McCaskill, D-Mo. "We're not raising taxes with the Buffett rule as much as we are correcting an inequity in terms of, one guy can be working at one end of the hall and because he's working with hedge funds, he gets taxed at 20 percent. Another guy at the other end of the hall is on a salary at an insurance company and he has to pay (39.6 percent). That's just not fair."
On average, households making more than $1 million this year will pay 37.2 percent of their income in federal taxes, according to the Tax Policy Center. But there are exceptions.
For example, the Internal Revenue Service tracks tax returns for the 400 highest-paid filers each year. Those taxpayers made an average of $202 million in 2009, the latest year available. Their average federal income tax rate: 19.9 percent.
That's still higher than the tax rate paid by most middle-income families, but not by much.
The middle 20 percent of U.S. households — those making an average of $46,600 — will pay an average of 13.8 percent of their income in federal taxes for this year, according to the Tax Policy Center. Over the past three decades, the average federal tax rate for this group has been about 16 percent.
The Associated Press analyzed two sets of data to compare tax burdens over time.
The CBO produces data from 1979 to 2009; the center has overlapping data from 2004 through 2013. Both get tax data from the IRS, but they use slightly different methodologies to calculate federal tax burdens.
Still, their numbers track closely enough to make some general observations. For example, it is clear that for 2013, average tax bills for the wealthy will be among the highest since 1979. It also is clear that federal taxes for middle- and low-income households will stay well below their averages for the same period.
Liberals and many Democrats say rich families can afford to pay higher taxes because their incomes have grown much more than incomes for middle- and low-income families.
Average after-tax incomes for the top 1 percent of households more than doubled from 1979 to 2009, increasing by 155 percent, according to the CBO. Average incomes for those in the middle increased by just 32 percent during the same period while those at the bottom saw their incomes go up by 45 percent.
"You've got to think about the context," said Chuck Marr, director of federal tax policy for the Center on Budget and Policy Priorities, a liberal think tank. "We just had three decades in the United States where we had a tremendous increase in inequality."
The growing disparity in income is a big reason why tax bills for the rich are approaching 30-year highs, Williams said. As the rich get richer, a greater share of their income is taxed at the top rate, he said.
High-income families also have been targeted by tax increases this year, including a new tax law passed by Congress on Jan. 1 as well as tax increases in the president's health care law.
The new tax law made the federal income tax more progressive, increasing the top tax rate from 35 percent to 39.6 percent, on taxable income above $400,000 for individuals and $450,000 for married couples filing jointly. Lower tax rates on income below those amounts were made permanent. Also, tax breaks for low-income families first enacted as part of Obama's 2009 stimulus package were extended through 2017.
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That is pretty good reporting by the AP and pretty good analysis by the not always non-partisan TPC. Still the problem is understated:
"Last week, Senate Democrats were unable to advance their proposal to raise taxes on some wealthy families for the second time this year as part of a package to avoid automatic spending cuts."
No. They were trying to raise taxes on the rich for the 3rd, 4th or 5th time this year. More Obamacare taxes just went into effect, plus one might include state taxes like in Calif and Minn if one is really trying to measure the combined effects of failed policies.
"For example, the Internal Revenue Service tracks tax returns for the 400 highest-paid filers each year. Those taxpayers made an average of $202 million in 2009, the latest year available. Their average federal income tax rate: 19.9 percent."
My apologies to civility on the board but it is such a God damned lie for informed people to write so inaccurately. In order for a top income return to pay at the 15% rate, now 20% rate, they are including long term capital gains which by definition over our entire lifetimes includes an inflation component which is not income in any sense at all. Also much of those gains were corporate and therefore quadruple taxed while they point out how 'small' one component out of four can be.
Then for the middle and lower income taxpayers they include FICA to make comparisons which I did not think was part of the federal income tax. But lower income workers get a nice return an social security and medicare payments while higher income people do not.
Other than that, good news that someone is pointing out that we are heading back to the Jimmy Carter days as the alarmists among us have warned.
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Laffer and Moore: The Red-State Path to Prosperity
By ARTHUR B. LAFFER
AND STEPHEN MOORE
You can tell a lot about prosperity in America by observing the places people are moving to and where they are packing up and moving from. New Census Bureau data on metropolitan areas indicate that the South and the Sunbelt regions continue to grow, while the Northeast and Midwest continue to shrink.
Among the 10 fastest-growing metro areas last year were Raleigh, Austin, Las Vegas, Orlando, Charlotte, Phoenix, Houston, San Antonio and Dallas. All of these are in low-tax, business-friendly red states. Blue-state areas such as Cleveland, Detroit, Buffalo, Providence and Rochester were among the biggest population losers.
Art Laffer, chairman of Laffer Associates, on how blue states with high taxes are struggling to compete for businesses and workers. Photo credit: Associated Press.
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Americans for Prosperity president Tim Phillips on Republican opposition in some states to income tax cuts. Photos: Getty Images
..This migration isn't accidental. Workers and business owners are responding to clear economic incentives. Red states in the Southeast and Sunbelt are following the Reagan model by reducing tax rates and easing regulations. They also offer right-to-work laws as an enticement for businesses to come and set up shop. Meanwhile, the blue states of the Northeast, joined by California, Minnesota and Illinois, are implementing the Obama model of raising taxes on businesses and the wealthy to fund government "investments" and union power.
The contrast sets up a wonderful natural laboratory to test rival economic ideas.
Consider the South. We predict that within a decade five or six states in Dixie could entirely eliminate their income taxes. This would mean that the region stretching from Florida through Texas and Louisiana could become a vast state income-tax free zone.
Three of these states—Florida, Texas and Tennessee—already impose no income tax. Louisiana and North Carolina, both with bold Republican governors and legislatures, are moving quickly ahead with plans to eliminate theirs. Just to the west, Kansas and Oklahoma are also devising plans to replace their income taxes with more growth-friendly expanded sales taxes and energy extraction taxes. Utah, while not a Southern state, leads the tax-cutting pack under Republican Gov. Gary Herbert.
Much of this is the result of GOP victories in the 2010 and 2012 elections. Today 10 of the 12 governors in the Southern states are Republican, and in nine of those states the Republicans control both chambers of the legislature.
Meanwhile, the Northeast is bluer than ever. Consider Massachusetts, where only four of the 40 state senators and just 29 of the 160 House members are Republicans. In the past two elections, the GOP was crushed in Connecticut, New York, Rhode Island and Illinois. And in 2012, Democrats gained a supermajority in both houses of the California legislature for the first time since 1883. Not surprisingly, California, Illinois, New York, Oregon, Minnesota, Hawaii, Connecticut, Maryland and Massachusetts have all raised income taxes in recent years.
But it isn't just higher taxes that make these so-called progressive states less attractive to business. Red states Texas, Oklahoma, Wyoming, West Virginia, Montana and North Dakota (and a few blue states like Ohio and Pennsylvania) are getting rich from oil and gas drilling. Meanwhile, bluer-than-blue New York has extended its moratorium on the technological advance behind the boom, hydraulic fracturing, citing overblown environmental hazards, and Vermont has outlawed it altogether. California's regulations prohibit nearly all new drilling of any kind.
Moreover, the entire Northeast and West Coast is anti-right-to-work, meaning that workers employed in unionized workplaces may be required to join the union and pay dues that might go toward political causes they disagree with. Most of these blue states also have super-minimum wage laws that price low-income workers out of the job market.
All the empirical evidence shows that raising a state's tax burden weakens its tax base. Still, too many blue-state lawmakers believe that a primary purpose of government is to redistribute income from rich to poor, even if those policies make everyone, including the poor, less well off. The obsession with "fairness" puts growth secondary.
Meanwhile, in the South, watch for a zero-income-tax domino effect. Georgia can hardly sustain a 6% income tax if businesses can skip across the border into neighboring states like Florida, Tennessee or South Carolina. Oklahoma Gov. Mary Fallin has told her legislature that the Sooner State will face high economic hurdles in the future if it is an income-tax sandwich between Texas and Kansas. Last year, Tennessee Gov. Bill Haslam signed into law legislation repealing the state gift tax and phasing out the state estate tax. Next on the docket? Repealing the state's tax on "unearned income"—income from sources other than wages such as rent and investments.
Increasingly, under Republican leadership, the pro-growth movement is spreading north. Over the past two years, Michigan and Indiana passed right-to-work legislation, and the latter phased out its estate tax. Ohio Gov. John Kasich turned a $6 billion deficit into a budget surplus with no tax increases. Wisconsin Gov. Scott Walker made a number of positive budget and collective-bargaining reforms and wants tax cuts this year. Kansas Gov. Sam Brownback signed into law legislation slashing the state's highest personal income-tax rate to 4.9% from 6.45%, and says his ultimate goal is to eliminate the income tax.
In short, red states of the South and other areas of the country are moving forward with pro-growth tax reform, while California and the blue states of the Northeast are doubling down on Obamanomics and European progressivism. Who will come out on top? Our money is on the red states and those wisely following their lead.
Mr. Laffer is chairman of Laffer Associates. Mr. Moore is a member of the Journal's editorial board.
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First this on the previous post - people are leaving failed liberal states and going to the freer, lower tax, supply side states for economic reasons. Unfortunately they are not leaving their failed political ideas behind. Case in point: Colorado. Leading us to this:
http://www.politico.com/story/2013/03/buzzkill-cash-strapped-states-eye-pot-tax-89412.html
Cash-starved states eye pot tax 3/28/13
The legalization argument went something like this, make it legal, drive the price down and liberty will replace crime across the fruited plain.
Enter the tax man. Pass these bills and your private transactions are no longer legal - or private. I wonder if this is what the libertarian, just leave me alone, recreational users had in mind.
Half the states already tax it even while it is illegal:http://www.ksrevenue.org/perstaxtypesdrug.html In 10 years under the stamp act in MN, fewer than 20 people bought the stamps and I doubt if the reasons were for tax law compliance.
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When I ran for Congress in 1992, I said the same thing:
Why We Support a Revenue-Neutral Carbon Tax
Coupled with the elimination of costly energy subsidies, it would encourage competition..
By GEORGE P. SHULTZ
AND GARY S. BECKER
Americans like to compete on a level playing field. All the players should have an equal opportunity to win based on their competitive merits, not on some artificial imbalance that gives someone or some group a special advantage.
We think this idea should be applied to energy producers. They all should bear the full costs of the use of the energy they provide. Most of these costs are included in what it takes to produce the energy in the first place, but they vary greatly in the price imposed on society by the pollution they emit and its impact on human health and well-being, the air we breathe and the climate we create. We should identify these costs and see that they are attributed to the form of energy that causes them.
At the same time, we should seek out the many forms of subsidy that run through the entire energy enterprise and eliminate them. In their place we propose a measure that could go a long way toward leveling the playing field: a revenue-neutral tax on carbon, a major pollutant. A carbon tax would encourage producers and consumers to shift toward energy sources that emit less carbon—such as toward gas-fired power plants and away from coal-fired plants—and generate greater demand for electric and flex-fuel cars and lesser demand for conventional gasoline-powered cars.
We argue for revenue neutrality on the grounds that this tax should be exclusively for the purpose of leveling the playing field, not for financing some other government programs or for expanding the government sector. And revenue neutrality means that it will not have fiscal drag on economic growth.
The imposition of such a tax raises questions about how it should be levied and what measures should be used to see that the revenues collected are refunded to the public so that the tax is clearly revenue-neutral.
The tax might be imposed at a variety of stages in the production and distribution of energy. You can make an argument for imposing it at the point most visible to the population at large, which would be the point of consumption such as gasoline stations and electricity bills. An administratively more efficient way of imposing the tax, however, would be to collect it at the level of production, which would reduce greatly the number of collection points.
Revenue neutrality comes from distribution of the proceeds, which could be done in many ways. On the grounds of ease of administration and visibility, we advocate having the tax collected and distributed by an existing unit of government, either the Internal Revenue Service or the Social Security Administration. In either case, we think the principle of transparency should be observed. Funds collected should go into an identified fund and the amounts flowing in and out should be clearly visible. This flow of funds should not be included in the unified budget, so as to keep the money from being spent on general government purposes, as happened to the earlier excess of inflows over outflows in the Social Security system.
In the case of administration by the IRS, an annual distribution could be made to every taxpayer and recipient of the Earned Income Tax Credit. In the case of the SSA, the distribution could be made, in terms proportionate to the dollars involved, to everyone either paying into the system or receiving benefits from it. In any case, checks to recipients should be identified as "Your carbon dividend."
The right level of the tax for the United States deserves careful study, but the principle of a lower starting rate with scheduled increases to an identified level has proven to be a good one in the five-year experience of a similar carbon tax in British Columbia. This gives time for producers and consumers to get accustomed to a carbon tax, and to discover how they can respond efficiently.
The tax should also further increase over time if the apparent severity of the climate effects is growing and, alternatively, the tax should fall over time if the severity appears to be decreasing. Finally, to equalize the present and future burdens, the carbon tax rate should rise over time approximately at the real interest rate (say, the real return on 10-year Treasurys), so that the present value of the burden would be the same to future consumers and producers as it is to present ones.
A revenue-neutral carbon tax should be supplemented by a reasonable and sustained support for research and development in the energy area. However, we would eliminate any program (loan guarantees, etc.) that tempts the government to get into commercial activities. Clearly, a revenue-neutral carbon tax would benefit all Americans by eliminating the need for costly energy subsidies while promoting a level playing field for energy producers.
Mr. Shultz is former secretary of labor, director of the Office of Management and Budget, secretary of the Treasury and secretary of state. Mr. Becker, a 1992 Nobel laureate in economics, is a professor of economics at the University of Chicago. Both are senior fellows at Stanford University's Hoover Institution.
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An abiding lesson of the Obama Presidency is that no tax increase is ever enough. So it's not surprising that the President's new budget includes an increase in the death tax only three months after the last increase.
In January Mr. Obama and Republicans agreed to tax estates at 40% with an exemption of $5 million ($10 million for couples). That was an increase from 35% and a $5 million exemption. Now only weeks later he's again looking for more, as his budget proposes to raise the rate to 45% and reduce the exemption to $3.5 million.
Mr. Obama's budget justifies this bait and switch by claiming that in the fiscal-cliff talks "Republicans insisted" on the 40% estate tax rate, which it also claims is a giveaway "averaging $1 million per estate to the very wealthiest Americans." That's the familiar soak-the-rich disguise for a tax increase, and note well that the White House proposal doesn't index its $3.5 million exemption for inflation.
This means that over time much smaller estates would be hit with a rate that would confiscate nearly half of a lifetime of savings or business success. That's exactly how a death tax that was originally sold in 1916 as hitting only billionaires like the Rockefellers gradually began to apply to middle-class families who own, say, a successful auto-repair shop or invested wisely during the stock market booms of the 1980s and 1990s.
The White House claims this tax increase would raise an extra $79 billion over a decade, but everyone knows the wealthy would change their behavior to shelter more of their estates. Mr. Obama's favorite billionaire, Warren Buffett, plans to shelter his fortune as a tax-exempt foundation, even as he argues for higher death taxes on everyone else.
Republicans are unlikely to go along with this death tax grab, but it once again reveals the disdain that Mr. Obama has for a lifetime of thrift and industry.
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WSJ
by ARTHUR B. LAFFER
Reinvigorating the economy should be priority No. 1 for federal and state leaders. After enjoying an average growth rate above 3.5% per year between 1960 and 1999, Americans have had to make do with less than one-half that pace since 2000.
The consequences are already dramatic and will become even more so over time. Overall we are 20% poorer today than we would be had the pre-2000 growth rate persisted. All other things being equal, less national income also means federal and state fiscal problems are more intractable.
At the state level, there are reforms that can alleviate the problems associated with declining sales-tax bases and, at the same time, allow the states to move closer to a pro-growth tax system. One such reform would be to have Internet sellers collect the sales taxes that are owed by in-state consumers when they purchase goods over the Web.
So-called e-fairness legislation addresses the inequitable treatment of retailers based on whether they are located in-state (either a traditional brick-and-mortar store or an Internet retailer with a physical presence in the state) or out of state (again as a brick-and-mortar establishment or on the Internet).
In-state retailers collect sales taxes at the time of purchase. When residents purchase from retailers out of state (including over the Internet) they are supposed to report these purchases and pay the sales taxes owed—which are typically referred to as a "use tax." As you can imagine, few people do.
The result is to narrow a state's sales-tax base. It also leads to several inefficiencies that, on net, diminish potential job and economic growth.
Exempting Internet purchases from the sales tax naturally encourages consumers to buy goods over the Web; worse, the exemption incentivizes consumers to use in-state retailers as a showroom before they do so. This increases in-state retailers' overall costs and reduces their overall productivity.
The exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes.
Therefore—as with any pro-growth tax reform—the sales tax base in the states should be broadened by treating Internet retailers similarly to in-state retailers, and the marginal income-tax rate should be reduced such that the total static revenue collected by the state government is held constant.
One difficulty in imposing an Internet sales tax is the existence of dozens, if not hundreds, of sales-tax jurisdictions in many states, often with the tax rates and tax classification of the same goods varying by jurisdiction. It is overly burdensome to task companies with remitting sales taxes to more than 9,500 such tax jurisdictions. Instead, each state should set up a single sales-tax system, making compliance as easy as possible for today's modern sellers.
Addressing e-fairness from a pro-growth perspective creates several benefits for the economy. A gross inequity is addressed—all retailers would be treated equally under state law. It also provides states with the opportunity to make their tax systems more efficient and better aligned toward economic growth, as well as improve the productivity of local retailers.
The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation's fiscal problems. Properly addressing the problem of e-fairness on the state level is a small, but important, step toward achieving this goal.
Mr. Laffer is the chairman of Laffer Associates.
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Arthur Laffer is usually right and always worth reading. That said, I have mixed feelings about this one.
From the conclusion: "The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation's fiscal problems."
Yes.
"The exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes."
This I find less convincing.
"It is overly burdensome to task companies with remitting sales taxes to more than 9,500 such tax jurisdictions."
Yes. Tracking the sales tax to 50 states is burdensome enough for the casual seller or buyer, but it is my county, not my state that is paying a sales tax for the Minnesota Twins stadium for example, and my zip code overlaps the neighboring county that does not pay that tax.
The "use tax" is bad joke. For example, Minneapolis has such high property taxes (and extra sales tax) that it has no hope of ever having certain types of large stores locate within the city limits. But if you go outside the city to buy things and carry them in, you are 'required' to track those purchases and send in the tax, or be in violation of the law. The compliance rate is zero, leaving otherwise law abiding citizens in perpetual violation of an overly burdensome law.
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In general should we be broadening the base and lowering the rate of most of our taxes ? Yes.
Does the 'internet sales tax' do that? No. This is just more taxes on more transactions. Why give that away without the winning the accompanying lower of the rates? It is a continuous and permanent transfer of more and more private sector resources over to the public sector.
Why are the Feds getting involved with state and local tax collections anyway?
We already tried to kill off the supply side of the economy. Now we are trying to kill off demand. We hit the savers. We hit the employers. It's time to hit the consumers a little harder.
The policy of the Fannie Mae, government-knows-best Left has gone from risking economic failure to guaranteeing it.
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Red Jahncke: The Federal Revenue Surge Won't Last
Large capital gains were taken as the low tax rates enacted by Bush neared their expiration date.
By RED JAHNCKE
There were many happy faces in Washington on Friday with the Treasury Department's announcement of robust tax revenues for April. Individual income-tax receipts surged to $240 billion for the month, taking the total for 2013 to $483 billion. This is far greater than the $393 in tax revenues the federal government collected for the first four months of 2012. The increase far surpassed the Congressional Budget Office projections in February.
The influx surprised the CBO and many other observers, but it shouldn't have. Neither should the dramatic drop that is likely to follow, though policy makers will be tempted to behave as if the revenue flood will continue.
Much of the increase in 2013 receipts is due to final tax payments for 2012 deriving from a rush to realize long-term capital gains before the 15% "Bush" tax rate on such gains expired at the end of 2012—and before the new 23.8% rate on long-term capital gains for higher-income taxpayers took effect on Jan. 1. How do we know this? Because virtually the same tax change occurred during the Reagan years, when the long-term capital gains tax rate jumped eight points, to 28% in 1987, when the Tax Reform Act took effect, from 20% in 1986.
Here are the 1980s data expressed in current dollars: In 1985, before any talk of the Tax Reform Act, individual taxpayers reported about $310 billion in long-term capital gains. In 1986, with the Tax Reform Act signed into law but not yet in effect, reported long-term capital gains ballooned to $580 billion. The following year, with the act's 28% rate in place, reported gains plunged to $250 billion. Tax revenues naturally followed—long-term capital gains tax revenue doubled to $90 billion in 1986, or 14.7% of total individual incomes taxes, before falling off again in 1987.
After these gyrations, long-term capital gains did not hit the 1986 peak again for a decade. This tax revenue pattern was replicated in many states whose tax systems peg off the federal system.
The pattern is likely to repeat today. Late last year, fear of a virtually certain steep impending tax increase gave investors every incentive to realize all available gains beforehand, raiding the gains that might have been reported in future years. We don't know how many gains were taken late last year or, therefore, how much of recently reported income-tax revenues came from capital gains. But clearly they were substantial. Such was the incentive to beat the impending tax hike that investors seem to have grabbed every available gain.
If 2012 resembles 1986 as a banner year for capital gains, then 2013 will look a lot like 1987, when there were hardly any to be had. Of course, the longer-term horizon depends on the performance of the stock market. It's hitting new all-time highs just now. Just as it was in 1987 before the famous crash.
The danger is that lawmakers and planners on the federal and state levels will mistake the current tax-revenue influx as a surge to a new, long-lasting plateau. It isn't.
Mr. Jahncke is president of the Townsend Group, a management consulting firm in Greenwich, Conn.
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The light at the end of the tunnel is an oncoming train.
Plan accordingly.
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President Obama named one of his budget functionaries, Danny Werfel, as the new acting Internal Revenue Service commissioner Thursday. Given that Mr. Werfel has spent the last year planning the sequester across the executive branch, he's more qualified to inflict more political abuse than prevent it. Allow us to propose a better candidate: National Taxpayer Advocate Nina Olson.
Ms. Olson is the ombudsman for the public inside the IRS. Her office parachutes in to aid individuals and businesses when the tax men are jerking them around, as well as making recommendations to Congress about modernizing the IRS and the tax code. She has held the post since 2001.
Ms. Olson seems to view the job as a moral calling, which is much-needed. The integrity of the tax system must be paramount when people are required to hand over giant chunks of their income to government. It usually falls to Ms. Olson to admonish the IRS that its chronic dysfunctions are—to borrow one of her favorite words—"unconscionable."
To take one example, Ms. Olson has been warning about tax-related identity theft since 2004, yet these crimes in which crooks fraudulently obtain someone else's refund have exploded to about half a million every year. The Taxpayer Advocate's identity theft caseload has increased 650% since 2008.
Ms. Olson's solution is for the IRS to create a single "traffic cop" to ensure innocent people get the money they're owed. Last year the IRS did the opposite and diffused accountability over 21 departments, using a "transfer matrix" to bounce victims from one to the next. "We see a lot of what I call the 'not my job' syndrome," Ms. Olson told the Journal of Accountancy in January, when fixing a problem is obvious "yet there's no one in the IRS who will accept responsibility."
Ms. Olson has also wielded a power called Taxpayer Advocate Directives that mandate changes in IRS procedure unless overruled by senior leadership. Four such directives had been issued until 2012 when Ms. Olson doubled the number, with plans to issue more.
She is trying to correct IRS misconduct such as a 2009 voluntary disclosure amnesty that was supposed to let taxpayers with overseas bank accounts amend their returns for errors and settle with a flat penalty. But the IRS merely announced the program on the Web, without the force of law. It then issued a memo telling examiners to treat those coming forward as criminal tax evaders, even for honest mistakes.
Ms. Olson tried to shut down this bait-and-switch violation of due process, but the IRS bureaucracy has responded by ignoring her directives while appealing to the chief IRS counsel to strip her of this authority.
A hundred years after the 16th Amendment created a four-page income tax return in 1913, Ms. Olson has also argued that the complexity of the modern code is the most serious problem for taxpayers. She often notes that tax credits and deductions this year will total $1.09 trillion while individual income tax revenue is about $1.36 trillion, which implies Congress could cut rates by 44% and still raise the same revenue.
That is not President Obama's version of tax reform, but perhaps he'll set aside his liberal preferences in favor of what is now his political interest to clean out the stables at 1111 Constitution Avenue.
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The Autocrat Accountants
Once government is ensnared in every aspect of life, a bureaucracy grows increasingly capricious.
By Mark Steyn
Left-wing groups had their 501(c)(4) applications approved in weeks, right-wing groups were delayed for months and years and ordered to cough up everything from donor lists to Facebook posts, and those right-wing groups that were approved had their IRS files leaked to left-wing groups like ProPublica. The agency’s commissioner, a slippery weasel called Steven Miller, conceded before Congress that this was “horrible customer service” — which it was in the sense that your call is important to him and may be monitored by George Soros for quality control.
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A civil “civil service” requires small government. Once government is ensnared in every aspect of life a bureaucracy grows increasingly capricious. The U.S. tax code ought to be an abomination to any free society, but the American people have become reconciled to it because of a complex web of so-called exemptions that massively empower the vast shadow state of the permanent bureaucracy. Under a simple tax system, your income is a legitimate tax issue. Under the IRS, everything is a legitimate tax issue: The books you read, the friends you recommend them to. There are no correct answers, only approved answers. Drew Ryun applied for permanent non-profit status for a group called “Media Trackers” in July 2011. Fifteen months later, he’d heard nothing. So he applied again under the eco-friendly name of “Greenhouse Solutions,” and was approved in three weeks.
The president and the IRS commissioner are unable to name any individual who took the decision to target only conservative groups. It just kinda sorta happened, and, once it had, it growed like Topsy. But the lady who headed that office, Sarah Hall Ingram, is now in charge of the IRS office for Obamacare. Many countries around the world have introduced government health systems since 1945, but, as I wrote here last year, “only in America does ‘health’ ‘care’ ‘reform’ begin with the hiring of 16,500 new IRS agents tasked with determining whether your insurance policy merits a fine.” So now not only are your books and Facebook posts legitimate tax issues but so is your hernia, and your prostate, and your erectile dysfunction. Next time round, the IRS will be able to leak your incontinence pads to George Soros.
Big Government is erecting a panopticon state — one that sees everything, and regulates everything. It’s great “customer service,” except that you can never get out of the store.
— Mark Steyn, a National Review columnist, is the author of After America: Get Ready for Armageddon. © 2013 Mark Steyn
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A company that pays $16 million a day in taxes isn't doing enough, causing children to starve etc. Good grief. Thomas Sowell is a person who puts my thoughts to words better than I could ever hope to. In this case it is Carl Levin making the Obama-style, Dem-fascism case. We need to defeat their way of thinking, not just bring down individuals in scandals and elections.
Thomas Sowell
The Bullying Pulpit
We have truly entered the world of "Alice in Wonderland" when the CEO of a company that pays $16 million a day in taxes is hauled up before a Congressional subcommittee to be denounced on nationwide television for not paying more.
Apple CEO Tim Cook was denounced for contributing to "a worrisome federal deficit," according to Senator Carl Levin — one of the big-spending liberals in Congress who has had a lot more to do with creating that deficit than any private citizen has.
Because of "gimmicks" used by businesses to reduce their taxes, Senator Levin said, "children across the country won't get early education from Head Start. Needy seniors will go without meals. Fighter jets sit idle on tarmacs because our military lacks the funding to keep pilots trained."
The federal government already has ample powers to punish people who have broken the tax laws. It does not need additional powers to bully people who haven't.
What is a tax "loophole"? It is a provision in the law that allows an individual or an organization to pay less taxes than they would be required to pay otherwise. Since Congress puts these provisions in the law, it is a little much when members of Congress denounce people who use those provisions to reduce their taxes.
If such provisions are bad, then members of Congress should blame themselves and repeal the provisions. Yet words like "gimmicks" and "loopholes" suggest that people are doing something wrong when they don't pay any more taxes than the law requires.
Are people who are buying a home, who deduct the interest they pay on their mortgages when filing their tax returns, using a "gimmick" or a "loophole"? Or are only other people's deductions to be depicted as somehow wrong, while our own are OK?
Supreme Court Justice Oliver Wendell Holmes pointed out long ago that "the very meaning of a line in the law is that you intentionally may go as close to it as you can if you do not pass it."
If the line in tax laws was drawn in the wrong place, Congress can always draw it somewhere else. But, if you buy the argument used by people like Senator Levin, then a state trooper can pull you over on a highway for driving 64 miles per hour in a 65 mile per hour zone, because you are driving too close to the line.
The real danger to us all is when government not only exercises the powers that we have voted to give it, but exercises additional powers that we have never voted to give it. That is when "public servants" become public masters. That is when government itself has stepped over the line.
Government's power to bully people who have broken no law is dangerous to all of us. When Attorney General Eric Holder's Justice Department started keeping track of phone calls going to Fox News Channel reporter James Rosen (and his parents) that was firing a shot across the bow of Fox News — and of any other reporters or networks that dared to criticize the Obama administration.
When the Internal Revenue Service started demanding to know who was donating to conservative organizations that had applied for tax-exempt status, what purpose could that have other than to intimidate people who might otherwise donate to organizations that oppose this administration's political agenda?
The government's power to bully has been used to extract billions of dollars from banks, based on threats to file lawsuits that would automatically cause regulatory agencies to suspend banks' rights to make various ordinary business decisions, until such indefinite time as those lawsuits end. Shakedown artists inside and outside of government have played this lucrative game.
Someone once said, "any government that is powerful enough to protect citizens against predators is also powerful enough to become a predator itself." And dictatorial in the process.
No American government can take away all our freedoms at one time. But a slow and steady erosion of freedom can accomplish the same thing on the installment plan. We have already gone too far down that road. F.A. Hayek called it "the road to serfdom."
How far we continue down that road depends on whether we keep our eye on the ball — freedom — or allow ourselves to be distracted by predatory demagogues like Senator Carl Levin.
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Mark Steyn on the radio, in for Rush today, made a profound point IMO. Paraphrasing, if the tax rate is 25%, what part of your income does the IRS control? The answer is 100%. They control the 25% that they take of course and they control the rest too. You have to report to them, keep accounting of it all for them and justify to them all of the part that you keep too. He brought this point over to health care. I will paraphrase even worse but you will have to account to them everything you do in health care, your broken leg, your prescriptions, your surgery, your decisions, coverage, payments, etc.
Here is a similar point in a Mark Steyn column: http://www.ocregister.com/articles/irs-508961-government-tax.html (The guy is pretty funny.)
"A civil "civil service" requires small government. Once government is ensnared in every aspect of life, a bureaucracy grows increasingly capricious. The U.S. tax code ought to be an abomination to any free society, but the American people have become reconciled to it because of a complex web of so-called exemptions that massively empower the vast shadow state of the permanent bureaucracy. Under a simple tax system, your income is a legitimate tax issue. Under the IRS, everything is a legitimate tax issue: The books you read, the friends you recommend them to. There are no correct answers, only approved answers. Drew Ryun applied for permanent nonprofit status for a group called "Media Trackers" in July 2011. Fifteen months later, he'd heard nothing. So he applied again under the eco-friendly name of "Greenhouse Solutions," and was approved in three weeks."
"The president and the IRS commissioner are unable to name any individual who took the decision to target only conservative groups. It just kinda sorta happened, and, once it had, it growed like Topsy. But the lady who headed that office, Sarah Hall Ingram, is now in charge of the IRS office for Obamacare. Many countries around the world have introduced government health systems since 1945, but, as I wrote here last year, "only in America does 'health' 'care' 'reform' begin with the hiring of 16,500 new IRS agents tasked with determining whether your insurance policy merits a fine." So now not only are your books and Facebook posts legitimate tax issues but so is your hernia, and your prostate and your erectile dysfunction. Next time round, the IRS will be able to leak your incontinence pads to George Soros. Big Government is erecting a panopticon state – one that sees everything, and regulates everything. It's great "customer service," except that you can never get out of the store."
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On American Thinker today:
http://www.americanthinker.com/2013/05/how_to_junk_the_irs.html
In a nutshell, he replaces FICA and the income tax with an expanded FICA. Easy to calculate, easy to collect. Remove the cap so it is taxed al the way up, levy 11% on the employee and 11% on the employer. it would not have to be flat, could be tiered (but that creates other problems). No deductions, exceptions or special rules (for the most part).
The plan is not fully thought through on capital gains. I say adjust long term gains for inflation and then tax them the same. I am not endorsing this plan (yet) but I endorse the idea that total reform is needed, simplicity and lower rates need to be at the heart of it, and that any idea ('FAIR' tax/consumption tax) that assumes the tax rate on income can ever go to zero in our lifetime is naive.
Comments?
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(http://www.powerlineblog.com/admin/ed-assets/2013/06/Flat-Tax-copy.jpg)
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Doug,
Do you think Rove Bushes and the rest of the Rep elite party are hip to this? It is a tall task in a country with half who don't pay taxes but this might have the momentum if played right. But the "leaders" on the right are not as clever and directed as the politburo.
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Doug, Do you think Rove Bushes and the rest of the Rep elite party are hip to this? It is a tall task in a country with half who don't pay taxes but this might have the momentum if played right. But the "leaders" on the right are not as clever and directed as the politburo.
A true flat tax is not going to fly, but a 2 or 3 tiered tax system with only 2 or 3 deductions allowed would accomplish the nearly the same thing. Ted Cruz and others are working on this idea.
Reducing a 26 volume tax code to a single page will mostly dis-empower the IRS, no matter what rates we choose.
Since the peak of the last economic expansion, liberals have been winning the 'fairness' argument by bringing everyone down. Tomorrow's leaders will need to move the polls toward the policies of economic growth, not follow the current polls.
Rove is not against reform, he is against the nomination of inexperienced, unvetted candidates who run for high offices and blow crucial races. The tea party and Rove types focused on winning elections can learn from each other and work together. Republican should have tied or taken the Senate last time around. All the Republican presidential candidates had big tax reform ideas in their platforms, written by the advisers from among the party elites. We need better candidates with better messaging to win more votes. The success of people like Cruz, Rubio and Rand Paul and others needs to spread to more like-minded candidates winning more races.
Rubio won by a swing state by a million votes and Rove was one of his earliest backers - and he was running against a moderate, sitting governor in his own party. But Rubio came to the Senate race from his position as Florida Speaker of the House, not as an unvetted newcomer or outsider.
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"Reducing a 26 volume tax code to a single page will mostly dis-empower the IRS, no matter what rates we choose"
Also will dis-empower some of the political corruption in DC.
Of course we would still have state taxes, county taxes, and so forth....
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The Stones are famously tax-averse... "The whole business thing is predicated a lot on the tax laws," says Keith Richards, Marlboro in one hand, vodka and juice in the other. "It's why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out. No taxes at all."
Fortune Magazine, Sept. 30, 2002, WSJ 06/10/2013
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"Reducing a 26 volume tax code to a single page will mostly dis-empower the IRS, no matter what rates we choose"
Also will dis-empower some of the political corruption in DC.
Of course we would still have state taxes, county taxes, and so forth....
That's right. Eliminating preferences and pursuing 'equal protection' brings all special interests down to just free speech power like everyone else. There is no point in a zero federal income tax because a) it will never happen (again), and b) the states and everyone else will just tax the hell out of your income anyway. The real gain from a fair tax, national sales etc would have been to not have to calculate your income. In all but a few states, you have to do that anyway.
The focus of the new federal tax system must be to tax all income, but do it wider, lower, flatter, and simpler. The reason to do it is to re-empower the American private sector to grow wealth for all who join in.
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The obamacare tanning bed tax will put all tanning bed businesses out of business. There is one exception. If such beds are offered as part of a gym or fitness center at no extra charge, no tax will be imposed. Of course they did not want the huge conglomerate 'health' clubs to jump on the anti-Obamacare bandwagon. So indoor tanning is bad for you if you pay for it, not so much if part of a larger fitness program. Good grief.
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"...the absurd has become the accepted norm..."
http://www.washingtonpost.com/opinions/kathleen-parker-irs-taxing-of-tanning-beds-and-other-obamacare-absurdities/2013/06/11/42b8e99e-d2cf-11e2-8cbe-1bcbee06f8f8_story.html
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How about just a tax rate and a tax, instead of a 10,000 bill, just one of many, replacing the market, picking winners and losers.
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Dear Marc F.,
The power to tax is the power to destroy - and now the ability to track what you purchase. Legislation recently passed through the U.S. Senate would force small Internet businesses to become sales tax collectors for nearly 10,000 tax jurisdictions. If passed, the National Internet Tax Mandate would raise taxes on all Americans, as a state sales tax on all goods purchased online would be implemented.
But that’s not all it does. You see, every state taxes different things. Some tax food; others don’t. Some tax medicines; others don’t.
Do you see the invasion of privacy that is coming?
Government bureaucrats are not only going to know you made an online purchase, but they will also have to know WHAT you purchased. It’s the only way they could make this scheme work.
But it also has other huge problems:
*** All Americans would see their taxes go up, as big-spending governors of BOTH parties work to implement a state sales tax on ALL goods purchased online.
*** In order to enforce the law, state tax agencies would get to monitor your records. This means each time you buy ammo online, the government sees the receipt!
*** New and higher taxes would destroy small web-businesses, crush economic growth, and set the stage for massive new regulations that threaten the very existence of the Internet.
Marc F., you and I have to mobilize NOW to stop this madness.
I need you to call your Representative today! Let your Representative know you won't put up with this egregious attack on taxpayers and small business owners.
Already, C4L’s efforts have made a huge difference.
Despite passing in the Senate, the bill appears to have stalled in the House.
But “stalled” does not mean “defeated.”
In fact, I'm already getting word that some in the GOP leadership will be more than happy to help this Obama-backed bill – or one like it - sail into law.
Now is the time to turn the pressure up and finish this fight in victory!
Greedy state officials from all over the country are eager to get more of your money and are busy bending the ears of Congress.
They want to start taxing EVERYTHING you purchase online - clothing, books, software, ammunition – and you can be sure state agencies will see a copy of every transaction.
Forcing small businesses to comply with nearly 10,000 tax jurisdictions in the United States will result in a crippling amount of red tape for them to navigate.
Not to mention the sheer cost associated with complying.
You and I both know, under the guise of "national security,” establishment bureaucrats are already feverishly looking for new ways to trace, track, and register all Americans' activity - and this bill will help move them one step closer to doing just that.
What you read. What you buy. What videos you watch. What you write about THEM.
Where will it end?
We MUST stop this bill now, so call your Representative today.
Tell your Representative how bad this bill – or any attempt to tax the Internet - is for the economy and the American taxpayer. Ask to speak directly to the Legislative Assistant in charge of this issue.
Will you stand by while the big taxers impose yet another tax on hardworking Americans?
Will you allow establishment insiders to destroy entrepreneurship and innovation online?
Or will you help me FIGHT BACK and stop the establishment from trampling on taxpayers and small businesses yet again?
In Liberty,
Deb Wells
Senior Director of State Operations
Campaign for Liberty
P.S. We must act now if we are going to stop this terrible legislation from passing the U.S. House.
If this bill is passed, it will hurt the American taxpayer, business owners, and YOUR INTERNET PRIVACY!
That’s why I am asking you to call and email your Representative.
Make sure to ask to speak to the Legislative Assistant on this issue directly when you call!
Tell your Representative how bad this bill – or any attempt to tax the Internet - is for the economy and the American taxpayer.
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The two ranking members of the Senate Finance Committee are starting a project of writing a new tax code and replacing the current 72,000 page monstrosity. They have put their peers on notice that they have one month to report back on what deductions, exemptions and special treatments are worth keeping and why. Otherwise we start from scratch, blank slate. This is great news except for the fact that Max Baucus (D-MT) is lame duck, not running for reelection and not supported by his own party and Orrin Hatch serves in the minority party with no power and no chance of moving good legislation forward. Still, this is a very positive development compared to the status quo of no one talking about the problem or a solution since the last Republican Presidential losers' debate of winter, 2012.
http://online.wsj.com/article/SB10001424127887324328204578572472718625916.html?mod=WSJ_Opinion_MIDDLESecond
http://online.wsj.com/article/SB10001424127887323873904578573481723514850.html?mod=WSJ_Opinion_MIDDLESecond
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Colorado makes a distinction between medical and recreational use. For taxation there will be 3 categories, medical with zero tax, recreational taxed to the hilt, and old fashioned black market, just like it used to be.
http://denver.cbslocal.com/2013/07/10/taxes-on-recreational-pot-sales-could-top-35-percent/
DENVER (CBS4)- The taxes on recreational marijuana might go a lot higher than first thought. Smokers buying at shops in Denver may pay up to 35 percent in taxes.
Colorado voters will be asked to approve two state taxes totaling 25 percent on all retail marijuana sales in the November election. They may be asked to approve an additional city tax for Denver. Denver Mayor Michael Hancock wants to add an additional five to 10 percent city tax on top of that. Hancock said the money is needed to pay the costs of regulating the drug.
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A rare politician who is actually an economist, Phil Gramm shares good wisdom about the criteria required to make tax reform successful.
Phil Gramm: A GOP Game Plan for Tax Reform WSJ July 10, 2013
If the special deals that create crony capitalism are allowed to survive, Republican efforts will have failed.
Thanks to the efforts of Democrat Sen. Max Baucus and Republican Rep. Dave Camp, Congress will take up tax reform this year. Before the debate begins, however, Republicans need to set out the principles that represent our values. In my 24 years in the House and Senate, I never wrote a bill that represented a 100% statement of my values, but I always found it important to know where the North Star was as I tried to navigate through the swamp.
First, under no circumstances should Republicans agree to make the tax system even more progressive than it already is, or to increase the number of people who do not pay income taxes. In 1980, the top 1% and 5% of income earners in America paid 19.1% and 36.9% of total federal income taxes. Today, the top 1% and 5% pay 37.4% and 59.1%. Meanwhile, 41.6% of American earners now pay no federal income taxes.
The more progressive the tax system becomes the more unstable the country's public finances get. High-income Americans earn a large share of their income in bonuses, dividends and capital gains, all of which are highly sensitive to the business cycle. This means wide swings in tax collections that play havoc with government budgets. The removal of large numbers of people from the tax rolls makes the political system more unstable. Individuals and households that pay no income taxes have a diminished stake in limited government.
Second, government should collect the minimum revenues needed to support and protect a free society and do so in a way that is, as far as possible, neutral in its effect on individual behavior. In its purest form, this means no individual deductions, credits or tax expenditures. No matter how committed Americans may be individually to charitable giving or home ownership, the government should not promote those values through special provisions in the tax code.
Third, Republicans should require all similarly structured firms be treated the same. If sweat equity is taxed as a capital gain for a mechanic who opens a garage with a financial partner, it should be treated the same for a hedge fund or private-equity manager who shares in the gains of his investors.
Fourth, business subsidies and credits should be eliminated. Ending subsidies to fund lower tax rates improves the efficiency of capital allocation. The sine qua non of tax reform is a more efficient allocation of investment capital. If the tax breaks that create crony capitalism are allowed to survive, then tax reform failed.
Fifth, all costs of production should be equally deductible when they are actually incurred, and all income should be recognized at the time it is actually earned and taxed only once. President Obama's repeated proposal to force large Subchapter S corporations and limited liability entities to be taxed as C corporations is a movement in the wrong direction. Revenues flowing from those changes would come almost exclusively from the double taxation of corporate income: first on corporate profits, and again when individuals pay taxes on dividends and capital gains.
Other things being equal, the efficiency of a nation's corporate tax system can be measured by the lack of special-interest provisions in the code and how low the tax rate is. But things are never equal—and a fixation with achieving a given corporate tax rate is dangerous. That's because you can, within limits, make the tax rate whatever you want it to be by changing the definition of what is a deductible business expense.
For example, by limiting or eliminating the deductibility of interest cost—a perfectly legitimate cost of doing business—the "savings" could be used to lower the corporate tax rate. But such changes would further distort the cost of capital relative to the cost of labor and almost certainly be detrimental.
Similarly, you could eliminate the deductibility of wages and other costs of doing business and simply tax gross receipts instead of net profit. The tax rate would be low, but would economic efficiency be increased? No.
Sixth, tax reform should move toward the elimination of taxes on the foreign earnings of American companies, whose profits are already taxed abroad. Other countries recognize that the competitiveness of their companies would be severely damaged if they had to pay higher taxes than their competitors in foreign markets and do not impose domestic taxes on foreign earnings.
By attempting to tax foreign earnings when they are repatriated, the United States has incentivized companies not to repatriate earnings. As a result, U.S. companies hold huge hoards of cash abroad while domestic investment lags.
Since America is now the worst place in the world to earn corporate profits, we might be better off ending all business subsidies and using the savings to eliminate the dual taxation of corporate income and the taxation on foreign earnings—and to lower the corporate tax rate as much as is consistent with revenue neutrality, using static scoring. We could then write a provision into the law that if the improved code collects more taxes than the static revenue estimates, the rate would automatically be lowered over time by the amount of over-performance, down to 25%.
Some final advice: Compromise is fine if it moves you in the right direction. But don't compromise on things that will only make rational reform harder in the future. If you can improve the tax code and help the economy now, do it. But remember, the Obama administration too shall pass, and a poor deal now will make a good one harder to achieve in the future.
Mr. Gramm, a former Republican senator from Texas, is a senior partner of US Policy Metrics and a visiting scholar at the American Enterprise Institute.
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A Special Tax Misery for Americans Living Abroad
The Foreign Account Tax Compliance Act encourages you to surrender your citizenship—or your sanity.
By COLLEEN GRAFFY
London
Beware the sledgehammer used to crack the nut. In this case, the nut is the U.S. government's laudable goal of catching tax evaders. The sledgehammer is the overreaching effect of legislation that is alienating other countries and resulting in millions of U.S. citizens abroad being forced to either painfully reconsider their nationality, or face a lifetime of onerous bureaucracy, expense and privacy invasion.
The legislation is Fatca, the Foreign Account Tax Compliance Act. To appreciate its breathtaking scope along with America's unique "citizen-based" tax practices, imagine this: You were born in California, moved to New York for education or work, fell in love, married and had children. Even though you have faithfully paid taxes in New York and haven't lived in California for 25 years, suppose California law required that you also file your taxes there because you were born there. Though you may never have held a bank account in California, you must report all of your financial holdings to the state of California. Are you a signatory on your spouse's account? Then you must declare his bank accounts too. Your children, now adults, have never been west of the Mississippi. But they too must file their taxes in both California and New York and report any bank accounts they or their spouses may have because they are considered Californians by virtue of one parent's birthplace.
Extrapolate that example to the six million U.S. citizens living around the globe. Many, if not most, don't know about these requirements. Yet they face fines, penalties and interest for not complying—even if they owe no U.S. taxes, own no U.S. property, have no U.S. bank account and haven't lived there in years—if ever.
A particularly alarming aspect of Fatca is that it seeks to co-opt foreign banks as long-arm enforcement agencies of the Internal Revenue Service—even when it might contravene that country's own privacy or data-protection laws. If financial institutions don't report U.S. citizens holding accounts with them, these institutions face a 30% withholding tax on securities transactions that originate in the U.S.
Given this threat, why allow an American, or even suspected American, to bank with you? The reporting costs, and the consequences of a mistake, are too onerous. It isn't always obvious who's a U.S. citizen, either. Many, like the very British mayor of London, Boris Johnson, are "accidental Americans." He was born in New York, where his father worked for the U.N. And unless Mr. Johnson has actively renounced his citizenship, which requires an appointment at a U.S. Embassy, forms and fees, he is still an American citizen.
Mr. Johnson repudiated his American citizenship in a newspaper column once, but it's far from clear that this would satisfy U.S. authorities. Mr. Johnson, have you filed your taxes and reported all your U.K. bank accounts to the U.S. Department of Treasury yet?
Foreign financial institutions trying to avoid these new requirements have two alternatives: to drop American clients, or don't invest in the U.S. Neither scenario benefits America. And yet it's hard to believe that Chinese financial institutions will acquiesce in reporting their clients' account information to the U.S. Imagine the howls down the halls of Congress if China informed U.S. banks that they must report to China all of the bank accounts held by Chinese citizens in the U.S. or face penalties.
This infringement on the sovereignty of other nations has not gone down well abroad and has only served to reinforce the most negative stereotypes of America. To address this, the U.S. Treasury has been negotiating "Inter-Governmental Agreements" (IGAs) that promise reciprocity in return for compliance. But in a letter to Treasury Secretary Jacob Lew, Rep. Bill Posey—a member of the House Financial Services Committee from Florida—alleged that Treasury had exceeded its authority in promising reciprocal financial reporting to foreign nations. If Rep. Posey is wrong, U.S. banks will face enormous reporting requirements and costs. If he is right, the U.S. government will face enormous international embarrassment after having coaxed nations into signing IGAs.
The core injustice in America's tax policy is that it is based on citizenship rather than residency. This novel approach is practiced by only two countries in the world: the U.S. and Eritrea. Ironically, then-U.S. Ambassador to the U.N. Susan Rice condemned this practice by Eritrea in 2011 as "the extortion of a 'diaspora tax' from people of Eritrean descent living overseas." Many would describe U.S. practice in similar terms.
Dual citizens like me who live bi-continental lives are aware that there is no upside in our tax position. We are required to file in both countries, we pay taxes where the taxes are highest, and we can take none of the tax advantages either country has to offer.
But for many others, whose lives are only in one country—and that one country is not the U.S.—this type of taxation is particularly destructive. It forces honest people with affection for their ties to America to either keep quiet about their heritage, or spend potentially thousands of dollars a year to prove that they owe no U.S. taxes. Or, as is increasingly occurring, it forces them to give up their U.S. citizenship. The result is that the U.S. is turning millions of "good will" ambassadors into "bad will" ambassadors. Can any of this be good for America?
Ms. Graffy is a law professor with Pepperdine University in Malibu, Calif., based in London as director of Pepperdine's London Law Campus.
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Good to see Dr. Carson still engaged , , ,
CARSON: Proportional taxation works because it’s fair to everyone
The biblical model emphasizes service rather than envy
By Ben S. Carson
Wednesday, July 17, 2013s
Many of the Founding Fathers fled to America because of the promise of freedom of speech and freedom of expression. In England and other monarchies, one could be imprisoned or killed for voicing opinions that differed from those of the rulers. If indeed we are willing to easily ignore government persecution of those who voice disagreement with its policies, then we are rapidly moving backward instead of forward in the quest for the freedom that was part of America’s promise.
We hear a lot in Washington these days about “fairness.” But there is nothing fair about targeting people or groups that disagree with the policies of the executive branch of government. There is nothing fair about a tax code filled with loopholes that can be exploited by those who can pay high-priced tax lawyers and accountants to find them. There is certainly nothing fair about a tax code that is so complex that it is virtually impossible to comply with every aspect of the thousands of pages of rules and regulations. Because of the complexity of this code, the government can target virtually anyone and find a mistake in their tax documents, which can be used to extort money or worse. We are talking of nothing less than the precursor of a totalitarian government.
We now have every reason to call for tax reform. We need to strike while the iron is hot or everyone will soon adopt a laissez-faire attitude, and the corruption will continue unabated. Many alternative forms of taxation are used throughout the world, but the model that appeals most to me is based on biblical tithing. Under that system, everyone was required to pay one-tenth of their income to the designated authorities of the theocracy. You were not excused if you experienced a crop failure, nor were you asked to pay triple tithes if you had a bumper crop. Under this system, the man with the bumper crop obviously would pay a lot more in tithes than the man who experienced the crop failure.
If we bring this concept forward to modern times and use the 10 percent model — although it could be any percentage — a Wall Street wizard who makes $10 billion a year would have to pay $1 billion, whereas a schoolteacher who makes $50,000 a year would have to contribute $5,000. Some would say this system would not be fair because it doesn’t hurt the billionaire as much as it hurts the teacher. The problem with this line of reasoning is that no one can be completely objective in determining exactly how much each person should be hurt.
Proportionality eliminates this dilemma and simplifies things to the point where we don’t need complex agencies such as the IRS. Instead of trying to decide how much we need to hurt the billionaire, we should be grateful that his contributions are building roads and keeping bridges in good repair proportionately as much as the contributions of hundreds of teachers. Of course, the teachers are making other important contributions to society, and we recognize this by giving everybody the same rights regardless of their financial status. This kind of system can work only if we eliminate loopholes and make it truly fair.
The other big plus for this proportional system of taxation is that everyone is included. We need to abandon the idea that some people are too needy and pitiful to be required to make contributions. I believe this is insulting to the poor, who may not have much money but certainly can possess dignity and self-respect. I can remember as a child getting my first paycheck and being proud and happy to make a contribution to my own well-being and that of the larger society.
Furthermore, if everyone is included in the tax base, it forces the government to be more frugal with the taxpayers’ money. Officials must answer to everyone, especially when they propose tax hikes. It is relatively easy to point the finger at a small group (the rich) and say, “Let’s get them.” This type of attitude takes advantage of some of the more undesirable human traits, such as jealousy and envy. It plays into the politics of division, which does nothing to strengthen our nation but can be helpful to those interested only in political power.
America has been and continues to be the most generous nation on earth. We love to help the less fortunate, and I hope we always care for our fellow man. We need to look for ways in which we can work together and reject all the forces that want to pull us apart. When we talk about “liberty and justice for all,” let’s make sure we mean it.
Ben S. Carson is professor emeritus of neurosurgery at Johns Hopkins University.
Read more: http://www.washingtontimes.com/news/2013/jul/17/proportional-taxation-works-because-its-fair-to-ev/#ixzz2Zh6h0M4e
Follow us: @washtimes on Twitter
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Midway through year five he discovers or admits that having the highest tax rates in the developed world is a bad thing for the economy? Say it isn't so! If it is so, why does he have to offer a grand bargain to get what the opposition has said we needed all along? What a complete, economic moron. And duplicitous politician.
http://www.reuters.com/article/2013/07/30/us-usa-obama-idUSBRE96T0F820130730
"Obama wants to cut the corporate tax rate of 35 percent down to 28 percent and give manufacturers a preferred rate of 25 percent."
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And then he will spend the money on infrastructure?! Who knew that lowering tax rates down from punitive levels will generate new revenues?? It kind of defeats the whole purpose of the Pelosi-Reid-Obama, post-2007 economic nightmare. It makes me think we lost 10 trillion dollars, 10 million workers and one decade of our nation's history we will never get back for no reason.
What next? Will they discover that punitive individual tax rates, raised just this year, are killing jobs, industries and cities too?
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I hope all those youthful Obama supporters are enjoying their parent's basements and part time McJobs.
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Calling Foul on the Marketplace Fairness Act
The cross-state sales tax legislation is a grave threat to online businesses like mine.
By
RICK SMITH
CONNECT
Proponents of the Marketplace Fairness Act—which would enable states to collect sales tax on Internet vendors—have had very little difficulty getting the word out about why this legislation should become law. Well-connected big-box retailers, venture-funded tax service companies and Amazon.com certainly have the budgets to run an excellent PR campaign for passage of this bill. Lost in this lobbying shuffle are a large number of businesses who will be severely hurt or even put out of business by this ill-conceived bill.
I'm the owner of Chefsresource.com, an online retailer of gourmet kitchen items for the past 14 years. We're a family-run business with a fairly small number of core employees who handle all aspects of our online business. We're located in California and collect sales tax for our California shipments.
The biggest concerns I have are about compliance costs and the audit possibilities under the MFA. Right now, I am in the middle of my second California sales-tax audit. Even under the best of circumstances, audits are stressful, invasive, time consuming and costly. A good auditor is thorough and just doing his job, but the hard expense of extra accounting assistance and, more important, the demands on my time are a real challenge and take away from my ability to grow my business. The MFA would require companies like mine to collect sales tax in states where we have no physical presence, opening us up to the risk of audit by as many as 45 sales-tax states each year.
I truly cannot see how our business could possibly handle audits by scores of different states and tax jurisdictions at any one time. Even a few audits per year would be more than we can handle, and the personal financial responsibility for any audit deficiencies is frightening to me. The only safe-harbor provision in the MFA is that companies would not be held responsible if an error is made by the government-certified software provided "free" under the proposed law.
But software glitches are only a small portion of the possible audit issues. For instance, how would this new remote auditing power be enforced? Will they come to my office like my local auditor does? Of course not. Will we be compelled to attend audits in different states? This is not addressed in the bill or directly addressed in the states' simplification standards document.
The myth of free software solving everything is especially infuriating to business owners who understand the business processes involved. To quote McKane Davis, president of Scrapbook.com and one of the founders of eMainStreet Alliance, a grass-roots group of online small businesses opposed to the MFA: "The software is free like a puppy is free." Every state is allowed to offer its own choice of software. The software might be custom-written by the state, or might be licensed from a tax-software provider. It's not possible to integrate numerous, incompatible "free" solutions into our business. The only solution is to pay a provider.
Unfortunately, even paid solutions will not fully accommodate our fairly standard business requirements. There is far more to sales-tax collection than figuring out the correct amount due in the shopping cart. Avalara, a leading sales-tax compliance service can certainly handle that small aspect of the big picture. But they don't currently work with our order-processing software, which handles phone orders, returns, sales-tax reports and more. Our Amazon sales cannot be handled through this paid service either. Amazon sales-tax collection would have to be handled through Amazon itself—for a fee of course.
The small-business exemption excluding companies with remote sales of less than $1 million sounds generous but is far too low. Assuming 5% net margins (Amazon's is closer to 1%), that's $50,000 a year in net profits. Compliance costs will wipe out a large chunk of those profits. The definition of "small" also will be a disincentive against growth; many people will shrink their businesses to avoid the issue or simply shut down.
Moreover, a much larger number of businesses will be affected by the MFA than is commonly known. Remote sellers under the act most visibly include online retailers and catalog sellers. But the act will also apply to remote vendors, manufacturers and distributors who supply retailers. Many of our suppliers, for example, would not qualify for the small-business exemption and will face the same 45-state audit risk we do. Some of our suppliers also sell direct to consumers. They will be hit in the same way all remote retailers will. Their costs will need to be passed on, which will likely lead to higher wholesale and retail prices.
I strongly support the Supreme Court's 1992 decision in Quill Corp. v. North Dakota that no state may require retailers to collect sales taxes from online buyers unless the retailer has a physical presence in the taxing state. Physical location is the key, and any attempt by other states to pass their tax-collection burden on to me is a grave threat to my business. The MFA is flawed legislation that doesn't bring true simplification to the process.
Mr. Smith is the founder and president of Chefsresource.com and a member of the eMainStreet Alliance.
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On the previous, isn't it just like liberalism and our media to allow a huge new tax to be called 'marketplace fairness'.
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George Will writes today on the beginning of a new effort at tax reform:
"Since the 1986 simplification, the code has been re-complicated more than 15,000 times at the behest of Americans who simultaneously praise the principle of simplification. All other taxes could be abolished if we could tax the nation’s cognitive dissonance"
http://www.washingtonpost.com/opinions/george-will-taming-the-tax-code-beast/2013/08/09/230783ce-011b-11e3-9a3e-916de805f65d_story.html
Taming the tax code beast
By George F. Will, Published: August 9
“Colleagues,” said the June 27 letter to 98 U.S. senators, “now it is your turn.” The letter’s authors are Max Baucus (D-Mont.) and Orrin Hatch (R-Utah), the chairman and ranking Republican, respectively, on the tax-writing Finance Committee. From their combined 71 years on Capitol Hill they know that their colleagues will tiptoe gingerly, if at all, onto the hazardous terrain of tax reform.
Together with Chairman Dave Camp (R-Mich.) of the House Ways and Means Committee, Baucus and Hatch propose a “blank slate” approach, erasing all deductions and credits — currently worth more than $1 trillion a year — and requiring legislators to justify reviving them. Hence the Baucus-Hatch letter, in response to which almost 70 senators sent more than 1,000 pages of suggestions. Although some often were short on specificity, the submissions were given encrypted identification numbers and locked in a safe, as befits dangerous documents.
Every complexity in the 4 million-word tax code was created at the behest of a muscular interest group that tenaciously defends it. Which is why tax simplification would be political reform: Writing lucrative wrinkles into the code is one of the primary ways the political class confers favors. Furthermore, “targeted” tax cuts serve bossy government’s behavior modification agenda: Do what we want you to do and you can keep more of your money. Simplification would reduce the opportunities for the political class to throw its weight around. Hence the flinch from simplification.
In 1986, however, Congress did not flinch. In the past 40 years, Finance, the Senate’s most important committee, has had formidable chairmen — Russell Long, Bob Dole, Bob Packwood, Lloyd Bentsen, Pat Moynihan and Baucus. And in 1986 there were additional serious reformers, including Sen. Bill Bradley and Rep. Dick Gephardt.
Of the three biggest tax preferences, unions, especially, oppose taxing as compensation — which it obviously is — employer-paid health insurance (a $260 billion benefit), and Democrats oppose ending the $80 billion deduction for state and local taxes. It encourages high government spending.
The third preference, the mortgage-interest deduction, is a $70 billion benefit that goes disproportionately to affluent homeowners. But Australia, Canada and the United Kingdom, which have no mortgage-interest deduction, have homeownership rates comparable to America’s. Every congressional district, however, has real estate brokers benefiting from the bankers who benefit by providing mortgages.
Baucus is proud to have been mentored by the greatest Montanan, Mike Mansfield, a Democrat who for 16 of his 24 Senate years was majority leader. Today, the main impediment to tax reform, aside from Baucus’s risk-averse colleagues, is Majority Leader Harry Reid, who, Baucus insists, emphatically but implausibly, is a friend. Reid, who is as petty as Mansfield was grand, deplores partisanship but resents Democrats such as Baucus who practice bipartisanship. Reid says he did not even read the Baucus-Hatch letter, and insists tax reform “can’t be revenue neutral; it can’t be even close to neutral.”
Each year 6.1 billion hours are spent complying with the tax code. This is equal to the work time of 3 million full-time workers, making tax compliance one of America’s largest industries. Is there time for Congress to reduce this waste of time?
“It’s early,” says Baucus equably. Actually, it is late in this legislative year, and elections are next year. But, says Baucus serenely, 1986 was an election year in a president’s second term . He seems unperturbed about the possibility that Camp might be distracted by seeking Michigan’s open Senate seat. Baucus still hopes to bring Congress to an “all join hands and jump together” moment, “a tipping point where there is a sense of inevitability.”
Inevitably, however, the tax code has reached a critical mass of complexity that renders it almost unreformable. This illustrates the crisis of the regulatory state: Interest groups fasten themselves onto the government and immobilize it.
At the 2004 Republican convention, George W. Bush vowed to “simplify” the tax code’s “complicated mess.” The convention roared approval. Next, he promised new complexities — tax benefits for “opportunity zones” in depressed areas, a tax credit to encourage businesses to offer health savings accounts. Another roar of approval.
Since the 1986 simplification, the code has been re-complicated more than 15,000 times at the behest of Americans who simultaneously praise the principle of simplification. All other taxes could be abolished if we could tax the nation’s cognitive dissonance.
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Overseas Americans: Time to Say 'Bye' to Uncle Sam?
Chased by the U.S. Government, Thousands Are Severing Ties With America. Here's What You Need to Know
By
LAURA SAUNDERS
and
LIAM PLEVEN
CONNECT
Here is a sign that life is getting complicated for U.S. taxpayers with assets abroad: More of them are deciding they are better off cutting official ties with America.
In the first half of 2013, 1,809 people renounced their American citizenship or permanent-resident status, according to a tally by Andrew Mitchel, a tax lawyer who tracks U.S. data. At that pace, the 2013 total would double the previous high of 1,781 renunciations in 2011.
Daniel Kuettel, a Colorado native who lives near Zurich, says he gave up his U.S. citizenship in October because he feared he wouldn't be able to get a mortgage now that some Swiss banks are cutting ties with American clients.
"It was a really difficult decision. I had to think about what was best for me and my family, to reduce the risk," says Mr. Kuettel, a 41-year-old software developer. He says his income was below the limit the U.S. allows overseas taxpayers to exempt and he owed no U.S. taxes.
'Bye' to Uncle Sam?
Will Renouncers' Names Be Public?
The increase in renunciations is one sign that ordinary Americans who have lived and worked abroad for years, as well as green-card holders in the U.S. and overseas, believe they are at growing risk because of the intensifying government pursuit of undeclared foreign assets.
The crackdown started in the wake of the 2001 terrorist attacks, and it gathered force after Swiss banking giant UBS AG UBSN.VX +0.94% agreed in 2009 to pay $780 million to settle charges it had helped U.S. taxpayers hide assets.
Since then, more than 80 U.S. taxpayers have been criminally charged, and Switzerland's oldest bank, Wegelin & Co., closed down after pleading guilty to helping U.S. taxpayers hide more than $1.2 billion abroad.
On Friday, a prominent Swiss lawyer pleaded guilty in U.S. court to helping U.S. taxpayers hide millions of dollars abroad.
U.S. officials are enforcing rules established by Congress—some widely ignored for years, and others added more recently—that threaten stiff penalties and even prison for failure to comply. The crackdown has brought more than $6 billion in taxes and penalties into U.S. coffers, and experts say another $5 billion is in the pipeline. A representative for the IRS declined to comment.
As required by law, the IRS compiles a list of those who renounce their citizenship, and the names are published in the Federal Register.
Much of the money comes from well-heeled taxpayers. The top 10% of taxpayers who went through one of the Internal Revenue Service's limited-amnesty programs had account balances over $4 million, the U.S. Government Accountability Office estimated in a March report. The programs are one way for taxpayers who have missed past filings to come into compliance.
But many U.S. taxpayers who aren't wealthy also are finding it harder to attend to routine financial matters abroad, because some foreign institutions don't want to face the cost of complying with U.S. requirements.
Amid the crackdown, some face stiff U.S. tax bills and crippling fines over undeclared assets. Paying lawyers and accountants to help meet the various reporting and filing requirements routinely costs at least $1,000 a year, and often much more, experts say.
Other people say they are considering whether to renounce but are reluctant to take such a drastic step. Renouncing can cause additional complications, including another steep bill because of an exit tax the U.S. imposes on those who meet certain income or asset thresholds.
Although the U.S. State Department doesn't keep official statistics, it estimates that 7.2 million U.S. citizens live abroad. And the U.S. Department of Homeland Security estimates there were 13.3 million green-card holders living here as of Jan. 1, 2012.
Despite the campaign against undeclared accounts, U.S. taxpayers filed only 825,000 foreign-account reports last year—meaning that millions of people likely aren't complying with the law.
"It's clear that compliance is dismal, and also why the IRS is being aggressive in its enforcement efforts," says Jeffrey Neiman, a former federal prosecutor now practicing law in Ft. Lauderdale, Fla.
So many people could be affected by the crackdown that mass-market tax preparer H&R Block has expanded services for taxpayers with international ties. In May, the company launched a tax-preparation service via the Internet that is targeted at expatriates and highlights the firm's ability to help taxpayers with unfiled prior-year returns.
U.S. laws and rules provide few options for people who are in a showdown with Uncle Sam. Here is some of what U.S. taxpayers need to know:
Understand what is different about the U.S. Unlike almost all other countries, the U.S. taxes citizens and permanent residents on all income, wherever it is earned in the world. So a U.S. taxpayer living in India could owe U.S. levies on income from a British investment.
The U.S. tax code does allow taxpayers living overseas an exemption for wages earned abroad of up to about $100,000, plus a housing allowance, but taxpayers must file a return to claim the benefits.
Tax treaties might help U.S. citizens or green-card holders who live abroad avoid double taxation, but there can be gaps, experts say. For example, treaties typically don't provide an offset for foreign sales or value-added taxes. And if the tax rate is lower abroad than in the U.S., the U.S. taxpayer could owe the difference to Uncle Sam.
The U.S. also has an expansive definition of who is a citizen. It includes people born on U.S. soil as well as people born to U.S. citizens living abroad.
Kevin Packman, a partner with law firm Holland & Knight in Miami, has a Canadian client who was born in the U.S. to Canadian parents but moved to Canada as an infant. "She had no idea she was a U.S. citizen until she was nearly 50," he says. Experts say there are many similar "accidental citizens."
Know what has changed. While U.S. taxes on world-wide income have existed for decades, experts say laws regarding such income were seldom enforced.
That changed after the attacks of Sept. 11, 2001, in part because of concerns about terrorism. In 2004, Congress imposed severe penalties—up to $100,000 or 50% of the account, whichever is greater, per year—on U.S. taxpayers who choose not to tell the IRS about foreign financial accounts totaling $10,000 or more.
Critics point out that this penalty is for not filing a form, not for evading taxes. Bryan Skarlatos, a New York partner with law firm Kostelanetz & Fink who has handled hundreds of offshore accounts cases, says the total includes more than a dozen in which the tax and interest owed on offshore accounts was less than $20,000. Yet the IRS assessed penalties of more than $1 million, he says. The IRS declined to comment.
U.S. officials ramped up their campaign after the 2009 settlement with UBS. As part of the deal, the Swiss bank turned over the names of more than 4,000 U.S. taxpayers with secret accounts. Other banks have since made payments to the U.S. and named names.
In 2010, Congress passed the Foreign Account Tax Compliance Act, known as Fatca, which requires further disclosures by U.S. taxpayers with offshore accounts. The law also requires foreign financial institutions to report information to the IRS about U.S. account holders or face steep costs for not doing so.
Important Fatca provisions have been postponed until July 1, 2014, but the law has a long reach. For example, it could require a foreign-based trust to report information to the IRS about a beneficiary who holds a green card, even if that person gets no money from the trust and doesn't know it exists, says Dean Berry, a partner with law firm Cadwalader, Wickersham & Taft.
Accidental tax cheats may be able to avoid large penalties. The IRS has a limited-amnesty program that offers protection from criminal prosecution, typically in exchange for stiff penalties.
Taxpayers deemed less culpable—for instance, because they inherited money in a foreign account they didn't touch—can face lesser penalties. But the exceptions are often narrowly defined.
There are other options. People who have already entered the IRS's limited-amnesty program sometimes choose to opt out. That leaves them vulnerable to a regular IRS audit, though the penalties are often lower.
But there are risks: Outside the program, there is less protection from prosecution and penalties can be higher, although experts say both outcomes are rare.
Advisers often recommend that taxpayers whose violations were unintentional and haven't entered the limited-amnesty program should consider making "quiet disclosures" instead. That means catching up with back returns as well as filing them in the future.
The IRS hasn't officially sanctioned such filings, and going this route may not offer protection against prosecution. But experts say the IRS seldom challenges quiet disclosures. In practice, says Mr. Skarlatos, the IRS almost never looks back more than six to eight years.
Taxpayers need to be able to show their violations weren't willful, however. Experts say the evidence could include never having filed a U.S. return if you live abroad, having the undisclosed account in the country where you live, rather than a tax haven, or not having lived in the U.S. for many years. It also helps to have little to no income earned in the U.S. and not to hold the undisclosed account within a trust or foundation.
Expatriation can have stiff costs of its own. People who renounce often have to certify they have complied with U.S. tax laws for the past five years. That means expatriation is a bad strategy for cleaning up past problems.
In addition, U.S. citizens and some green-card holders who formally expatriate are treated as though they sold their property on the day before they renounce. There are few exceptions, says Stow Lovejoy, another lawyer with Kostelanetz & Fink in New York.
Such people owe an exit tax if their net worth is $2 million or more or their average annual income tax for the past five years is greater than $155,000. The exit tax is due on net gains, above an exclusion of $668,000. Deferred income in IRAs and some other tax-deferred accounts becomes taxable at ordinary rates, up to 39.6%, according to Mr. Lovejoy.
Expatriation can also bring severe estate-tax consequences. The U.S. heirs of people who paid an exit tax often owe a 40% tax on assets they inherit from the expatriate, whether the assets are in the U.S. or not. Unlike with typical estates, there usually isn't a $5.25 million exemption.
In addition, law requires that the names of people who surrender their citizenship be published by the government, which some consider embarrassing.
At the same time, there are important exceptions to the exit tax. For example, people who have been dual citizens from birth can be exempt. For more information, see the instructions to IRS Form 8854.
Green-card holders might have other options. People with permanent-resident status who turn in their green cards are subject to the exit tax if they have held the card in at least eight of the previous 15 years. As with citizens who renounce, their names are also required to be published.
However, under complex treaty provisions the U.S. has with some countries, years when a green-card holder lives abroad might not be included in the eight-year tally. So careful planning can help some holders stay under this threshold.
Cushion the blow of U.S. taxes and disclosure with planning. Although the U.S. rules are strict, there is room to maneuver.
Cadwalader's Mr. Berry points out that a wealthy person who plans to expatriate might be able to use the U.S. gift-tax exemption of $5.25 million per individual to shift assets into a trust in order to reduce total assets enough to avoid the exit tax.
If trust assets are used to purchase a life-insurance policy, then U.S. heirs could inherit cash from the expatriate who isn't subject to the special inheritance tax, he adds.
In some cases, a wealthy family may choose to have one family member expatriate and hold assets for the benefit of the rest of the family. Using a "foreign grantor trust," the non-U.S. person could hold assets and make taxfree gifts to other family members who are U.S. citizens or green-card holders. However, the non-U.S. person is often required to have authority to revoke the trust and keep the assets, giving that person enormous power.
Write to Laura Saunders at laura.saunders@wsj.com and Liam Pleven at liam.pleven@wsj.com
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If we could be sure the vast majority of the people who renounce US citizenship for tax reasons were to vote Democrat Obama would be pushing to grant them all amnesty.
Isn't that what the amnesty for illegals is all about?
If one is living in India and investing in Britain then why should they have the privilege of being a US citizen without paying taxes?
What happens to someone from the US who goes to Costa Rica and retires. Does that person still pay income tax to the US? I would think so if they are still a US citizen.
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A very insightful read, written by someone who actually knows how to create jobs.
"The government keeps telling the very people whose jobs it destroys that if we only tax the rich more, everything will be better."
http://online.wsj.com/article/SB10001424127887324110404578630461045403872.html
T.J. Rodgers: Targeting the Wealthy Kills Jobs
My investment in my company helps maintain 3,470 permanent positions. What's not 'fair' about that?
One of the signature themes of the Obama administration is that the American dream is under attack due to "income disparity." The words divide the country into haves and have-nots, suggesting a national condition that needs to be corrected—presumably by "progressive" taxation as a mechanism for income redistribution. The American dream has traditionally been one of individual success that is rewarded and admired. But we are now urged to become a zero-sum society in which those achieving the American dream are envied and even resented.
The American dream is not politically affiliated. The last time it was alive and well was the period from Ronald Reagan's second term in office through Bill Clinton's second term in office. In those 16 years, we enjoyed continuous low taxes, low government spending and economic prosperity.
Since 2000, the economy has staggered under the record government spending and deficits of two presidents, George W. Bush and Barack Obama. The result of that spending spree has been lower real wages and higher and more-persistent unemployment. The Federal Reserve has pushed interest rates to near-zero, and, for the first time ever in the U.S., that Depression-era medicine has not worked—a scary situation reminiscent of Japan's decade-plus economic demise.
According to the latest 2012 IRS income-tax data, the top 1% of American taxpayers earned 20% of all income and paid 36% of all taxes. The top 5% earned 36% of all income and paid 58% of all taxes. Will even higher taxes help the economy? My experience in Silicon Valley tells me that high and so-called progressive taxes are a major cause of the country's current economic problems, not the solution.
In Silicon Valley, the rich commonly reinvest their wealth close to home. For example, I have reinvested most of my net worth in 8.5% of the shares of my own company.
Since its 1982 founding, Cypress Semiconductor has been a net creator of jobs and wealth. We have returned $2.2 billion more to the economy through stock buybacks, share dividends and spinouts than we have taken out in total lifetime investments. That figure doesn't count the $4 billion in wages the company has paid or the taxes paid on those wages. Currently, my investment helps maintain 3,479 permanent, high-paying jobs with good health-care benefits that are now threatened by more taxes.
A couple of years ago, I decided to invest in my hometown of Oshkosh, Wis., by building a $1.2 million lakefront restaurant. That restaurant now permanently employs 65 people at an investment of $18,000 per job, a figure consistent with U.S. small businesses. If progressive taxation in the name of "fairness" had taken my "extra" $1.2 million and spent it on a government stimulus program, would 65 jobs have been created?
According to recent Congressional Budget Office statistics on the Obama administration's 2009 stimulus program, each job created has cost between $500,000 and $4 million. Thus, my $1.2 million, taxed and respent on a government project of uncertain duration, would have created about one job, possibly two, and not the 65 sustainable jobs that my private investment did.
On the other end of the capital-intensity scale, Cypress Semiconductor required huge investments to create jobs in its chip-manufacturing plants. Between 1983 and 2003, those investments totaled $797 million and led to the creation of 4,033 jobs at an investment of $198,000 per job created. Thus, my own experience on the cost of job creation ranges from $18,000 to $198,000 per job, compared with $500,000 to $4 million per job created by the Obama stimulus program.
This data squares with the broad numbers showing that private investment is more efficient than government spending in creating jobs. In other words: Every dollar that is taxed away from private investment and spent by government produces fewer jobs than the jobs destroyed by the loss of private investment.
Yet the politics of envy, promoted most notably by President Obama himself, continuously stokes the idea that the wealthy are not paying their "fair share." This injured sense of unjust rewards was summed up on a radio show I heard the other day, when a caller said of the rich: "How much more do they need?"
How much more do I need? How many more jobs do you want?
Even European socialist democracies are starting to understand that tax-and-spend policies kill jobs. For example, both Italy and Spain have repealed their incentive programs for solar energy (along with their "green jobs") because the countries have calculated that for every job created by government investment in green energy, somewhere between 4.8 jobs (Italy) and 2.2 jobs (Spain) are lost because of the reciprocal cuts in private investment. I am aware of these figures because from 2002-11 I was a major investor in and chairman of SunPower, the world's second-largest solar-energy company, also based in Silicon Valley.
Silicon Valley is today's brightest example of the traditional American dream still at work. The investments for most startup companies must come from individuals who can wait 10 years to get a return on investment. Only very wealthy Americans can afford that.
Like many Silicon Valley entrepreneurs, I have reinvested in the next generation of entrepreneurs, in my case via the Sequoia Fund and Kleiner Perkins Caufield & Byers, two venture-capital firms that gave me a shot at the American dream. I also serve as a board member of their portfolio companies.
Does anybody really believe that moving investment decisions from Silicon Valley to Washington by raising taxes on venture capitalists and their investors would make Silicon Valley more productive? Consider the Solyndra debacle: It was obvious to most of us here that the solar-energy company had zero chance of survival. That's why the company had to be government-funded near the end; no real investors were willing to step up.
During the 2012 presidential campaign, President Obama insulted America's entrepreneurs by telling them: "You didn't build that." Progressive taxation is just another tool used by government to take over an ever-larger part of the U.S. economy. The horrible irony is that the government keeps telling the very people whose jobs it destroys that if we only tax the rich more, everything will be better.
Mr. Rodgers is the founder and CEO of Cypress Semiconductor
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Medical Device Tax - is not mentioned in the first 5 paragraphs of this story about a large number of medical device manufacturers shedding jobs, Boston Scientific, Medtronics, St. Jude Medical, and that's just the local effect here. http://www.startribune.com/business/228996501.html Keep reading.
It cost Boston Scientific 15% of its global workforce. Who knew?
The good news, more enrollees for Obamacare, and more Democratic voters. It is truly a win-win when your world and your math is upside down.
"In January, Boston Scientific announced it was cutting 900 to 1,000 jobs from its global workforce in an effort to manage the effects of the United States’ new medical device tax while investing in new products and geographical markets. Those cuts brought the total number of reductions in an earlier restructuring program to 2,400 jobs, or about 10 percent of the company’s global workforce." (Not counting these further reductions.)
"...the reductions add to a wave of cuts by Minnesota’s largest medical technology companies. In May, Medtronic Inc. announced it was eliminating 2,000 jobs worldwide, including 500 in Minnesota. Medtronic officials said at the time they were “growing in some areas and making changes in others.” A year earlier, Medtronic cut 1,000 jobs."
Only a rules for radicals, glibness administration would subject pacemakers and implantable cardioverter defibrillators to a 'sin' tax - in the name of making healthcare more "affordable".
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The most significant election result Tuesday may have been Colorado's overwhelming rejection of Amendment 66, which would have blown up the state's 4.63% flat income tax and opened the door to much bigger government.
Related Video
Editorial page writer Allysia Finley on the Rocky Mountain's state rejection of a tax hike to fund education programs.
The initiative was this year's main priority for progressives nationwide and was supported by $1 million each from New York Mayor Mike Bloomberg and the Gates Foundation. Those billionaires fell for the line that the new tax revenue would have funded education reform. But Colorado voters were smart enough to see that the measure's most fervent backers were the teachers unions that oppose reform and simply want more money. The measure won in only two counties, Denver and Boulder, and was crushed statewide 66% to 34%, though opponents were vastly outspent.
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What happens when we tax something more? We get less of it - small business in this case.
http://online.wsj.com/news/articles/SB10001424052702304465604579220413773642016
A Large New Tax on Small Business
The latest ObamaCare levy takes effect Jan. 1.
Dec. 29, 2013
ObamaCare includes so many taxes that it's hard to keep track, but one of the worst takes effect on Jan. 1. This beaut is a levy on health insurance premiums that targets the small business and individual markets.
At $8 billion in 2014 and $101 billion over the next decade, the insurance tax is larger than ObamaCare's taxes on medical devices and prescription drugs combined. The Internal Revenue Service classifies the tax as a "fee" but it functions like an excise tax on premiums. The IRS collects an annual flat amount specified by the Affordable Care Act to be allocated among the insurers according to market share.
But not all markets. IRS regulations published in November excluded "any entity that is a self-insured employer to the extent that such employer self-insures its employees' health risks." Since about four of five employers with more than 500 workers and most union-negotiated health plans are self-insured, they are spared from the tax. So is insurance on behalf of "government entities," such as original Medicare (but not privately run Medicare Advantage).
This political selectivity means the most gold-plated public, private and labor plans are exempt and the tax burden falls on the saps who work for small businesses, the self-employed and individuals—i.e., the people who can least afford it.
The White House tells business that the tab will be picked up by deep-pocketed insurers, which is good for a laugh. The Congressional Budget Office reports the tax will be "largely passed through to consumers in the form of higher premiums" and "would ultimately raise insurance premiums by a corresponding amount." The Joint Tax Committee and private economists, such as former CBO director Doug Holtz-Eakin, say the tax will boost insurance costs about 2% to 2.5%. The consultant Oliver Wyman estimates the take will rise to as much as $500 per covered worker by decade's end.
(More at the link!)
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Plowhorse!
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Plowhorse!
Yes, like a heard on liberal radio last evening, nothing jolts an economy forward like a tax increase!
There is more:
http://www.thenewamerican.com/usnews/congress/item/17273-new-u-s-tax-regime-is-devastating-experts-say
Monday, 30 December 2013 16:49
New U.S. Tax Regime is "Devastating," Experts Say
Written by Alex Newman
New U.S. Tax Regime is "Devastating"; Experts Say
Already facing “pariah” status worldwide due to onerous IRS requirements, millions of Americans living and working abroad are preparing to deal with a deluge of even bigger problems in 2014, when a byzantine new tax regime starts going into effect. Known as the Foreign Account Tax Compliance Act, or FATCA, the deeply controversial and incredibly complex scheme is supposedly aimed at preventing tax evasion and gathering extra funds for the federal government. In reality, it will prove to be devastating, experts say — especially for middle-class Americans overseas and the U.S. economy.
...
About a dozen national governments have inked unconstitutional “agreements” with the Obama administration so far, laying the foundation for a global tax-information sharing regime. International bureaucrats working fiendishly for planetary taxation are celebrating, along with some attorneys and accountants hoping to profit, but serious concerns about the pseudo-treaties are growing.
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No kidding
http://www.telegraph.co.uk/news/worldnews/francois-hollande/10546181/Francois-Hollande-concedes-taxes-too-heavy-in-admission-that-annoys-all-sides-in-France.html
"the unpopular socialist president - weakened by tax increases, rising unemployment and a shrinking economy..."
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13 Tax Hikes in 2013
Now that 2013 is history, here's a recap of some of the taxes that went up last year: Payroll tax (from 4.2% to 6.2%); payroll taxes on those earning more than $250,000 rose another 0.9% on top of the other rate increase; top marginal rate (from 35% to 39.6%); personal exemptions began phasing out for couples earning more than $300,000; ditto for itemized deductions; capital gains and dividends tax increased from 15% to 20%; the death tax on estates larger than $5 million rose from 35% to 40%; taxes on business investment increased; the ObamaCare surtax of 3.8% kicked in for those earning more than $250,000 per year; medical device manufacturers now pay 2.3% excise tax on their products; the deduction for medical expenses was reduced; the corporate deduction for Medicare Part D subsidy expenses was eliminated; and health benefits deductions for corporate executives were limited.
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http://www.nytimes.com/2014/01/06/opinion/abolish-the-corporate-income-tax.html?nl=todaysheadlines&emc=edit_th_20140106&_r=0
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No kidding
http://www.telegraph.co.uk/news/worldnews/francois-hollande/10546181/Francois-Hollande-concedes-taxes-too-heavy-in-admission-that-annoys-all-sides-in-France.html
"the unpopular socialist president - weakened by tax increases, rising unemployment and a shrinking economy..."
They got one too!
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Well I was mad when I read about the Olympic medal tax. I thought just another example of government ripping off people. But now I am more mad @ the response. The "notion" [using the bamster's favorite word] that suddenly Olympians should not have to pay what most everyone else has to pay is illogical, unfair and again manipulating tax codes for political gain.
And for the records. Olympians aren't going to the Olympics to represent the US. Maybe is was that way 100 years ago. Now they all go to cash in. Nothing wrong with that. But why cannot I not make a stock gain without being ripped off. Why do I have to pay taxes on everything?
This whole thing wherein politicians pick and choose who pays and who doesn't and how much has got to go.
****February 13, 2014, 04:29 pm
WH: Don't tax Olympians on medals
By Justin Sink
The White House said Thursday that President Obama still believes American Olympians shouldn’t have to pay income taxes on the medals they win.
“The president believes we should support efforts to ensure that we’re doing everything we can to honor and support our Olympic athletes who have volunteered to represent our nation at the Olympic Games,” White House spokesman Bobby Whithorne told Yahoo News. “We still support this effort.”
During the 2012 presidential campaign, the White House said those who medaled in the summer games should be exempt from taxes on their winnings.
“If it were to get to his desk, he would support it," White House press secretary Jay Carney said of proposed legislation.
But a bill by Sen. Marco Rubio (R-Fla.) never moved in the Senate.
"Our tax code is a complicated and burdensome mess that too often punishes success, and the tax imposed on Olympic medal winners is a classic example of this madness," Rubio said in 2012. "Athletes representing our nation overseas in the Olympics shouldn't have to worry about an extra tax bill waiting for them back home."
U.S. athletes are paid cash prizes when they place in Olympic events: $25,000 for a gold, $15,000 for a silver and $10,000 for a bronze.
How much athletes pay back to Uncle Sam will depends largely on what other income they report for the year. But according to an analysis by the anti-tax group Americans for Tax Reform, gold-medal winners in the top tax bracket could see nearly $10,000 of their $25,000 winnings taken by the government.
Even athletes in the lowest tax bracket could fork over as much as $2,500 on a gold medal prize, $1,500 on a silver and $1,000 for a bronze.
Three Republican lawmakers — Reps. Blake Farenthold (R-Texas), Walter Jones (R-N.C.) and Pete Sessions (R-Texas) — proposed a bill similar to Rubio's before this year's games, but it has also failed to gain traction.
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Read more: http://thehill.com/blogs/blog-briefing-room/news/198372-white-house-dont-tax-olympians-on-medals#ixzz2tQdVmVUp
Follow us: @thehill on Twitter | TheHill on Facebook
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http://madworldnews.com/couple-who-found-10-million-in-gold-coins-gets-another-surprise-and-its-not-a-good-one/
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Camp's proposal is not exactly what I am looking for, but I respect him for stepping forward with a real plan. John E. Sununu comments on it in the Boston Globe today.
Tax reform: Ski it if you dare
By John E. Sununu March 03, 2014
When David Camp, chairman of the House Ways and Means Committee, released tax reform legislation last week, the first thing that sprang to my mind was Mount Washington’s Tuckerman Ravine. Looming just 2 miles or so from the Pinkham Notch visitor center, the greatest natural snow bowl east of the Mississippi beckons thousands of hardened skiers every year. The ravine’s 50-foot snow pack entices them with the promise of beauty and exhilaration. For those who conquer it, there’s a sense of achievement to which nothing else compares.
In Washington, the siren of tax reform calls out to devoted policy wonks in the same way. Designing a simpler tax system, like skiing the ravine, allows suitors to take on as much as they dare: corporate taxes, personal income taxes, or the entire 75,000-page code. At Tuckerman, the higher you climb, the steeper the grade. The ultimate thrill is reserved for those willing to attack the sheer face from the snowfields above.
Approaching the steep headwall from that relatively flat terrain, the slope falls away so abruptly that skiers cannot possibly see what awaits below — until they pass the point of no return. Tax seminars, hearings, and speeches are the Washington version of those snowfields. Everyone gets the opportunity to posture, talk about what could be, and pretend they know what lies over that horizon. But as Camp found out last week, talking and doing are different things. Once you crest the lip and are clinging to a 55-degree slope, the mountain becomes a lonely place.
Camp’s loneliness has nothing to do with ability. The Michigan Republican is an outstanding congressman with an effective, inclusive leadership style. But the “discussion draft” he made public contains something that makes most members of Congress uncomfortable: details. Every deduction, credit, exemption, and loophole makes the tax code more complicated, and simplification demands that they must go. Meaningful tax reform requires trade-offs. But when confronted with hard choices, most members of Congress start looking for a way to bail out.
Camp’s bill demonstrates the courage of his convictions. Rafts of deductions are capped, phased out, or eliminated altogether. The bill reduces the number of personal income tax brackets from seven to three: 10 percent, 25 percent, and an additional surcharge on income over $400,000. The corporate tax rate would drop from 35 percent today — one of the highest in the world — to 25 percent.
Wisely, Camp designed his bill to be revenue-neutral. It doesn’t attempt to raise or cut tax collections overall. Perhaps more important, it is “distributionally” neutral; he makes no effort to raise or lower taxes for the rich, the poor, or the middle class. This debate should be about how we pay, not how much — and about making the code and our entire economy more efficient, productive and fair.
Avoiding class warfare rhetoric makes for a smoother trail, but those who benefited from the code’s complexity will still be unhappy. Every wrinkle in the current tax code has its own constituency. Farmers, ranchers, teachers, caregivers, and gamblers — an endless list — are singled out within the law. Everyone loves the idea of simplicity, but getting there will require that we think of ourselves as taxpayers, not part of a special group.
To date, few in Congress have been willing to support the bill publicly. The more narrow-minded have clung to their opposition to the bill’s “bank tax,” which was designed to pay for future bailouts under the Dodd-Frank regulations passed in 2010. If that’s the biggest flaw they can find, fine. Drop that piece and get on with it. At least we’ll learn who has genuinely committed to reform and who just wants to pay lip service.
Most important, everybody needs to realize no one can possibly agree with every element in such a comprehensive bill. You need to believe that the fundamental economic fairness that comes from taking the plunge makes it worth the trouble . . . and then push over the edge.
A good friend once described his favorite Tuckerman moment, watching an enthusiastic father encourage a group of young teenagers to take on the headwall. “Come on guys!” he waved while crossing the upper lip. Catching an edge on his crucial first turn, he bounced and slid like a rag doll several hundred yards to the floor of the ravine. The young gaggle behind followed without incident, no worse for having witnessed the spectacle.
Camp’s tax reform effort is unlikely to pass, but his willingness to take the plunge with honesty and substance deserves enormous credit. Most important, if he inspires just a few to follow his courageous path, we may remember his pioneering run for a long time.
John E. Sununu, a former Republican senator from New Hampshire, writes regularly for the Globe.
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https://www.facebook.com/photo.php?fbid=706895529372881&set=a.118181601577613.18975.103806706348436&type=1&theater
"I know that I do not know whether or not my tax returns are accurate."
Suggests tax simplification!
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How to Energize a Lackluster Recovery
Allowing the full and immediate deductibility of capital investment would spur growth and raise wages.
By Edward P. Lazear
April 20, 2014 5:35 p.m. ET
April always brings complaints about the pain of paying taxes—and the complaints are justified. According to the Bureau of Economic Analysis, over 30% of U.S. gross domestic product is taxed away to fund federal, state and local governments. Tax compliance costs are also large, estimated to be around 1% of GDP.
The hidden cost of the tax system is the biggest of all—namely, the slower economic growth that results from taxing investment, which impedes the formation of capital and hinders productivity and wage growth. An easy way to remove the impediment to growth is to move toward a consumption tax by allowing the full and immediate deductibility of capital investment.
The argument rests on two points. First, consumption taxes are better for economic growth than are income taxes. Second, allowing full expensing (immediate deductibility) of investment turns the current tax system into a consumption tax.
Consumption taxes are better for economic growth because they create stronger incentives to save and invest than do income taxes. Under an income tax, a person who consumes what he earns immediately is taxed once, specifically on the earnings that he receives in that year. If instead he invests what he earns, the interest on that investment, which is compensation for deferring consumption, is also taxed. This pushes him toward consuming more now and saving less.
The reduced incentive to save that results from taxing returns drives up interest rates and retards investment. Incentives to invest would be improved if the returns were untaxed. By contrast, a consumption tax does not tax the returns to investment. It taxes only once, at the time that actual consumption occurs. Moving to a consumption tax eliminates the tax on returns to investment and improves investment incentives.
Allowing investment expenses to be fully and immediately deductible turns an income tax into a consumption tax, but the logic is subtle. All of an economy's output is used to produce either current consumption or investment goods. If all income, which must equal output, is taxed, then both consumption and investment are taxed. But if we tax only the part of output that is not investment by allowing investment expenditures to be deductible, all that remains is consumption so only consumption is taxed.
There is no need for any complicated new tax laws or bureaucracies to make this change. Investments in plants, equipment, R&D and even human capital would be deductible from profits when paying taxes, and the deduction could be used now or against future or past tax liabilities.
The potential benefits of moving away from taxing investment to a consumption tax are well documented. A 2005 Tax Advisory Panel appointed by President George W. Bush estimated from Treasury data that moving to a consumption tax by removing taxes on investment would result in a 5%-7% increase in GDP. (Its scoring included lower and flatter individual and corporate rates, though expensing accounted for most of the gain.) A 2001 study in the American Economic Review by David Altig, Alan J. Auerbach and others estimates that GDP would rise more than 9% by moving to full expensing of investment spending (with a flat tax).
Taxing investment reduces after-tax returns to investing. Investors care about after-tax returns and a tax policy that lowers investment returns is especially harmful to long-term economic growth. For example, a 2001 report by the Organization for Economic Cooperation and Development, "Tax Policy Reform and Economic Growth," found that corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then consumption taxes, with recurrent taxes on immovable property being the least harmful tax.
Capital taxation introduces the most distortions because capital can move across international borders easily. If one country overtaxes investment, the marginal investor will move money to a country that treats investment more favorably. It is more difficult for labor to move so taxing labor has fewer adverse incentives. Finally, land is truly locked in and land taxes are the least problematic from an economic efficiency standpoint.
Lower corporate tax rates is a move in the right direction, but it is not as effective in stimulating investment as is full-expensing. The bang-for-the-buck was estimated by Treasury to be about four times as high for full-expensing than for lowering rates. The reason? Lowering corporate rates reduces taxes for all capital, old and new alike. An investment that was made 10 years ago gets the benefit of lower rates as does one that is made tomorrow. But full expensing applies only to new investment because it is only investment going forward that is deductible. As a result, all of the power of reducing taxes works for new investment in the case of full expensing.
Full expensing will likely be labeled a "trickle down" policy that will not help the working American. This is unfortunate because labor would benefit greatly. Investment is crucial for increasing labor productivity and higher productivity is necessary for higher wages. Productivity and wages move together. Without productivity increases wages cannot grow.
There are many changes that would improve the efficiency of the tax code, but cutting the tax on investment heads the list.
Mr. Lazear, chairman of the President's Council of Economic Advisers from 2006-09, is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow.
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Why would we need to do anything? The economy is back! Just ask Wesbury...
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How to Energize a Lackluster Recovery
Allowing the full and immediate deductibility of capital investment would spur growth and raise wages.
By Edward P. Lazear
April 20, 2014 5:35 p.m. ET
April always brings complaints about the pain of paying taxes—and the complaints are justified. According to the Bureau of Economic Analysis, over 30% of U.S. gross domestic product is taxed away to fund federal, state and local governments. Tax compliance costs are also large, estimated to be around 1% of GDP.
The hidden cost of the tax system is the biggest of all—namely, the slower economic growth that results from taxing investment, which impedes the formation of capital and hinders productivity and wage growth. An easy way to remove the impediment to growth is to move toward a consumption tax by allowing the full and immediate deductibility of capital investment.
The argument rests on two points. First, consumption taxes are better for economic growth than are income taxes. Second, allowing full expensing (immediate deductibility) of investment turns the current tax system into a consumption tax.
Consumption taxes are better for economic growth because they create stronger incentives to save and invest than do income taxes. Under an income tax, a person who consumes what he earns immediately is taxed once, specifically on the earnings that he receives in that year. If instead he invests what he earns, the interest on that investment, which is compensation for deferring consumption, is also taxed. This pushes him toward consuming more now and saving less.
The reduced incentive to save that results from taxing returns drives up interest rates and retards investment. Incentives to invest would be improved if the returns were untaxed. By contrast, a consumption tax does not tax the returns to investment. It taxes only once, at the time that actual consumption occurs. Moving to a consumption tax eliminates the tax on returns to investment and improves investment incentives.
Allowing investment expenses to be fully and immediately deductible turns an income tax into a consumption tax, but the logic is subtle. All of an economy's output is used to produce either current consumption or investment goods. If all income, which must equal output, is taxed, then both consumption and investment are taxed. But if we tax only the part of output that is not investment by allowing investment expenditures to be deductible, all that remains is consumption so only consumption is taxed.
There is no need for any complicated new tax laws or bureaucracies to make this change. Investments in plants, equipment, R&D and even human capital would be deductible from profits when paying taxes, and the deduction could be used now or against future or past tax liabilities.
The potential benefits of moving away from taxing investment to a consumption tax are well documented. A 2005 Tax Advisory Panel appointed by President George W. Bush estimated from Treasury data that moving to a consumption tax by removing taxes on investment would result in a 5%-7% increase in GDP. (Its scoring included lower and flatter individual and corporate rates, though expensing accounted for most of the gain.) A 2001 study in the American Economic Review by David Altig, Alan J. Auerbach and others estimates that GDP would rise more than 9% by moving to full expensing of investment spending (with a flat tax).
Taxing investment reduces after-tax returns to investing. Investors care about after-tax returns and a tax policy that lowers investment returns is especially harmful to long-term economic growth. For example, a 2001 report by the Organization for Economic Cooperation and Development, "Tax Policy Reform and Economic Growth," found that corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then consumption taxes, with recurrent taxes on immovable property being the least harmful tax.
Capital taxation introduces the most distortions because capital can move across international borders easily. If one country overtaxes investment, the marginal investor will move money to a country that treats investment more favorably. It is more difficult for labor to move so taxing labor has fewer adverse incentives. Finally, land is truly locked in and land taxes are the least problematic from an economic efficiency standpoint.
Lower corporate tax rates is a move in the right direction, but it is not as effective in stimulating investment as is full-expensing. The bang-for-the-buck was estimated by Treasury to be about four times as high for full-expensing than for lowering rates. The reason? Lowering corporate rates reduces taxes for all capital, old and new alike. An investment that was made 10 years ago gets the benefit of lower rates as does one that is made tomorrow. But full expensing applies only to new investment because it is only investment going forward that is deductible. As a result, all of the power of reducing taxes works for new investment in the case of full expensing.
Full expensing will likely be labeled a "trickle down" policy that will not help the working American. This is unfortunate because labor would benefit greatly. Investment is crucial for increasing labor productivity and higher productivity is necessary for higher wages. Productivity and wages move together. Without productivity increases wages cannot grow.
There are many changes that would improve the efficiency of the tax code, but cutting the tax on investment heads the list.
Mr. Lazear, chairman of the President's Council of Economic Advisers from 2006-09, is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow.
Important and interesting work. I can't tell if he is suggesting raising tax rates on consumption in exchange for lowering taxes on capital, or is he simply saying these taxes are self defeating on the economy.
A piece that I found recently demonstrates that taxes on capital are a net-negative on the economy and on tax collection: http://www.minneapolisfed.org/research/qr/qr2331.pdf
That said, we are not headed politically toward anything that looks like zero tax rates for investment income. Every Republican contender for the Presidency in 2012, from Herman Cain to Jon Huntsman to Mitt Romney, had an aggressive proposal for lowering the tax on capital that would have grown the economy and increased the demand and pay for labor. They all lost and we ended up instead with much higher tax rates on capital with a diminishing demand for labor. The lesson to learn from the political failure of good ideas is perhaps unknown at this point.
Consumption taxes: Heaping a regressive federal consumption tax on top of a revenue source relied on heavily by the states is not a good idea either. The Herman Cain 9-9-9 plan was bold and tempting - and far better than our current system. But it wasn't going to happen.
Still the professor is right. We need people to know that the war on wealth and the taxes that prevent capital movement and formation mostly result in keeping more people from getting wealthy. Those that were already wealthy survive just fine.
Real tax reform needs to done in conjunction with spending and entitlement reforms that make government's load on the economy smaller.
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The Real Buffett Rule
Obama's favorite tax adviser refines his soak-the-rich policy.
May 4, 2014 6:57 p.m. ET
Investors undertook their annual pilgrimage to Omaha this weekend to hear Warren Buffett opine on markets and the world. One surprise is that the Berkshire Hathaway CEO seems to have adapted his famous Buffett Rule of taxation when it applies to his own company.
Readers may recall the original Buffett Rule that President Obama offered as part of his re-election campaign that essentially posited a minimum tax rate for the rich of about 30%. Mr. Buffett heartily endorsed the idea and Mr. Obama hauled out St. Warren as a soak-the-rich cudgel to beat up Mitt Romney in countless speeches.
So it was fascinating to hear Mr. Buffett explain that his real tax rule is to pay as little as possible, both personally and at the corporate level. "I will not pay a dime more of individual taxes than I owe, and I won't pay a dime more of corporate taxes than we owe. And that's very simple," Mr. Buffett told Fortune magazine in an interview last week. "In my own case, I offered one time to match a voluntary payment that any Senators pay, and I offered to triple any voluntary payment that [Republican Senator] Mitch McConnell made, but they never took me up on it."
The billionaire was even more explicit about his goal of reducing his company's tax payments. "I will do anything that is basically covered by the law to reduce Berkshire's tax rate," he said. "For example, on wind energy, we get a tax credit if we build a lot of wind farms. That's the only reason to build them. They don't make sense without the tax credit."
Think about that one. Mr. Buffett says it makes no economic sense to build wind farms without a tax credit, which he gladly uses to reduce his company's tax payments to the Treasury. So political favors for the wind industry induce a leading U.S. company to misallocate its scarce investment dollars for an uneconomic purpose. Berkshire and its billionaire shareholder get a tax break and the feds get less revenue, which must be made up by raising tax rates on millions of other Americans who are much less well-heeled than Mr. Buffett.
This is precisely the kind of tax favoritism for the wealthy that Mr. Romney's tax reform would have reduced, and that other tax reformers want to stop. Too bad Mr. Buffett didn't share this rule with voters in 2012.
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The conservative or small government view is that tax rates should be as low as possible and people should be allowed to keep as much as possible of their legally obtained income, after paying a fair share of necessary public expenses. The Herman Cain 9-9-9 plan comes to mind, keeping tax rates at single digits.
The big government or liberal-leftist view is that we should maximize the size of government because of all the good it can do. As Hillary Clinton put it, "I have a million ideas. The country can't afford them all". http://www.boston.com/news/nation/articles/2007/10/11/clinton_vows_to_check_executive_power/
But Big Government Leftists are losing revenues because of other goals, codified in punitive taxation (and other ill-advised policies).
Maximizing revenues is not Obama's top tax goal. When confronted with the facts of declining revenues with increasing capital gains tax rates, he admitted he is more concerned (as is Piketty) with holding back wealth ("spread the wealth around") than he is with maximizing revenue.
What tax rates maximize revenues?
The key determinant is the elasticity of taxable income.
Taking this from a post today (Alan Reynolds) on 'Economics':
"...ETI of 1.3 for the top 1%. This implies that the revenue-maximizing top marginal rate would be 33.9% for all taxes, and below 27% for the federal income tax."
Why not (worst case) limit the top federal tax rate to 25%, allow the private sector to grow, maximize our revenues and use the money to build back our infrastructure, invest in national defense, maintain our safety net, secure our borders, etc. with all the revenues. Just wondering.
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Alan Reynolds is a very good economist.
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With Businesses Fleeing America, Congress Must Act
The medical device maker Medtronic is the most recent company driven overseas by uncompetitive tax policies.
By Rob Portman
WSJ
June 24, 2014 7:16 p.m. ET
American businesses are heading for the exits to escape the U.S. tax code. Medical device company Medtronic MDT +0.34% announced recently that it planned to acquire the Ireland-based firm Covidien COV +0.46% and relocate headquarters in Dublin, making it the biggest company yet to leave our shores for a more favorable tax climate. It's just the latest example, and the flight will continue until the U.S. reforms its outdated, uncompetitive tax code.
The basic U.S. corporate tax rate is 39%, the highest on the planet. The average rate among other major industrialized countries is 25%. Worse, the U.S. tax rate applies not only to income earned within U.S. borders, but also to profits American companies make overseas.
That is in large part why more than 20 major American companies have reincorporated elsewhere in the past two years. In 2012, for example, Eaton, a manufacturing company from my home state of Ohio, merged with Cooper Industries, a much smaller Irish company. The new company established its headquarters in Dublin, substantially reducing its tax liability in the process. Businesses are willing to pay to put a few miles between them and the IRS: U.S. companies in 2013 paid upward of 55% more than their target's market price for deals that allowed them to move overseas, according to a May report in this newspaper. Domestic mergers, on the other hand, usually only yield a 20% premium.
The U.S. tax system is also making American businesses more vulnerable to foreign takeovers. The American beer company Anheuser-Busch, for example, was absorbed in 2008 by Belgian-Brazilian firm, In-Bev. Other brewers have followed suit, driven by tax savings. The largest U.S.-based beer company in 2013 was DG Yuengling & Son, which has a U.S. market share of about 1.5%. Sam Adams is the second-largest, with a market share of 1.3%. The sad reality is that foreign purchasers, which can relocate their targets' headquarters overseas, have a huge advantage over U.S. purchasers. Thanks to our tax code, American firms are both less able to fend off foreign purchasers and less able to grow and become more competitive through acquisitions.
Meanwhile, the tax code limits job creation because it encourages U.S. firms to keep foreign earnings outside the U.S. and away from the U.S. tax collector. About $2 trillion that could be used to expand jobs and opportunities in the U.S. now sits overseas, according to Bloomberg estimates. American workers, who according to a 2006 Congressional Budget Office report bear nearly 74% of the corporate tax burden, end up with lower wages and reduced benefits.
Forcing U.S. companies to stay here is no solution. Congress has tried that before, and several of my colleagues have again proposed ratcheting up existing IRS rules that penalize certain cross-border mergers. That piecemeal approach will only hurt American employers and workers who, as a result, will be even less competitive in a global economy built on free movement of capital and labor.
The president and Congress should instead overhaul the tax system, as other countries around the world have already done. To attract investment, Canada in 2012 lowered its federal corporate tax rate to 15%, the last cut of a seven-point decline that began in 2006. In fact, every single one of our major foreign competitors has reduced its corporate tax rate in the past 20 years.
Industrialized countries have also modernized their international tax rules. Every other country in the G-8, and 26 of 34 member countries of the Organization for Economic Cooperation and Development, now have "territorial" tax systems. A country with a territorial system generally taxes only income earned inside its borders; active business income earned abroad is taxed only in the country where it is earned.
Here's what the U.S. can do to catch up: First, cut the corporate tax rate to 25%, bringing America in line with the OECD average. That would undoubtedly spur job creation. It would also bolster revenues, as the nonpartisan Joint Committee on Taxation showed in its February analysis of Ways and Means Committee Chairman Dave Camp's tax-reform proposal.
Second, simplify the tax code, which is rife with special preferences, and use the money saved from closing those loopholes to finance the 10 percentage point rate reduction.
Third, create a more competitive international tax regime. Roughly 80% of the world's purchasing power and 95% of its consumers are beyond U.S. borders, and American companies must be able to compete for these customers. As such, the U.S. should adopt a territorial-type tax system that taxes active business income only where it's earned. In addition, we should implement clear, enforceable rules to prevent sheltering income in low-tax countries.
Congress should act immediately to end the flight of U.S. businesses by overhauling the corporate tax code. That would go a long way in making America a magnet for investment again.
Mr. Portman, a Republican, is a U.S. senator from Ohio.
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Ohio Senate Rob Portman is right on the money with this tax proposal.
Yet the same Senator put money and political support into the fiasco in Mississippi that leads to the reelection of "interest group liberalism" in the Republican party instead of articulating a clear voice for change. http://www.politico.com/story/2014/06/how-thad-cochrans-campaign-pulled-it-off-108276.html http://www.weeklystandard.com/blogs/real-lesson-mississippi_795729.html
Too bad to have all the right ideas and not care about implementing them.
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I think Rand Paul has it right on policy, the flat tax, but Mike Lee and Marco Rubio have a better grasp on the the politics of it. To point out the obvious, tax reform that never becomes law is not tax reform.
http://www.weeklystandard.com/blogs/lee-and-rubio-working-new-pro-growth-pro-family-tax-reform-plan_784307.html
Lee and Rubio Working on New 'Pro-Growth, Pro-Family' Tax Reform Plan
In a statement to THE WEEKLY STANDARD today, Lee responded to TPC's analysis and announced that he's already working with Florida senator Marco Rubio on a "new, comprehensive, pro-family, pro-growth tax reform proposal that we hope to introduce later this year."
Lee's full statement:
I thank the Tax Policy Center for their thorough work on my initial proposal to reform the individual income tax code and restore tax fairness to middle-class parents and families.
As I announced upon its introduction, the Family Fairness and Opportunity Tax Reform Act was meant as a first draft of a broader project to make the entire tax code simpler, fairer, and more pro-growth.
Initial estimates suggested the plan would yield a modest overall tax cut compared to the pre-Obamacare baseline. TPC's model scores it somewhat lower than that, and that's valuable information we can incorporate into the next revision.
Senator Marco Rubio and I have already begun work on a new, comprehensive, pro-family, pro-growth tax reform proposal that we hope to introduce later this year. Elimination of the Parent Tax Penalty should be a top priority for conservatives, and at the center of the overdue tax reform debate.
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Taxing something to death is not legalization as required by the referendum IMO. What a joke. They way it is bought, around the tax, is still illegal. People would rather buy illegally than pay a 30% tax. (http://taxfoundation.org/blog/colorado-begins-legal-marijuana-sales-collecting-marijuana-tax) Maybe there is some lesson there for tax policy if not for drug policy.
Who could have seen this coming?
http://dogbrothers.com/phpBB2/index.php?topic=1565.msg68689#msg68689
http://dogbrothers.com/phpBB2/index.php?topic=1565.msg76920#msg76920
Those who buy it once as a novelty pay a little extra and pay a small tax - once. Those who are heavy users ALL have medical license, and avoid the tax. (Can you say "chronic pain"?) The occasional users in between all know someone and buy it the same way they used to, off the 'street', from unknown origins, untaxed and unregulated.
http://denver.cbslocal.com/2014/09/02/recreational-pot-not-bringing-in-tax-money-that-was-expected/
DENVER (CBS4) – High hopes for tax money isn’t as expected as the state’s legal marijuana industry isn’t bringing in as much money as anticipated. In fact, tax revenue is way below expectations. When voters approved recreational marijuana salesthe state predicted it would pull in more than $33 million in new taxes in the first six months. The actual revenue came up more than $21 million short. The problem is that buying pot is less expensive on the streets where people don’t have to pay taxes or fees. Medical marijuana is also less expensive than recreational pot, so those with medical cards are sticking to buying that way.
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We're Number 32!
A new global index highlights the harm from the U.S. tax code.
Updated Sept. 14, 2014 7:23 p.m. ET
Any day now the White House and Sen. Charles Schumer (D., N.Y.) will attempt to raise taxes on business, while making the U.S. tax code even more complex. The Obama and Schumer plans to punish businesses for moving their legal domicile overseas will arrive even as a new international ranking shows that the U.S. tax burden on business is close to the worst in the industrialized world. Way to go, Washington.
On Monday the Tax Foundation, which manages the widely followed State Business Tax Climate Index, will launch a new global benchmark, the International Tax Competitiveness Index. According to the foundation, the new index measures "the extent to which a country's tax system adheres to two important principles of tax policy: competitiveness and neutrality."
A competitive tax code is one that limits the taxation of businesses and investment. Since capital is mobile and businesses can choose where to invest, tax rates that are too high "drive investment elsewhere, leading to slower economic growth," as the Tax Foundation puts it.
By neutrality the foundation means "a tax code that seeks to raise the most revenue with the fewest economic distortions. This means that it doesn't favor consumption over saving, as happens with capital gains and dividends taxes, estate taxes, and high progressive income taxes. This also means no targeted tax breaks for businesses for specific business activities." Crony capitalism that rewards the likes of green energy with lower tax bills while imposing higher bills on other firms is political arbitrage that misallocates capital and reduces economic growth.
The index takes into account more than 40 tax policy variables. And the inaugural ranking puts the U.S. at 32nd out of 34 industrialized countries in the Organization for Economic Co-operation and Development (OECD).
With the developed world's highest corporate tax rate at over 39% including state levies, plus a rare demand that money earned overseas should be taxed as if it were earned domestically, the U.S. is almost in a class by itself. It ranks just behind Spain and Italy, of all economic humiliations. America did beat Portugal and France, which is currently run by an avowed socialist.
The Tax Foundation benchmark compares developed economies with large and expensive governments, but the U.S. would do even worse if it were measured against the world's roughly 190 countries. The accounting firm KPMG maintains a corporate tax table that includes more than 130 countries and only one has a higher overall corporate tax rate than the U.S. The United Arab Emirates' 55% rate is an exception, however, because it usually applies only to foreign oil companies.
The new ranking is especially timely coming amid the campaign led by Messrs. Obama and Schumer to punish companies that move their legal domicile overseas to be able to reinvest future profits in the U.S. without paying the punitive American tax rate. If they succeed, the U.S. could fall to dead last on next year's ranking. Now there's a second-term legacy project for the President.
The new index also suggests taxation is a greater burden on business in the U.S. than in countries that American liberals have long praised as models of enlightened big government. Finland, Germany, Norway and Sweden, with their large social safety nets, all finish in the top 20 on the new ranking. The United Kingdom manages to fund socialized medicine while finishing 11 spots ahead of the U.S.
The new champion of tax competitiveness is Estonia, where—liberals may be astonished to learn—people enjoy the rule of law and even paved roads, despite reasonable tax rates. (See the list nearby.)
Liberals argue that U.S. tax rates don't need to come down because they are already well below the level when Ronald Reagan came into office. But unlike the U.S., the world hasn't stood still. Reagan's tax-cutting example ignited a worldwide revolution that has seen waves of corporate tax-rate reductions. The U.S. last reduced the top marginal corporate income tax rate in 1986. But the Tax Foundation reports that other countries have reduced "the OECD average corporate tax rate from 47.5 percent in the early 1980s to around 25 percent today."
This is also a message to self-styled conservative "reformers" who lecture that today's economic challenges aren't the same as they were under Reagan but propose to do nothing about the destructive U.S. corporate tax code. They're missing what could be the single biggest tax boost to economic growth and worker incomes. Abundant economic research, by Kevin Hassett and Aparna Mathur among others, has shown that higher corporate taxes lead to lower wages.
Rather than erecting an iron tax curtain that keeps U.S. companies from escaping, the White House and Congress should enact reform that invites more businesses to stay or move to the U.S.
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Oh my God. No end to this. I am all for tax reform and changing the tax code so everyone pays the same amount and getting rid of most if not all deductions and making the code simple so everyone is treated fairly and those who can afford the expensive accountants and lawyers to find loopholes don't run around the complicated system and those at the bottom just don't sit back and have everyone else pay their way but this is insanity. Why should those at the top have to pay 90%? Why should Lebron have to have his wealth confiscated? Just because the Crats think they CAN and he still will play as hard to entertain them.
Trickle up poverty is not the answer. That won't solve our problems.
****Economists Say We Should Tax The Rich At 90 Percent
Posted: 10/22/2014 8:55 am EDT Updated: 10/22/2014 4:59 pm EDT
America has been doing income taxes wrong for more than 50 years.
All Americans, including the rich, would be better off if top tax rates went back to Eisenhower-era levels when the top federal income tax rate was 91 percent, according to a new working paper by Fabian Kindermann from the University of Bonn and Dirk Krueger from the University of Pennsylvania.
The top tax rate that makes all citizens, including the highest 1 percent of earners, the best off is “somewhere between 85 and 90 percent,” Krueger told The Huffington Post. Currently, the top rate of 39.6 percent is paid on income above $406,750 for individuals and $457,600 for couples.
Fewer than 1 percent of Americans, or about 1.3 million people, reach that top bracket.
Here is the conclusion from the report, charted:
marginal tax rates
What you’re seeing is decades of a more or less strict adherence to the gospel that tax cuts for the highest income earners are good. The trend began with President Kennedy, but his cuts were hardly radical. He lowered rates when the American economy was humming along, no longer paying for World War II and, relative to today, an egalitarian dreamland. To put things in perspective, Kennedy cut rates to around 70 percent, a level we can hardly imagine raising them to today. The huge drops -- from 70 percent to 50 percent to less than 30 percent -- came with the Reagan presidency.
In comparison to decades of cuts, Presidents George H.W. Bush, Bill Clinton, and Barack Obama each raised taxes at the top by a historically insignificant amount. Obama also proposed modest tax increases, raising taxes on families making more than $250,000 from 33 to 36 percent, and on individuals making more than $200,000 from 36 to 39.6 percent. These increases failed in the House.
A 90 percent top marginal tax rate doesn’t mean that if you make $450,000, you are going to pay $405,000 in federal income taxes. Americans have a well-documented trouble understanding the notion of marginal tax rates. The marginal tax rate is the amount you pay on your income above a certain amount. Right now, you pay the top marginal tax rate on every dollar you earn over $406,750. So if you make $450,000, you only pay the top rate on your final $43,250 in income.
A very high marginal tax rate isn’t effective if it’s riddled with loopholes, of course. Kindermann and Krueger's paper is also focused solely on income, not wealth, and returns on wealth are how the truly superrich make a living.
Despite these limitations, Kindermann and Krueger say that a top marginal tax rate in the range of 90 percent would decrease both income and wealth inequality, bring in more money for the government and increase everyone’s well-being -- even those subject to the new, much higher income tax rate.
“High marginal tax rates provide social insurance against not making it into the 1 percent,” Krueger told The Huffington Post. Here’s what he means: There’s a small chance of moving up to the top rung of the income ladder, Krueger said. If rates are high for the top earners and low for everyone else, there’s a big chance you will pay a low rate and a small chance you will pay a high rate. Given these odds, it is rational to accept high income tax rates on top earners and low rates for the rest as a form of insurance.
This insurance takes the form of low-income people paying dramatically less in taxes. “Everyone who is below four times median income” -- that’s about $210,000 for households -- “pays less,” Kruger said.
The paper assumes that tax rates won’t stop a future Bill Gates from wanting to start Microsoft. Instead, what it finds is that labor supply among the 1 percent would decline -- translation, they would work a little less -- but it “does not collapse.” That’s because of who the authors assume makes up the top income bracket: celebrities, sports stars, and entrepreneurs -- people with innate talents that are hugely rewarding, but only for a short period of time. They only have a few years to use their skills to make most of the money they will ever make. High tax rates don’t lessen their degree of desire to be productive, the authors said.
Krueger described the phenomenon like this: “How much less hard would LeBron James play basketball if he were taxed at a much higher rate? The answer is not much. “James knows he only has five years,” or so of peak earning potential, Krueger said, and so he will work to make as much as he can during that time. If high income tax rates robbed the would-be 1 percent of their stick-to-itiveness, the paper’s conclusions would change.
lebron james
(LeBron James responds to a 90 percent top marginal tax rate)
And so whether you agree with this paper’s conclusion comes down, to a certain extent, to what you think of the 1 percent of income earners: who they are and why they make so much money. Over the last few decades, a huge portion of the rapid growth of the very highest incomes relative to the rest of us has been driven by rising executive and financial sector pay. The question, then, is if confronted with a vastly higher tax rate, would Jamie Dimon still behave like LeBron James.
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1) There is the matter at what level the various rates kick in-- adjusted for inflation. My understanding is that the 90% rate of the Eisenhower years kicked in at a much higher level than today when adjusted for inflation;
2) The Kennedy supply side tax rate cuts increased revenues. Is the argument then that we should have higher rates and lower revenues?!?
3) Higher rates enable tax shelter games-- thus increasing both the unaccountable power of the Congress and its corruption by special interests;
4) the attendant misallocation of capital hits the entire economy to the detriment of all.
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1) There is the matter at what level the various rates kick in-- adjusted for inflation. My understanding is that the 90% rate of the Eisenhower years kicked in at a much higher level than today when adjusted for inflation;
2) The Kennedy supply side tax rate cuts increased revenues. Is the argument then that we should have higher rates and lower revenues?!?
3) Higher rates enable tax shelter games-- thus increasing both the unaccountable power of the Congress and its corruption by special interests;
4) the attendant misallocation of capital hits the entire economy to the detriment of all.
Crafty has this right on all points. Almost no one paid the 90% rate; and no one paid it again if they were assessed at that rate once. 90% applied marginally to incomes over the equivalent of millions today, affecting very few people, and of those very few it applied only to those who hadn't bothered to set up a shelter. Virtually no one.
Why would you raise rates if it doesn't increase revenues? Great question!
(http://media.hoover.org/images/tax_rates_graph_ranson.jpg?size=large)
Hauser's Law. Published in 1993 by William Kurt Hauser, a San Francisco investment economist, Hauser's Law suggests, "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." This theory was published in The Wall Street Journal, March 25, 1993.
We should be asking: What is the LOWEST tax rate that will bring in the revenue that we need?
As Crafty stated, exemptions, deductions and loopholes breed corruption. And the misallocation of assets stuck in place is harmful to all. Who measures lost opportunities?
The liberals play a shell game. It worked okay in the 1950s (It didn't) so let's do it now. But they don't like anything else from the 50s, like the ease of starting a business, the low regulatory burden, the ease o, and f hiring people, the high work ethic, minimal welfare system, and the intact families where the kids had a mom and a dad and the mom was usually home. Another aspect of the 1950s was that our biggest global competitors had been wiped out economically by two world wars. Will the tax hikers roll back the economic competition we now face from China and Asia to 1950s levels too? Good luck with that! A high, top marginal tax rate was the bug not the feature of the 1950s economy. We survived it; we didn't prosper because of it.
One example: A neighbor of ours growing up was the head of a big company, now Xcel Energy. Like the highly taxed Europeans today, he took his perks in untaxed benefits and no doubt kept his salary under those levels. His limo driver picked him up everyday to take him downtown to work and back home again every afternoon. A simple example of a misallocated, wasted resource. The guy had a car and knew how to drive just fine. Meals, travel, you name it, the few at the top knew how to take compensation in untaxable income.
JFK, a Democrat, on the high tax rates coming out of the 1950s:
“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
– John F. Kennedy, Nov. 20, 1962, president’s news conference
(http://www.aei-ideas.org/wp-content/uploads/2011/11/wsj1.jpg)
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Doug and Crafty,
Good responses. Thanks. Hopefully we can have a candidate for '16 who can articulate these kinds of things. Paul articulates well and is trying to figure ways to get to the Dem's stronghold voting groups. But some of his positions I cannot support.
Do you know of examples how the very wealth were able to build shelters to avoid taxes in those days?
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Doug and Crafty,
Good responses. Thanks. Hopefully we can have a candidate for '16 who can articulate these kinds of things. Paul articulates well and is trying to figure ways to get to the Dem's stronghold voting groups. But some of his positions I cannot support.
Do you know of examples how the very wealth were able to build shelters to avoid taxes in those days?
Real estate was the big (tax) shelter. And not losses of money, but "paper losses". Big earners bought big tax shelters. Leverage it if you want, keep your cash. Deduct the interest fully and add big depreciation even though the investment is going up in value. Then the capital gains are deferred forever or taxed at no more than 25%.
This example is from a WSJ article (and G M post previously, we were having this exact same discussion in Dec 2012): Google took me to me back to this thread!
"For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership. Huge numbers of professionals signed up for all kinds of money-losing schemes. Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss."
http://online.wsj.com/articles/SB10001424127887324705104578151601554982808
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg68180#msg68180
Some of those tax shelters led to construction, and construction jobs etc. Not a complete waste of money, but misallocated resources nonetheless caused by the need to beat a confiscatory tax system. Construction projects are more temporary than the jobs created when investing and growing a business. Investments IMHO should all compete on the same playing field.
Schiff, WSJ, continued:
"Those 1950s gambits lowered tax liabilities but dissuaded individuals from engaging in the more beneficial activities of increasing their incomes and expanding their businesses. As a result, they were a net drag on the economy. When Ronald Reagan finally lowered rates in the 1980s, he did so in exchange for scrapping uneconomical deductions. When business owners stopped trying to figure out how to lose money, the economy boomed."
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Back to the changing politics of tax policy...
The tax cuts of the Bush administration got a bad rap. Revenues actually surged once the tax rate cuts were fully in place. But Bush and Republicans also allowed spending to surge and government interference in the economy to surge, witness the Fed monetary insanity and federal government backed mortgage disaster.
Republicans were attacked for proposing tax cuts as the solution for everything and they aren't.
2006, 2008: Mostly for other reasons like quagmire in Iraq, the far left took over congress and then the White House.
2010: Born out of Democrat and government over-reach was the tea party movement. My take on its beginnings was a consensus was emerging that if you want to cut the burden of government on people in trillion dollar deficit, you had to cut spending first. We didn't. Republicans opposed all the new tax increases but couldn't stop or repeal what was already slated to happen, even when they took over the House.
2014-2016: The task now for Republicans and all limited government people is to reverse and repeal as much of the new programs and taxes as possible and then reform all that was screwed up before this lost decade began.
The new tax system must include lower tax rates for all who pay in - without the loopholes and without the aim of punishment for productive activities. We need a fair and simple system of raising revenues that applies evenly to all earners with minimal disincentives to work, invest, hire, expand, and produce. All of the redistributive efforts should be kept on the spending side of the equation and the goal there should be to diminish that need over time by growing the opportunities and expanding the number and proportion of people who work and start businesses.
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Pravda on the Hudson discovers it is unhappy with government directing private sector investment via the tax code:
http://www.nytimes.com/2014/12/03/opinion/a-costly-and-outrageous-tax-break.html?emc=edit_th_20141203&nl=todaysheadlines&nlid=49641193
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(http://2.bp.blogspot.com/-kY5nHPzID24/VHzG9aZuXCI/AAAAAAAAB74/9MbYAItp4gU/s1600/CBOtable2.jpg)
Source: CBO
Read through the table carefully. It begs a number of questions.
Why are lower earners mad at or blaming upper earners for our problems and their problems?
Why do we subsidize second and third quintile voters I mean earners more than low income earners?
At $16 trillion in debt, why is someone making 50k getting a net subsidy at all?
What is missing here is the marginal tax rate each person faces. The size of that all the way up and down might surprise you!
Why do we have any marginal rate above 20% as a disincentive when we collect so much less?
What tax system would collect more or the same and motivate people all the way up and down to produce more?
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http://www.nytimes.com/2014/12/08/opinion/why-im-giving-up-my-american-citizenship-passport.html?emc=edit_th_20141208&nl=todaysheadlines&nlid=49641193&_r=0
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http://www.nytimes.com/2014/12/08/opinion/why-im-giving-up-my-american-citizenship-passport.html?emc=edit_th_20141208&nl=todaysheadlines&nlid=49641193&_r=0
Out with the rich. In with the poor.
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Previously posted on SCH Economics thread:
http://dogbrothers.com/phpBB2/index.php?topic=1023.msg85143#msg85143
(http://i603.photobucket.com/albums/tt114/dougmacg/laffer-web1228_zps01012c71.jpg)
Original Laffer Curve
Source of the drawing: Washington Post
a) when you tax something you get less of it, and when you tax something less, you get more of it
b) There is a point on a curve, a marginal tax rate somewhere before you hit 100%, where if you raise the tax rate further you will collect LESS revenue.
c) The straw man argument against is when they say that for all points on the curve.
d) More pertinent, in almost all cases you do not get all the revenue projected without taking into account that the tax will cause you to see less of that activity, work, savings, investment, for examples.
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The previous post is intended to add insight into this. Even ultra liberal, manupilaconomist Thomas Piketty was AGAINST this tax. Meanwhile, The President of the United States, the Governor of my state, the entire MSM, and half the voters are totally clueless as to why this punitive tax did not succeed.
It turns out that the attempt to punish wealth hurt investment, employment, the economy, the little guy and the entire nation of France. Who (expletive) knew??!!
http://news.yahoo.com/france-drops-super-tax-millionaires-072915575--finance.html
France drops its super tax on millionaires
PARIS (AP) — It was supposed to force millionaires to pay tax rates of up to 75 percent: "Cuba without the sun," as described by a critic from the banking industry. Socialist President Francois Hollande's super tax was rejected by a court, rewritten and ultimately netted just a sliver of its projected proceeds. It ends on Wednesday and will not be renewed.
And that critic of the tax? He's now Hollande's economy minister, trying mightily to undo the damage to France's image in international business circles.
The tax of 75 percent on income earned above one million euros ($1.22 million) was promoted in 2012 by the newly-elected Hollande as a symbol of a fairer policy for the middle class, a financial contribution of the wealthiest at a time of economic crisis.
But the government was never able to fully implement the measure. It was overturned by France's highest court and rewritten as a 50 percent tax paid by employers.
Faced with a stalling economy and rising unemployment, the government reversed course in 2014 with a plan to cut payroll taxes by up to 40 billion euros ($49 billion) by 2017, hoping to boost hiring and attract more investments.
All the while, Prime Minister Manuel Valls kept repeating his new credo: "My government is pro-business".
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FILE - In this Aug. 27, 2014, file photo, French President …
FILE - In this Aug. 27, 2014, file photo, French President Francois Hollande, left, shakes hands wit …
Ultimately, while the super tax affected only a small number of taxpayers, it triggered huge protests in business, sporting and artistic communities.
French actor Gerard Depardieu decried it vociferously and took Russian citizenship. Soccer clubs threatened to boycott matches for fear that 114 of their players or coaches would be taxed. The final version of the tax allowed them to minimize the burden.
The announcement of the 75 percent tax had "a very bad psychological effect" in business circles, says Sandra Hazan, a lawyer who heads Dentons Global Tax Group. Even if most of the companies were able to minimize or avoid the tax, "I think it had an extremely devastating impact on the attractiveness of France for foreigners."
At the time of its proposal, British Prime minister David Cameron ironically proposed to "roll out the red carpet" to French companies willing to avoid the tax.
Economist Thomas Piketty, author of the book "Capital in the Twenty-First Century", criticized it as "a millstone around the neck" of the government, asking instead for global reform of tax laws.
Proceeds from the tax are estimated to total 420 million euros ($512 million) for about 1,000 employees in 470 companies, according to the government. By comparison, France's budget deficit has soared well over 80 billion euros ($97 billion).
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http://www.ips-dc.org/wp-content/uploads/2014/11/IPS_Fleecing_Uncle_Sam_Report_Nov2014.pdf
One possible solution:
http://www.wsj.com/articles/john-steele-gordon-top-10-reasons-to-abolish-the-corporate-income-tax-1419899269
Though a case can be made for the corp. tax being, in effect, the same as a national sales tax and that this could be in lieu of income taxes.
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Can't read the WSJ link; my subscription access ran out.
More attainable and less controversial than abolishing the corporate tax layer would be to lower the rates from highest in the world to being competitive with our OECD trading partners. Lowering these rates would not cost us money, just as punishing these employers for locating here (and forcing them out) is gaining us nothing.
We aren't going to abolish federal income taxation before we win the argument that people should generally be more self reliant, that charities should be the primary source of help, and federal spending becomes of fraction of what it is today (which right now sounds like never).
As we came into 2010, with the reaction to Obama-Pelosi-Reid governance, which was a direct reaction to failed GOP governance, my take on the whole rise of the tea party movement was that in order to ever really cut the burden of over-taxation, what we all could agree on is that we will need to cut spending first. Instead, we call it no growth in spending when Republicans agree with Democrats to make a trillion a year of "emergency spending" permanent.
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Gotta love this sentence thrown in the AP news report for good measure:
"They also would raise the capital gains and dividends rates to 28 percent, the level during the 1980s Republican presidency of Ronald Reagan"
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Obama speech to call for closing tax loopholesReuters 40 minutes ago
U.S. President Barack Obama answers media questions with British Prime Minister David Cameron (not pictured) …WASHINGTON (Reuters) - President Barack Obama's State of the Union address will propose closing multibillion-dollar tax loopholes used by the wealthiest Americans, imposing a fee on big financial firms and then using the revenue to benefit the middle class, senior administration officials said on Saturday.
Obama to strike defiant tone with Republicans in big speech Reuters Once dominant, State of Union address has much competition Associated Press Obama tests his sway against a GOP-run Congress Associated Press For State of Union, Obama faces GOP Congress for first time Associated Press Obama kicks off pre-State of Union tour with housing move Associated Press Obama's annual address to a joint session of Congress on Tuesday night will continue his theme of income equality, and the administration is optimistic it will find some bipartisan support in the Republican-dominated House of Representatives and Senate.
The proposals administration officials listed on Saturday may still generate significant opposition from the Republicans because they would increase taxes.
In a conference call with reporters to preview the taxation aspect of Obama's address, one official said some of the ideas the president is outlining already have "clear congressional bipartisan support or are ideas that are actually bipartisan in their nature."
Obama's proposals call for reforming tax rules on trust funds, which the administration called "the single largest capital gains tax loophole" because it allows assets to be passed down untaxed to heirs of the richest Americans.
They also would raise the capital gains and dividends rates to 28 percent, the level during the 1980s Republican presidency of Ronald Reagan.
As a way of managing financial risk that could threaten the U.S. economy, Obama also wants to impose a fee of seven basis points on the liabilities of U.S. financial firms with assets of more than $50 billion, making it more costly for them to borrow heavily.
The changes on trust funds and capital gains, along with the fee on financial firms, would generate about $320 billion over 10 years, which would more than pay for benefits Obama wants to provide for the middle class, the official said.
The benefits mentioned on Saturday would include a $500 credit for families with two working spouses, tripling the tax credit for child care to $3,000 per child, consolidating education tax incentives and making it easier for workers to save automatically for retirement if their employer does not offer a plan.
The price tag on those benefits, plus a plan for free tuition at community colleges that Obama announced last week, would be about $235 billion, the official said. Specifics on the figures will be included in the budget Obama will send to Congress on Feb. 2.
"We're proposing more than enough to offset the new incremental costs of our proposals without increasing the deficit," the administration official said.
The State of the Union address is the president's annual chance to lay out his plans. With Republicans controlling both chambers of Congress after big wins in midterm elections in November, Obama, a Democrat, faces an uphill task turning much of his vision into legislation.
(Writing by Bill Trott; Editing by Frances Kerry and James Dalgleish)
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http://www.tpnn.com/2015/01/18/no-joke-obama-to-pay-for-free-community-college-by-double-taxing-students-who-saved-for-college/
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Good post Crafty. As always everything pitched as free by the Democrat machine is never free except for a minority of their voters.
Lets hope for the first time in recorded history the Republican response to the state of the union will be able to convincingly make this case.
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It's been said Obama has three modes:
1. Golf
2. Campaign
3. Redistribute money to his base.
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http://blogs.wsj.com/totalreturn/2015/01/20/the-value-of-the-step-up-on-inherited-assets/
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Now He’s After Middle-Class Savers
Mr. Obama prepares to wipe out popular vehicles for funding education.
ENLARGE
Photo: Getty Images
Jan. 21, 2015 7:37 p.m. ET
405 COMMENTS
President Obama is pitching his new tax plan as a way to help the middle class at the expense of the rich. But middle-class savers are bound to notice if he achieves two of the White House’s stated goals—to “roll back” tax benefits of 529 college savings plans and “repeal tax incentives going forward” for Coverdell Education Savings Accounts.
Both plans allow parents, grandparents or anyone looking to help fund a kid’s education to contribute after-tax dollars into accounts that grow tax-free. There is also no tax when the money is withdrawn, provided it is used for qualified educational expenses such as tuition, fees, books, room and board.
Mr. Obama wants to allow the IRS to tax as income any withdrawals from future 529 contributions. This would make them less attractive. The White House goal seems to be to discourage private thrift, and encourage greater use of government benefits, when paying for college.
If the plans are closed to new investments and savers, those who stand to lose aren’t the 1%. As of June 30, 2014 there were 11.8 million 529 accounts holding $244.5 billion in assets, according to the College Savings Plans Network, a a group of state officials who administer the plans. The average account balance was $20,671. That sounds like “the middle class.”
The College Board says the average cost of tuition, fees, room and board at a private four-year nonprofit college this year is more than $42,000. So we’re supposed to believe the President is sticking it to fat cats when he targets savings plans that might cover one semester at a private college, or a full year for in-state students at public universities. This now makes you a Rockefeller on Planet Obama.
The Investment Company Institute, trade group for the mutual-fund industry, says that in 2013 households saving for college through 529 plans, Coverdell ESAs, or mutual funds held outside these accounts tended to be headed by people younger than 45. And 49% of these heads of household had fewer than four years of college. A majority of these households, 53%, earned less than $100,000.
Liberals are particularly annoyed that, depending on the state, 529s can allow people to save $300,000 or more for education. But maybe parents and relatives wouldn’t have to save so much if federal subsidies weren’t driving the cost of college to such heights. Again this year higher education costs are increasing faster than inflation, as they have for decades.
We’d favor a true tax reform with lower rates that replaced all tax subsidies, including those for education. But absent such a reform, Mr. Obama’s plan looks like an attempt to punish private savings in favor of politically controlled subsidies and grants.
As he limits Coverdell and 529 plans, Mr. Obama is touting a tax credit of up to $2,500 per year for five years, which should provide most of one year at a state university. He’s also continuing to pitch low interest rates and easy forgiveness for taxpayer-subsidized student loans. And he wants to cut the federal tax on those who have loans forgiven. So there’s an added tax incentive to avoid repayment to complement his tax hike on the suckers who try to pay for college themselves.
One more time the Administration is using the political cover of “middle class” to disguise a transfer of power from the middle class to government.
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Watch what Obama and his troops do - and not what he or they say.
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The First Family’s 529 Windfall
The large contributions the Obamas have already made won’t be taxed.
ENLARGE
Photo: Getty Images
Updated Jan. 23, 2015 12:54 p.m. ET
416 COMMENTS
If there’s any silver lining in the President’s plan to end the major tax benefit of saving for college, it’s that at least he’s not talking about taxing money that’s already been saved. This aspect of the Obama plan is particularly valuable to people like, well, Barack Obama.
As we noted on Thursday, the President wants to allow the Internal Revenue Service to begin taxing distributions from so-called 529 plans, even if they are used as intended to fund legitimate educational expenses such as college tuition. The Obama plan is to treat withdrawn earnings from these savings plans—which are funded with money that’s already been taxed—as regular income to the beneficiary. Therefore this money will be taxed again before it can be used to pay for higher education.
But the President’s plan would only apply the new taxes to withdrawn earnings on money contributed to these accounts in the future. All past contributions to 529 plans would continue to grow and then be withdrawn tax-free to pay for school. This is no doubt a relief to families that have already managed to save significant sums. And it happens to fit nicely in the financial plan implemented by the residents of 1600 Pennsylvania Avenue, a household of two parents and two daughters.
According to a 2009 report in the Journal, in 2007 “the Obamas took advantage of a unique feature of 529 plans that allows account owners to front-load five years’ worth of contributions, $240,000 in total for the two girls.” No doubt these investments took a hit during the financial crisis. But given the stock market recovery since the spring of 2009, we imagine the Obama family has built educational resources that most middle-class families can only dream of.
We would compliment the President on his financial planning and thoughtful parenting in building up these assets tax-free. But his latest policy proposal makes us wonder why he won’t let the next generation of savers do the same.
Correction: An earlier version of this editorial implied the President’s tax on 529 accounts would apply to principal withdrawals as well as earnings.
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In a new report called “Rich States, Poor States” written each year for the American Legislative Exchange Council by Stephen Moore, Arthur Laffer and Jonathan Williams, we find that five of the highest-tax blue states in the nation — California, New York, New Jersey, Connecticut and Illinois — lost some 4 million more U.S. residents than entered these states over the last decade (see chart). Meanwhile, the big low-tax red states — Texas, Florida, North Carolina, Arizona and Georgia — gained about this many new residents.
So much for liberal policies creating a workers paradise.
http://www.washingtontimes.com/news/2015/apr/12/stephen-moore-residents-fleeing-high-tax-states/#ixzz3XCKd1xXD
Follow us: @washtimes on Twitter
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Speaking of economic growth, tax policy is stifling it and no one seems to care. Even here, this thread keeps slipping to the third page of political topics while the US still has the highest corporate tax rate in the world, we had more than 20 new tax increases under Obama, Hillary is proposing another doubling of the capital gains tax rate, and Marco Rubio proposes eliminating it. Yawn. Yet we are shorting ourselves the capital to employ 100 million American adults. But so what, blame the rich, blame Republicans, blame Bush.
Let's bust the myths about tax rates on capital being too low and that raising them will raise money and solve problems. Even articles like this mostly ignore that states like ours add another 10% of ordinary income tax to a 'gain' that is not a gain.
From: http://townhall.com/columnists/stephenmoore/2015/08/04/five-myths-about-capital-gains-taxes-n2034046/page/full
"the rate of new business startups has long been inversely related to capital gains taxes, according to a Cato Institute study. The higher the penalty on risk capital, the fewer new entrepreneurial ventures get started. If we want to accelerate the next generation of Ubers, Groupons, Home Depots and Googles, we need investors willing to put their money at risk, and if they are going to be taxed at 50 or 60 percent, they are more likely to take a pass."
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Clinton's plan reveals such a deep and disturbing ignorance of the effects of the capital gains tax and its impact on growth that it's time to bust some of the key myths about how this tax affects the economy:
Myth 1) The tax on capital gains income is much lower than the tax on wages and salaries of the working class.
Clinton says she would merely tax income from capital at the same rate that middle-class Americans have taken from their paychecks. She would tax capital gains as ordinary income for those who make over about $450,000 a year. But this would make taxes on capital income punitive and here's why. First, most capital gains come from the sale of financial assets such as stocks. But publicly held companies have to pay corporate income tax at a rate of 35 percent. Capital gains tax is a second tax on that income when the stock is sold. So the actual, total tax rate on capital gains income is closer to 40-50 percent and Clinton would raise that to 60 percent.
Additionally, capital gains tax is a tax on the increase of the valuation of a stock, but is not adjusted for inflation. So when inflation is high, the capital "gain" can be mostly due to inflation. In other words, the gain can be illusory and the tax rate can even rise above 100 percent.
Myth 2) Raising the capital gains tax will raise billions of dollars for the government.
The Clinton plan is almost all pain with no gain. It's highly unlikely the tax hike will raise any money for the Treasury. If history is a guide, it will lose revenue. After the capital gains tax hike in 1986 from 20 percent to 28 percent, capital gains revenues actually fell from $44 billion a year to $27 billion a year by 1991. After Bill Clinton cut the capital gains tax down to 20 percent again, capital gains revenues surged from $54 billion in 1996 to $99 billion in 1999. Lower rates equal more revenue.
Myth 3) Raising the capital gains tax is a good way to make the rich pay their "fair share" of taxes.
Despite Hillary Clinton's assurances that her plan is meant to discourage "short termism" in the boardroom, the real agenda here is hardly a secret: she wants to sock it to the rich. But the irony of this is it won't hurt the Warren Buffetts and the Wall Street hedge-fund managers much. They might have to pay a higher tax bill -- but more likely they will simply hold on to their stock longer to avoid the higher tax penalty. But the people who will get hurt are the middle class, minorities and young people -- the same group that has been clobbered during this so-called recovery.
Wages rise when workers can produce more, and they can produce more when they get smarter, better trained and have more capital to work with. A tax on capital is thus an invisible tax on wages. When Ronald Reagan and Hillary's husband Bill Clinton cut the capital gains tax, wages and productivity surged.
Myth 4) Raising capital gains taxes won't reduce investment.
Clinton herself says that businesses aren't investing enough -- and she's right -- so it's a head scratcher that she has come to believe that more investment will come from higher tax rates on investment. Back in the 1980s, even Democrats such as Bill Bradley and Dick Gephardt appreciated that high tax rates have a negative effect on the economy. Then, in the past decade, the orthodoxy on the Left became: "Tax rates don't matter at all." Now they think higher tax rates are good for us -- which may explain why Bernie Sanders of Vermont wants a tax rate of around 70 percent or higher on the rich.
Funding for venture capital in new enterprises and the rate of new business startups has long been inversely related to capital gains taxes, according to a Cato Institute study. The higher the penalty on risk capital, the fewer new entrepreneurial ventures get started. If we want to accelerate the next generation of Ubers, Groupons, Home Depots and Googles, we need investors willing to put their money at risk, and if they are going to be taxed at 50 or 60 percent, they are more likely to take a pass.
Myth 5) Raising the capital gains tax will help the economy.
The American Council for Capital Formation finds that the Hillary Clinton plan would raise the capital gains tax to nearly the highest in the industrial world. The U.S. already has the highest corporate tax rate in the world, so this would be a double whammy. The Tax Foundation finds that, bang for the buck, lowering the capital gains tax rate is one of the most pro-growth measures Congress could adopt. The optimal capital gains tax is zero.
By contrast, raising the capital gains rate will hurt small businesses, workers and American competitiveness -- and it won't raise any money. How this is fair is beyond me.
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Insight: "Our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve ... a budget surplus." —John F. Kennedy (1917-1963)
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Insight: "Our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve ... a budget surplus." —John F. Kennedy (1917-1963)
Yes! If he was alive today, still a Democrat and still held these views, he would be thrown out of the party on his ear.
I like Kennedy's term "restricted economy". It's a little like Wesbury's plowhorse analogy, trudging forward but pulling too heavy of a load to get anywhere or solve anything.
Some will say that Kennedy faced a different circumstance; the top tax rate then was 90%. But no one was paying that rate, we were hugely under-performing and the concepts today are the same. In fact, today we face a far more globally competitive world. Being stupid economically is costing us trillions of dollars and tens of millions of jobs.
What stops us from making tax policy more efficient and competitive today is not deficit or debt fear at 18 trillion and counting, but the fear that someone else will benefit more than us.
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Opinion
Letters
Earlier Capital Gains Rate Had an Exclusion
Until the Reagan tax reform there was a 60% deduction or exclusion before the tax was applied
August 15, 2015
4 COMMENTS
None of the letters (Aug. 3) responding to your editorial “Hillary’s Capital ‘Lock In’” (July 27) mention that until the Reagan tax reform there was a 60% deduction or exclusion before the tax was applied. The Reagan tax reform, as I recall, didn’t eliminate the deduction per se, but rather reduced it to zero so the law and regulatory language stayed in place should there have been a subsequent change to the tax law to reinstate some percentage deduction.
Consequently, whatever the tax rate was, it was only applied to 40% of the gain (or rearranging the equation, the capital gains tax rate was effectively only 40% of what the nominal rate was, e.g., 40% of 28% is 11.2%).
A large reason for the exclusion was to take into account things like inflation and the wish to not adversely impact wealth accumulation.
Gary W. Miller
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"A large reason for the exclusion was to take into account things like inflation and the wish to not adversely impact wealth accumulation."
It's been along time since I've heard anyone say that didn't want to 'adversely impact wealth accumulation'. Are they saying wealth accumulation is (was) a good thing??
I don't understand the arbitrary nature of it all, hold for one year or exclude 60% etc. Why not deflate the nominal gain by whatever inflation adjustment that the government using elsewhere (COLA) compounded over the life of the investment?
Excessive Capital Gains taxes cause asset paralysis. States penalizing inflationary gains at the top personal income tax rate make it even worse. Taxed only if you sell means don't sell. The result is that assets and resources don't flow easily to their best use, and revenues to the Treasury under-perform too.
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Agreed.
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Let's see. Maximum deductions up almost 40 times since 1930's:
http://www.ssa.gov/oact/cola/cbb.html
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By
Alan Reynolds
Sept. 2, 2015 7:07 p.m. ET
288 COMMENTS
Hillary Clinton’s most memorable economic proposal, debuted this summer, is her plan to impose a punishing 43.4% top tax rate on capital gains that are cashed in within a two-year holding period. The rate would drift down to 23.8%, but only for investors that sat on investments for six years.
This is known as a “tapered” capital-gains tax, and it isn’t new. Mrs. Clinton is borrowing a page from Franklin D. Roosevelt, who trotted out this policy during the severe 1937-38 economic downturn, dubbed the Roosevelt Recession. She’d be wise to consider how it played out.
President Herbert Hoover raised taxes in 1932 and expanded the number of brackets to 30 from 23. The top rate skyrocketed to 63% from 25%. But the highest capital-gains rate remained 12.5% until Congress enacted the tapered tax in 1934. Here’s how it worked: 20% of an individual’s capital gains were excluded from taxes after one year, 40% after two years, 60% after five and 70% after 10. This initially resulted in a maximum tax of 40% on capital gains for assets sold after two years.
But things took another left turn in 1936, when the top income-tax rate was bumped up to 79% from 63%. This didn’t smack only top earners. All 15 of the highest rates increased: Those previously in a 40% tax bracket were pushed into a 43% bracket, the 49% bracket became 55%, the 59% bracket turned into 70%, and the top 63% rate increased to 79%.
A separate 1936 bill allowed dividends to be treated as taxable income in all 31 tax brackets. This was a first. Most taxpayers were exempt from dividend taxes before 1936; nobody paid more than a 55% rate.
Yet since the capital-gains tax rate grew in tandem with income-tax rates, the top income-tax bracket increased to 79% in 1936, while the capital-gains tax rate jumped to 63% for assets held one year, 47% after two years, 32% after five and 24% after 10. Even worse, the 1936 law added a surtax on “undistributed profits”—those not paid out as dividends but kept to finance business investment.
It didn’t take long for economic consequences to bubble up: In the 12 months between February 1937 and 1938, the Dow Jones Industrial stock average fell 41%—to 111 from 188.4. That crash presaged one of the nation’s worst recessions, from May 1937 to June 1938, with GDP falling 10% and industrial production 32%. Unemployment swelled to 19% from 14%.
Harvard economist Joseph Schumpeter, in his 1939 opus “Business Cycles,” noted that “the so-called capital gains tax has been held responsible for having accentuated, if not caused, the slump.” The steep tax on short-term gains, he argued, made it hard for small or new firms to issue stock. And the surtax on undistributed profits, Schumpeter wrote, “may well have had a paralyzing influence on enterprise and investment in general.”
More recent research confirms these insights. A 2011 study from the Federal Reserve Bank of St. Louis reported that monetary policy tightening, contrary to received wisdom, can’t explain the 1937-38 recession. “The 1936 tax rate increases,” they concluded, “seem more likely culprits in causing the recession.” Higher taxes on investors tended to fall on the more affluent individuals that supply capital to new firms.
A 2012 study in the Quarterly Journal of Economics attributes much of the 26% decline in business investment in the 1937-38 recession to higher taxes on capital. “Especially important,” University of Minnesota economist Ellen McGrattan wrote, “are the sharp rise in tax rates on individual incomes.” And “although few households paid income taxes,” Ms. McGrattan added, “those who did earned almost all of the income distributed by corporations and unincorporated businesses.” Again, more signs of depressed business investment. After 1936 tax rates on undistributed profits “led to another dramatic decline in investment,” the study notes.
The prospect of steep tax rates from cashing in on investments no doubt reduced wealth and investment, as did higher taxes on dividends and profits. The capital-gains taper’s severe penalties on selling assets before five or 10 years also reduced the liquidity of corporate shares, making it far more hazardous to provide equity financing to new firms.
Relief finally arrived in May 1938, when public ire about the recession prompted Congress to overturn FDR. Legislators shortened the taper to two years from 10 and cut the highest capital-gains tax to 15% from 47%. The surtax on undistributed profits was greatly reduced in that year as well, and abolished in 1939.
The 1938 congressional tax revolt, championed by Senate Finance Committee Chairman Pat Harrison, a Mississippi Democrat, intended to turn a recession into a recovery. Roosevelt allowed the bill to become law without his signature, an unusual way of expressing his disapproval. But Harrison’s plan worked. Stocks lifted immediately—the Dow reached 152.3 in November from 111 in April. The recession ended the next month, and the economy grew 8% in 1939 and 8.8% in 1940.
It is ironic, then, that Hillary Clinton’s fix for an economy suffering under 2% growth is resuscitating a tax scheme with a history of ushering in recessions. The economy would be better off if the idea remained buried.
Mr. Reynolds is a senior fellow with the Cato Institute.
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Jack Janzen
Jack Janzen 9 minutes ago
So what does Hillary really think? She is just saying what she thinks will win the necessary votes.
Her time in the Senate and as Secretary of State offer few clues as she did little of any substance in those positions.
Does Hillarycare count? Does here college paper on Saul Alinsky count? Who knows?
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Jeff Guse
Jeff Guse 24 minutes ago
Wasting time talking about taxes when the problem is SPENDING.
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EARL LANGLEY
EARL LANGLEY 26 minutes ago
And the GOP parties like 1933 with its Der Trumpster and his xenophobic base.
Actually the capital gains tax is low and a huge part of economic inequality .
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Ted Terry
Ted Terry 22 minutes ago
@EARL LANGLEY It's only income inequality because someone else has it and you don't. That's the definition of inequality some person having more assets than someone else. Only liberals see a fault in this. Conservatives feel "good on ya" you made some money that you paid income tax on and then you invested the capital that resulted and you generated more wealth from those investments. Now to a liberal that's terrible you're supposed to spend all after tax income and when you run short you get some more funding from the government because you "need" it.
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Jack Janzen
Jack Janzen 15 minutes ago
@EARL LANGLEY
You talk about income inequality as if it were a bad thing.
Correctly viewed if you feel you are on the short end it should be an incentive to do better. This country offers innumerable ways to get ahead. I live a few blocks from recent immigrants who arrived with nothing and are now driving new Cadillacs.
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peter strzalkowski
peter strzalkowski just now
@EARL LANGLEY you should think about this Earl, you tax something you get less of it because the transaction becomes more expensive..do tobacco taxes ring a bell? minimum wage? you tax cap gains at a higher rate, people will stop trading and the revenue from does declines, now my 7 yr old understands this so this is a challenge for you bud.
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Just a local Minneapolis area story, but the economy of Hennepin County is bigger than 8 states.
The increases are "necessary to maintain the current level of services".
"Among those demands will be county employee salary increases. “We need to pay them their value,” "
http://www.startribune.com/hennepin-county-taxpayers-will-see-bigger-bills-for-2016/325816571/
Those poor government workers, making 200% what private workers make.
Screw the taxpayer.
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(From Ted Cruz thread)
I wrote previously about the VAT tax plans on the Presidential thread. Posting more info on the Cruz plan here. His strategy with it puzzles me.
Ted Cruz’s “Business Flat Tax” is what most tax policy experts would call a “tax-inclusive subtraction-method value-added tax” (VAT)
http://taxfoundation.org/blog/ted-cruz-s-business-flat-tax-primer
Senator Cruz’s (R-TX) tax plan would enact a 10 percent flat tax on individual income and replace the corporate income tax and all payroll taxes with a 16 percent “Business Transfer Tax,” or subtraction method value-added tax. In addition, his plan would repeal a number of complex features of the current tax code.
http://taxfoundation.org/article/details-and-analysis-senator-ted-cruz-s-tax-plan
The tab for taxes collected from businesses is ultimately passed through to individuals in the form of lower wages, reduced dividends, or higher prices. So for transparency, the best thing would be to scrap business taxes altogether, and collect the full tax load from individuals at a flat rate. That way, people could accurately perceive the full cost of government.
http://www.nationalreview.com/article/426469/ted-cruz-rand-paul-vat
(famous people caught reading the forum?)
So what happens 10 years from now or 25 years from now if statists control both ends of Pennsylvania Avenue and they decide to reinstate the bad features of the income tax while retaining the VAT? They now have a relatively simple way of getting more revenue to finance European-style big government.
And also don’t forget that it would be relatively simple to reinstate the bad features of the corporate income tax by tweaking Cruz’s business flat tax/VAT.
- Dan Mitchell, Senior Fellow, Cato Institute
http://www.forbes.com/sites/danielmitchell/2015/10/29/ted-cruzs-tax-plan-is-pro-growth-and-reins-in-the-irs-but-there-is-one-worrisome-feature/
https://www.washingtonpost.com/blogs/right-turn/wp/2015/10/30/the-pluses-and-minuses-in-ted-cruzs-tax-plan/
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Bringing a couple of other posts over to the tax thread as well. Crafty is optimistically thinking there will be life after the 2016 Presidential election.
What's up with the Republican VAT tax? Herman Cain's 9-9-9 is alive and well??
« Reply #625 on: November 03, 2015, 08:55:29 PM » DougMacG
The tax plans from Bush, Trump and Rubio-Lee are all of the same general framework. Rubio doesn't cut the rates low enough and Trump doesn't raise enough revenue - these are details to be negotiated with congress to get a final bill - if the candidate wins.
On the other side of it, in addition to Huckabee and his fair tax (VAT tax), are Rand Paul and Ted Cruz who have both come out with tax plans that rely on a new VAT tax. Paul calls for a 14.5% flat tax on income and a 14.5% Vat tax called a 'business transfer tax'. Ted Cruz is proposing a 10% flat tax on income plus a 16% 'tax on business', VAT tax. Great if you think this country with all the tax the rich rhetoric is going to change that suddenly and switch the emphasis over to the more regressive consumption tax.
It isn't realistic to me, that we would could a) pass near repeal the income tax on the rich, and b) implement a whole new layer of taxation and c) hope that liberals wull not someday come to power and raise up both tax rates to the sky, on top of the 8-10% tax many states and localities already put on sales and consumption.
My view is that we can't and won't agree to a new consumption tax (or any other new tax) without repeal of the income tax - and that isn't ever going to happen.
On the income tax side. bold cuts like Reagan's would be great but are also not likely to be politically possible, so we have to steer this big ship around a little more gently and gradually. Propose cuts that are significant enough to grow the economy but modest enough to get elected.. Pass tax reform and regulatory reform and see results enough to turn the corner. Turn around the trend of people leaving the workforce and businesses closing faster than new ones are opening, grow incomes, grow startups, grow the participation rate enough to curb spending demands. Then cut again, both tax rates and spending. And again. Why not have our growth spiral be upward?
Hong Kong did something like this. Their flat tax and free trade policies were so effective that they needed to keep lowering the rate to get rid of the excess revenues.
http://archive.freedomandprosperity.org/Papers/hongkong/hongkong.shtml
http://www.forbes.com/2010/02/18/hong-kong-tax-system-law-business-opinions-books-michael-littlewood.html
http://www.heritage.org/research/commentary/2006/03/flat-tax-is-the-way-of-the-future
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Brininging this post over as well from the President Rubio thread. This whole stupid argument with the biased and brain dead press ('professional journalists') is a big part of tax policy as well.
http://newsbusters.org/blogs/nb/tom-blumer/2015/10/29/two-weeks-after-correcting-himself-cnbcs-harwood-lies-about-rubios
Two Weeks After Correcting Himself, CNBC's Harwood Lies About Rubio's Tax Plan — Again
By Tom Blumer | October 29, 2015 | 1:41 AM EDT
The competition for the worst moderator moment of Wednesday night's GOP debate is fierce. John Harwood's rephrasing of an old and discredited charge that Marco Rubio's tax plan disproportionately benefits the top 1 percent has to be in the running.
That's especially true because Harwood himself had to back away from a similar contention two weeks ago, yet still brought up the same issue with a similar dishonest assumption Wednesday night. After Rubio refuted Harwood and pointed out that the CNBC hack previously had to correct himself about the substance of the Rubio-Lee plan, a finger-wagging Harwood still insisted he was correct (bolds are mine throughout this post):
JOHN HARWOOD: Senator Rubio, 30 seconds to you.
The Tax Foundation, which was alluded to earlier, scored your tax plan and concluded that you give nearly twice as much of a gain in after-tax income to the top 1 percent as to people in the middle of the income scale.
Since you're the champion of Americans living paycheck-to- paycheck, don't you have that backward?
RUBIO: No, that's -- you're wrong. In fact, the largest after- tax gains is for the people at the lower end of the tax spectrum under my plan. And there's a bunch of things my tax plan does to help them.
Number one, you have people in this country that...
HARWOOD: The Tax Foundation -- just to be clear, they said the...
(CROSSTALK)
RUBIO: ...you wrote a story on it, and you had to go back and correct it.
HARWOOD: No, I did not.
RUBIO: You did. No, you did.
(APPLAUSE)
(CROSSTALK)
HARWOOD: Senator, the Tax Foundation said after-tax income for the top 1 percent under your plan would go up 27.9 percent.
RUBIO: Well, you're talking about -- yeah.
HARWOOD: And people in the middle of the income spectrum, about 15 percent.
RUBIO: Yeah, but that -- because the math is, if you -- 5 percent of a million is a lot more than 5 percent of a thousand. So yeah, someone who makes more money...
HARWOOD: (inaudible)
RUBIO: ...numerically, it's gonna be higher. But the greatest gains, percentage-wise, for people, are gonna be at the lower end of our plan, and here's why: because in addition to a general personal exemption, we are increasing the per-child tax credit for working families.
We are lowering taxes on small business. You know, a lot of business activity in America is conducted like the guy that does my dry cleaning. He's an S corporation. He pays on his personal rate, and he is paying higher than the big dry-cleaning chain down the street, because he's paying at his personal rate.
RUBIO: Under my plan, no business, big or small, will pay more than 25 percent flat rate on their business income. That is a dramatic tax decrease for hard-working people who run their own businesses.
(CROSSTALK)
RUBIO: ...The other thing I'd like to make about our plan, one more point, it is the most pro growth tax plan that I can imagine because it doesn't tax investments at all. You know why? Because the more you tax something, the less of it you get.
I want to be in -- I want America to be the best...
PAUL: ...John...
RUBIO: ...in the world for people...
Sean Davis at the Federalist noted that Harwood's stance was so outrageous that the Tax Foundation's Scott Hodge had to tweet the record straight in almost real time:
(http://bizzyblog.com/wp-images/FederalistOnHarwoodRubioTaxLie1028.jpg)
Here is Harwood's tweeted correction from two weeks ago: -
(http://bizzyblog.com/wp-images/HarwoodCorrectionTweet101415.png)
A graphic representation of the Rubio-Lee tax plan by income decile plus the top 1 percent is here.
Those who want to defend Harwood on the basis that he was asking about the "middle" of the income scale and not the entire rest of the income scale need to understand two things:
Harwood's question still has a false premise, as seen in focusing on the middle 60 percent as presented in the following table from the Tax Foundation's model:
(http://bizzyblog.com/wp-images/RubioLeeTaxPlanDecileImpact1015.jpg)
The dynamically scored after-tax income effect for the top 1 percent of income-earners is 27.9 percent. The average of the deciles from 20 percent to 80 percent is 16.2 percent. 27.9 divided by 16.2 is 1.72. That's closer to 1-1/2 than it is to 2; there no justification for calling 1.72 a "nearly twice" impact. John Harwood doesn't get to "creatively" round up like this and get away with it — and he didn't.
Harwood was treating the upper 19 percent (between 80 percent and 99 percent) and the lower 20 percent as if they don't exist. Why? Because he didn't want to admit the large favorable impact on the bottom 20 percent — because, y'know, the Republican Party is the party of the rich which never helps the less fortunate. Rubio, to his credit, got it in there anyway.
Those who believe that the GOP should never have allowed CNBC to host one of the its presidential debates, and especially should have insisted that Harwood not be one of its moderators, should feel vindicated — but still quite frustrated — tonight.
-----------------------------------
(My comments that followed that news account):
One comment on the previous Rubio post: The argument Rubio won against NBC's John Harwood was crucial along with all the media and opponent drivel based on static scoring that shows other plans 'costing us trillions' illustrates why his plan has to be so modest at the high end to get elected. Yes, the top rates should be much lower but that feeds the labeling of all tax rate cuts being a 'giveaway' to the rich. Unfortunately, you have to win the election to reverse Obama's tax increases or repeal Obamacare or anything else. The alternative is Hillary going further than Obama on amnesty and big government.
No wonder NBC's (no one but Clinton?) John Harwood felt the need to have his Candy Crowley moment.
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http://www.zerohedge.com/news/2015-11-23/its-official-allergan-pfizer-combine-biggest-ever-tax-inversion-defy-jack-lew
This is why we demand dynamic scoring! High rates apply to less income, lower rates apply to more income. Tax it and you will get less of it. Everyone knows this, yet deny it when doing the math.
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Pasting this here as well from the Presidential thread.
http://news.investors.com/ibd-editorials-brain-trust/112015-781892-paul-and-cruz-flat-tax-proposals-best-candidate-tax-plans.htm#ixzz3sKqJB7Vn
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"Our tax rate highly disadvantages American multinational high-tech businesses," Read said at a Wall Street Journal event. "I am fighting with one hand tied behind my back."
http://www.reuters.com/article/2015/10/29/allergan-ma-pfizer-idUSL3N12T51K20151029#mPxXalBeRcWu6ag8.99
Companies can't wait to get out.
Everyone knows it is a global market and yet the US has the highest corporate tax rate in the world.
At what point will the Obama-Hillary-Bernie tax raisers be satisfied? When the last company leaves and when no more are ever started??
The Dem / Obama administration response to this is to try to block the exits. Reminds me of the Berlin wall; their borer security was to keep people in - against their will.
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The staggering economic ignorance displayed here by Pravda on the Hudson is typical, but I suggest we do note the article and its logic because we are sure to see it widely parroted and must be ready with our counters:
http://www.nytimes.com/2015/12/30/business/economy/for-the-wealthiest-private-tax-system-saves-them-billions.html?emc=edit_na_20151229&nlid=49641193&ref=cta&_r=0
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The staggering economic ignorance displayed here by Pravda on the Hudson is typical, but I suggest we do note the article and its logic because we are sure to see it widely parroted and must be ready with our counters:
http://www.nytimes.com/2015/12/30/business/economy/for-the-wealthiest-private-tax-system-saves-them-billions.html?emc=edit_na_20151229&nlid=49641193&ref=cta&_r=0
1) They begin: "With inequality at its highest levels in nearly a century..." - But this is after they have had control of tax policy for nearly a decade. More of the same means even wider inequality.
2) "Route the money to Bermuda" - USA has the highest business tax rates in the OECD, especially states like Calif, NY, MN. Most of the money and productive resources routing out of our tax system is caused by tax rates here being too high. Raising them further means more resources diverted, not less.
3) "Closing loopholes" - has been the strategy for 3 decades. The bucket finds another leak. The loophole is inevitable if a) the rates are high, and b) we continue to operate a system of favors and preferences. Conservatives and centrists have their exclusions and liberals have others. The constitution implies that all people and therefore all activities be taxed the same. Crazy talk.
4) ”Unless you plug every hole or get a new barrel, it’s going to leak out.” - How come they can't say both parts of 'lower the rates' and 'close the loopholes'? You can't just close loopholes which requires blocking flows of money and taxing overseas activities. You have to chip away at the underlying cause, the scary high rates.
Liberals think companies should morally and ethically pay high taxes. Pointed out with one of the US companies setting up headquarters in Ireland at a fraction of the tax rate:
Business leaders are in violation of their fiduciary duty if they don't use all legal means to escape punitive and prohibitive tax rates.
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https://www.washingtonpost.com/news/powerpost/wp/2016/02/16/cruz-tax-plan-would-cost-8-6-trillion-second-only-to-trump/?postshare=6601455660382217&tid=ss_fb-bottom
Cruz tax plan would cost $8.6 trillion, second only to Trump’s
By Kelsey Snell February 16
DES MOINES, IA - FEBRUARY 01: Republican presidential candidate Sen. Ted Cruz (R-TX) stands with his wife Heidi as he addresses supporters after winning at the caucus night gathering at the Iowa State Fairgrounds on February 1, 2016 in Des Moines, Iowa. Cruz beat out frontrunner Donald Trump and Marco Rubio (R-FL) to win the Iowa caucuses. (Photo by Christopher Furlong/Getty Images)
Republican presidential candidate Sen. Ted Cruz (R-Tex.) stands with his wife Heidi. (Photo by Christopher Furlong/Getty Images)
Republican presidential candidate Ted Cruz’s plan to impose a flat 10 percent tax on all personal income and greatly lower the corporate tax rate would cost the federal government at least $8.6 trillion over a decade, according to a new analysis.
The plan would be the second most expensive tax proposal in the GOP presidential field, with only businessman Donald Trump offering a proposal that would add more in government debt over the next 10 years, according to data released Tuesday by the nonpartisan Urban Brookings Tax Policy Center. Trump’s plan would cost the government $9.5 trillion in lost revenue.
[A $9.5 trillion price tag for Trump’s tax plan]
Republican presidential candidates have been quick to campaign on promises to cut taxes, but because most have yet to detail how they would slash spending to offset this lost revenue, analysts have projected their proposals would be deficit busters.
Cruz’s plan also falls short of fulfilling the Texas senator’s promise that his flat tax system would be so simple that taxpayers would file their returns on a postcard.
Cruz would eliminate nearly every tax deduction except those for charitable contributions and mortgage interest and would increase the standard deduction to make doing your taxes easier. He would also eliminate all credits except the earned income tax credit for low-income workers and the child tax credit.
The streamlined system is the simplest plan released by any presidential candidate, but analysts said Cruz’s proposals would still require most people to fill out more than a postcard.
“I would think the form would have to look not that different than what you do now,” said Tax Policy Center Co-Director Eric Toder.
The Cruz campaign declined to respond to questions Tax Policy Center staff sent about the plan, which meant it had to make some assumptions about Cruz’s proposal in areas where there was a lack of detail.
The proposal also falls short of Cruz’s promise that under his plan every income-level would see double-digit increases in after-tax income.
Analysts found that while most workers would receive a tax cut, the lowest-income workers would see their after-tax income decline by 0.6 percent.
There would be a 16 percent flat business tax under Cruz’s proposal, which functions like an across-the-board consumption tax that would increase the amount workers are taxed by their employers. Those low-income workers who don’t make enough to file taxes wouldn’t benefit from the expanded standard deduction that is meant to offset the payroll-side increases.
“Somebody below the standard deduction amount, they cannot benefit much,” said Tax Policy Center Director Leonard Burman, who served in the Treasury Department during the Clinton administration. “They would benefit very little from repealing the corporate income tax, so on net they would end up paying higher taxes under the Cruz plan.”
Cruz’s business tax has also been criticized by fellow presidential candidate Sen. Marco Rubio (R-Fla.), who compared it to a European-style value added tax. Burman said Rubio is correct and that Cruz’s system would impose a version of the consumption tax system popular in much of Western Europe. The center estimates that Rubio’s tax proposal would cost the government at least $6.8 trillion in lost revenue over the next decade.
[The VAT tax fight between Rubio and Cruz]
The biggest beneficiaries under Cruz’s plan would be the top 0.1 percent of earners. People earning over $3.7 million per year would see an average tax break of more than $2 million in the first year, according to the analysis.
The plan would add $10.2 trillion to the national debt in the first decade, according to the center, when you include interest payments on the additional government borrowing that would occur.
Cruz: 'We should abolish the IRS'
Play Video0:45
Republican presidential candidate Ted Cruz told voters in Anderson, S.C. on Feb. 16 he would create a flat individual income tax and that among other changes, he would aim to eliminate the Internal Revenue Service, if elected to office. (Reuters)
Cruz isn’t alone in crafting a tax plan that would cost the federal government trillions while delivering big benefits for the wealthy; all of the Republicans running for president are doing it.
“All of the plans benefit high-income people more than low-income people,” Burman said. “They are enormous tax cuts compared to the current system, and they are enormously regressive.”
Analysts said the lost revenues could be reduced through spending cuts, including Cruz’s plan to repeal the Affordable Care Act, but Cruz and most other Republican candidates have yet to provide detailed lists of the cuts that should be made.
Burman said the plan would make it easier and more beneficial for businesses and individuals to invest. Lower tax rates and benefits for businesses would likely encourage major investments in the early years of the plan, but analysts said they expect interest rates would increase and the economy would decline as a result of the ballooning debt.
“The plan by itself, not including the unspecified spending cuts, would surely depress the economy,” Burman said.
Correction: An earlier version of this story misstated the Tax Policy Center’s analysis of the cost of the Rubio plan. It is $6.8 trillion, not $6.8 billion.
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What Is the Fair Share of Taxes?
Why voters fall victim to political charlatans
March 3, 2016 Walter Williams
Presidential hopefuls Hillary Clinton and Sen. Bernie Sanders, along with President Obama, say they want high-income earners, otherwise known as the rich, to pay their fair share of income taxes. None of these people, as well as the uninformed in the media and our campus intellectual elites, will say precisely what is the "fair share" of taxes. That is because they would look ignorant and silly, so they stick with simply saying that the rich should pay more. Let's you and I take a peek at who pays what in federal income taxes.
The following represents 2012 income tax data recently released by the Internal Revenue Service, compiled by the Tax Foundation (http://tinyurl.com/j5yr8cd). The top 1 percent, 1.37 million taxpayers earning $434,682 and more, paid 38 percent of all federal income taxes. The top 5 percent, those earning $175,817 and more, paid 59 percent. The top 10 percent of income earners, those earning $125,195 and up, paid 70 percent of all federal income taxes. The top 25 percent, those earning $73,354 and up, paid 86 percent. The bottom 50 percent, people earning $36,055 and less, paid a little less than 3 percent of federal income taxes. According to estimates by the Tax Policy Center, slightly over 45 percent of American households have no federal income tax liability.
With this information in hand, you might ask the next person who says the rich do not pay their fair share of taxes: Exactly what percentage of total federal income taxes should the 1-percenters pay? I seriously doubt whether you will get any kind of coherent answer. By the way, since 1-percenter income starts at $435,000, it might be pointed out that $400,000 or $500,000 a year is not even yacht or Learjet money. Plus, if one has two kids in college, a big mortgage and car payments, I doubt he would declare himself rich.
Our demagogues also claim that corporations do not pay their fair share of taxes. The fact of the matter, which even leftist economists understand but might not publicly admit, is corporations do not pay taxes. An important subject area in economics, called tax incidence, says the entity upon whom a tax is levied does not necessarily bear the full burden of the tax. Some of the tax burden can be shifted to another party. If a tax is levied on a corporation, and if the corporation hopes to survive, it will have one of three responses to that tax or some combination thereof. It will raise the price of its product, lower dividends or lay off workers. In each case a flesh-and-blood person is made worse off. The important point is that a corporation is a legal fiction and as such does not pay taxes. As it turns out, corporations are merely tax collectors for the government.
Politicians love to trick people by suggesting that they will not impose taxes on them but on some other entity instead. To demonstrate the trick, suppose you are a homeowner and a politician tells you that he is not going to tax you, he is just going to tax your land. You would easily see the political chicanery. Land cannot and does not pay taxes. Again, only people pay taxes.
Leftist politicians often call for raising the death tax, euphemistically called inheritance tax. The inheritance tax brings in less than 1 percent of federal revenue. It is on the books because it serves the interests of jealousy, envy and our collective desire to tax the so-called rich. The effects of inheritance taxes are economically damaging. It has this impact because in order for people to pay the death tax, they often must sell producing assets, such as farms, factories, stocks and bonds. These are high-powered dollars that are shifted from productive activity to government consumptive activity.
Too many Americans are ignorant of tax issues and thus fall easy prey to the nation's charlatans and quacks.
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Hi objectivist,
Playing devils advocate not that I disagree with Walt.
Walt Williams who I like writes: "Exactly what percentage of total federal income taxes should the 1-percenters pay? I seriously doubt whether you will get any kind of coherent answer."
A liberal, or redistributionist might respond with this: (depending on whose numbers one chooses to believe)
http://www.cnbc.com/2016/01/17/62-people-have-as-much-wealth-as-worlds-36b-poorest-oxfam-finds-ahead-of-davos.html
or
http://www.bbc.com/news/business-35339475
or
http://www.ips-dc.org/billionaire-bonanza/
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"slightly over 45 percent of American households have no federal income tax liability"
- One telling descriptor of the O'Bummer economy.
"Exactly what percentage of total federal income taxes should the 1-percenters pay?
From a conservative point of view, there are two criteria that guide the answer. the efficiency question and the moral question.
From an efficiency point of view, there is no reason and it is counter-productive to tax at above a rate where the person taxed is mostly motivated to avoid the tax even to the point of choosing to not earn the additional dollar of income. That helps no one, especially the federal treasury.
One case in point, during the decade of the 1980s, the top marginal rate was lowered from 70% to 28%. Coincidentally, revenues to the treasury doubled during the decade of the 1980s. Even if the revenues were the same, a 28% rate is less disruptive than a 70%.
Second example, Gingrich-Clinton lowered capital gains tax rates in the 1990s and revenues exploded to the point of balancing the budget by the end of the decade.
At some point, lowering the rates brings in less revenue. At the state level, Kansas learned that. They lowered their rates further than income could rise, because of the Obama economy and because their rates were still higher than places neighbors like South Dakota and Texas. No one was moving their business to Kansas just for the tax rates.
From the moral point of view, it is wrong to put a tax on someone else that you wouldn't pay yourself.
From the liberal point of view, punishment and retribution are the motivators for setting higher and higher marginal tax rate, which is morally wrong and highly inefficient. Earning legal, taxable income in America is a great thing in America and we need more of it.
If we really want to have lower tax rates, we need to CUT SPENDING FIRST. If you are at the 45th or 50th percentile of income in America, you are not in need of government income assistance. You are in need of having government get out of your way, making all these taxes and rules that drive up the cost of living.
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We don't see many of these comparisons because we don't hear the candidates publicly getting behind their own tax plan very much.
I think Ted Cruz is being completely unrealistic to thin we are going to a top marginal rate of 10% anytime soon. Hillary will eat his lunch on that. Likewise for Marco Rubio's plan to put a zero tax on capital gains. That would be a wonderful thing for growth and solve all of my problems personally. As it stands now I would have to die to get at my accumulated net worth and then get taxed on it anyway! But a zero tax on capital gains is not going to happen. So from my point of view, I am waiting for the Ryan plan that will hopefully balance out the concerns and have the best chance at prevailing in the election and getting enacted.
All that said, Trump actually has the most reasonable tax rates but his plan is scored worst for deficit and growth by the Tax Foundation:
------------------------------------------------------------------------------------
http://taxfoundation.org/blog/why-marco-rubio-and-ted-cruz-s-tax-plans-generate-more-growth-donald-trump-s
Why Marco Rubio and Ted Cruz’s Tax Plans Generate More Growth than Donald Trump’s
An exciting presidential race has brought attention to tax policy, and frequently, to Tax Foundation’s analysis of candidate plans. The three most popular candidates in the Republican race have all put together tax reform proposals.
Tax cuts can increase the size of the economy by improving incentives to work or invest. To some extent, all three candidates’ proposals do this, and our modeling results for each plan show growth. But our model shows more growth from the Rubio and Cruz plans than the Trump plan, even though Trump proposed a larger cut:
(http://taxfoundation.org/sites/taxfoundation.org/files/docs/TrumpCruzRubio.png)
Some of our readers may be curious why some tax cuts generate more growth than others. The answer is pretty simple. While Donald Trump largely opted for big rate reductions across the board, Rubio and Cruz made improvements to the structure of taxes, while cutting taxes by less overall. In this, they got more bang for their buck. I’ll highlight one particular example here.
Senators Rubio and Cruz both put thought into the nature of the taxes that businesses pay. They noticed that the current way businesses are asked to calculate taxes creates a bias in the code. When a business builds something new, like, say, a new industrial lathe, that decision actually has a higher tax burden, on net, than simply disbursing the money to shareholders. That’s bad news for machinists, who would much rather that they had new and better tools with which to do their jobs.
Rubio (through modifications of the corporate income tax) and Cruz (through the total conversion of corporate income taxes to his business flat tax) both fix this problem by making the full amount of money spent on the lathe deductible from taxable income. And of course, this applies not just to lathes but to all other kinds of capital investments that businesses purchase: things like buildings or pile drivers or trucks or oil rigs. I write about the cleverness of this policy in Marco Rubio’s plan here, though it applies equally to Ted Cruz’s plan.
In contrast, Trump did little to change the domestic corporate tax system, and merely lowered its rate. This policy has its benefits, including the benefit of growth, but it substantially reduces revenue.
There are, of course, other things in play besides this particular provision. But it’s a good example of a broader trend: the senators pay attention to the details of the tax base, and try to fix incentive problems that the tax base creates. Mr. Trump mostly lowered rates.
Our model notices distinctions like this, and observes the incentives that different tax systems create. America under the Marco Rubio or Ted Cruz tax plan would simply have more lathes and buildings and trucks, and people would be more productive and have higher incomes because of it. And this is not because they propose fewer taxes, but rather, because they propose taxes with better bases.
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A point I have been making for my personal, low income situation for a long time is now true for everyone. This is not a tax issue, but a burden of government programs issue. We have to levy these taxes and more if we want the government to do EVERYTHING.
Americans spend more on taxes than food, clothing, housing combined
http://www.washingtonexaminer.com/americans-spend-more-on-taxes-than-food-clothing-housing-combined/article/2587799
http://taxfoundation.org/article/tax-freedom-day-2016-april-24
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http://www.atr.org/hillary-confirms-trillion-dollar-tax-hike-plan Not a peep about 50% paying not one cent in Federal taxes. Nothing. Just more of the same tax half the country and redistribution to the other 50% and bigger government.......
How else would she pay for this? Immigration reform consists of spending more money not to enforce existing laws but to make it easier for illegals to come here and be set up as future voters for the Democrats. The coup de grace so to speak for conservativism's demise:
http://dailycaller.com/2016/04/13/clinton-would-create-federal-immigration-agency-to-help-illegals/
One recent poll had Trump only a few percentage points behind the felon. On Drudge there is a report about what it would be like having a President on probation. I'm telling you. The chance of indictment is very low. And if it does occur it will not cause her to drop out. Lets say it does occur. The fix will just come a little farther down the chain of events. Plea deal, probation, etc.
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45.3% of American households — roughly 77.5 million — will pay no federal individual income tax
http://www.marketwatch.com/story/45-of-americans-pay-no-federal-income-tax-2016-02-24
"On average, those in the bottom 40% of the income spectrum end up getting money from the government. Meanwhile, the richest 20% of Americans, by far, pay the most in income taxes, forking over nearly 87% of all the income tax collected by Uncle Sam."
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Reagan lowered the highest tax rates in the country by making his cuts "across the board" tax rate cuts and selling it partly that it would take millions of people off the tax rolls completely. That last part of it was a mistake.
Our goal now should be the opposite, to get the highest percentage of people to be participating in the next round of economic growth, benefiting from the prosperity and participating in their fair share of paying for what they vote for.
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I posted, "Not a peep about 50% paying not one cent in Federal taxes" on April 13th
Today's headlines on Drudge as Doug points out, "45.3% of American households".
What can I say. I stand corrected. :wink:
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I posted, "Not a peep about 50% paying not one cent in Federal taxes" on April 13th
Today's headlines on Drudge as Doug points out, "45.3% of American households".
What can I say. I stand corrected. :wink:
45% paying nothing plus rich elite liberals plus government employees plus minimum wage employees plus college professors plus K-12 teachers union members plus crony government 'business' people plus 95% of blacks, gays, Jews, Hispanics and Muslims and a few other groups I missed somehow takes that core Dem market over 50%.
On the other side, taking a really hard line on immigration gets you 33% - of Republicans - and maybe the nomination and second place at best in the general election.
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http://dailycaller.com/2016/04/25/exclusive-kerry-heinz-family-has-millions-invested-in-offshore-tax-havens/
The left's outrage will be....muted.
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"The left's outrage will be....muted."
As will be the fact that Bernie and wife paid only 14% tax rate on over 200K income as per Greta last night. I don't blame them for doing THAT (and agree with Greta that I would like to know just how they got away with it) but it is just the hypocrisy of it all.
But, because they are Dems and "for the po" in their loving hearts, it is all OK.
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ccp: "As will be the fact that Bernie and wife paid only 14% tax rate on over 200K income as per Greta last night. I don't blame them for doing THAT (and agree with Greta that I would like to know just how they got away with it) but it is just the hypocrisy of it all."
To his credit, George McGovern had some regrets later, after trying and failing at business, about the massive burden of government - back then.
Bernie at 74 is new at being a rick star. He likes being a 1%er like the Clintons and Michelle Obama, note the jumbo jet and entourage this common man took for his 3 minute meeting with the Pope. Like a lottery winner, he will have learned nothing along the way of what ordinary people need to do to raise their income and how government fights you every step of the way, taxes jut being a part of it.
In terms of hypocrisy, why is it that none of them give an extra dollar they don't have to when they think it is the agent of the greatest good of all.
Tax vs. charity or coercion versus philanthropy: What if all those things government does for people were great and we believed people are great and trusted the to do the right thing. Why not let people prosper and then give to all these great causes voluntarily? This is the antithesis to leftism where coercion is the centerpiece, not the great good you are pretending to be doing.
It turns out that freedom, prosperity and philanthropy beats coercive socialism every time it is tried. Besides being morally superior, it turns out it is far more efficient and effective.
What a shame that Bernie's vision of returning to something so close to slavery sounds appealing to so many young people and is not being effectively countered by our side at all.
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"To his credit, George McGovern had some regrets later, after trying and failing at business, about the massive burden of government - back then."
I remember very well his coming public about it - and the IMMEDIATE shutdown he got from his Democratic PARTY peers!
As far as I know we never heard another peep about it in the media.
Amazing how the PARTY, supposedly of the common people are able to silence all dissent.
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It's hard to believe that well intended government programs don't accomplish what they set out to do, and only do harm, but that is the case here.
We didn't need a study to know this; we just lived through seven years of Obama. Income inequality had been going up for decades, so he raised taxes on the rich and gave to the poor. Result: Income inequality went up even faster.
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Why Hillary’s And Bernie’s Tax Hikes On The Rich Are Doomed To Fail
http://www.investors.com/politics/capital-hill/why-hillarys-and-bernies-tax-hikes-on-the-rich-are-doomed-to-fail/
...Using historic data in the U.S. from 1930 to 2010, they created a model based on income and capital asset values that very closely tracked wealth inequality in America. The correlation was 96% — a very tight fit between the model and reality.
So, they asked, what would happen in the U.S. if by 2030 you taxed away much of the income of those at the top of the earning ladder? Would the gap in wealth between the rich and the rest of us shrink?
The surprising answer that came back was no. As Ross Pomeroy noted at the Real Clear Science web site, even raising taxes to a level that created very low income inequality would still lead to the top 10% of all incomes controlling 78.6% of all the wealth by 2030. OK, but what if you cut taxes on the rich instead, leading them to have even more income in 2030 than they already do? The top 10% would control roughly 79.3% of all the wealth.
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0154196
http://www.realclearscience.com/journal_club/2016/04/27/raising_income_taxes_wont_fix_wealth_inequality_109613.html
...
Nor is this the only research to come to this conclusion.
A study from the liberal-centrist Brookings Institution last year asked what would happen if the top tax rate was lifted to 50% from 40%, with the money going to the bottom fifth of all households. That would equal roughly $100 billion a year in income redistribution.
The study’s authors found the impact on income inequality, as measured by the widely used Gini index, would still be “exceedingly modest.”
http://www.brookings.edu/~/media/research/files/papers/2015/09/28-taxes-inequality/would-top-income-tax-alter-income-inequality.pdf
...
In the most recent year for which data are available, the top 1% in incomes earned 19% of all U.S. income, but paid 38% of all income taxes. So Sanders and Clinton are right when they say the tax code is unfair — it’s unfair to those at higher incomes. The only reason for imposing higher taxes on the wealthy, who already pay more than their fair share, is class warfare, spite and envy...
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Class warfare, spite and envy is the democratic brand in 2016.
Pay no attention to the wealthy dems.
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Assessing high tax rates on income is how you prevent people who are not already rich from ever catching up with the wealth accumulation of the wealthy.
-----------------------------------
In a purely socialist society (the Sanders campaign), each person voluntarily sends in $19 for the greater good and foregoes all personal uses of fossil fuels so that the leader can fly his entourage in a jumbo jet with empty seats across the Atlantic to the Vatican for a 3 minute discussion about the merits of socialism and giving up all things material.
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Tax issues, 40% of our country, keep falling to page two while shiny objects, bathroom issues, are front and center. To the top...
One third of our country pays federal income taxes. Two thirds do not. 7% make over 100,000 and pay 80% of the taxes. Getting 93% to raise the taxes on 7% does not impress me as consent of the governed, but also doesn't help us grow the economy or ed the stagnation for anyone.
Looking around at cost of healthcare, homes, property taxes, insurance costs and the cost of raising kids and putting them through college, people living in mainstream America need to make over 100k in tday's dollars in order to pay their own bills. Looking forward, that number keeps getting higher. But if you do make enough to be self sufficient and tuck a little away, we punish you and punish you and punish you, while we propose to punish you further.
We have a tax code that rewards failure and punishes success. What could possibly go wrong? Look around.
http://townhall.com/columnists/bryancrabtree/2016/05/18/us-2016-failure-is-a-better-option-than-success-n2164582?utm_source=thdaily&utm_medium=email&utm_campaign=nl&newsletterad=
US 2016: Failure is a Better Option Than Success
Bryan Crabtree May 18, 2016
Two-thirds of Americans do not have any taxable income. The most recent IRS data shows that Americans earning over $100,000 per year pay roughly 80% of all taxes in America. This means that roughly seven percent of our nation pays the overwhelming majority of everyone else's government expenses.
I'm a big fan of the idea of a nationwide flat tax. But here's the problem: We already have a flat tax and an income tax. Almost every item we buy has a federal tax somehow levied on it.
When you pay your cell phone bill you pay a universal access fee which goes for programs such as the Obama-phone which are wrought with fraud. Your cable bill, home telephone bill, automobile, gas, utilities, alcohol and many other products and services have federal and state taxes baked in the cost or on the bill.
Most Republicans and Democrats loathe the discussion of abolishing the IRS because of its likely impact on many of their pet projects and donors. They also realize that each of them are complicit in scamming you. Many argue the federal income tax, compared to historic levels, is low. But, when the top income tax bracket was as high as 90 percent, we didn't have the ‘scam’ taxes (re: flat consumption tax) outlined above.
With numbers as staggering as the foregoing, there's no wonder why our country is becoming lazy, complacent and apathetic. When I read this data, my first thought was “why am I working so hard to give half of it to the government and provide many others with a free ride?”
...why should I work hard, take time away from my family and remain in a constant state of stress only to have the long arm of the federal government strip away half or more of what I earn to fund entitlements, fraud and waste?
We all pay Medicare and Social Security, but there's even a conversation about limiting that to some sort of a means test so the system doesn’t go bankrupt. So, again, we get to pay into a system but never receive benefits commensurate to our input, because we are above average in success?
We are clearly in a nation that penalizes success at almost every level and encourages failure at every other level. ...
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Through my liberal friends I hear that Kansas is the proof that "tax cuts don't work".
http://www.kansascity.com/opinion/opn-columns-blogs/yael-t-abouhalkah/article87210507.html
https://www.bloomberg.com/view/articles/2016-03-29/kansas-tried-tax-cuts-its-neighbor-didn-t-guess-which-worked
http://www.slate.com/blogs/moneybox/2016/04/20/kansas_tax_cuts_are_a_mistake_and_everyone_agrees.html
http://www.cbsnews.com/news/kansas-loses-patience-governor-sam-brownback-tax-cuts/
http://www.motherjones.com/politics/2016/05/sam-brownback-kansas-tax-cuts-trickle-down
http://www.politico.com/story/2016/06/kansas-income-tax-cut-prompts-new-debate-224379
http://www.politico.com/story/2016/06/kansas-income-tax-cut-prompts-new-debate-224379
What happened, what went wrong?
Here is my take.
The Laffer Curve indicates that there is SOME point on the curve before you hit a 100% tax rate where a lower rate brings in a greater return, not at all points on the curve and not all tax rate cuts. Supply side economics asserts that static analysis is always wrong for an important change, that there is always SOME revenue recapture when significantly decreasing the disincentive to produce, not that all tax rate cuts can bring in greater revenue.
The tax rate cuts reduced the highest income tax rates to 4.9 percent in 2013 from 6.45 percent and 6.25 percent.
http://www.kansascity.com/latest-news/article303137/Brownback-signs-big-tax-cut-in-Kansas.html#storylink=cpy
Actual revenues:
FY 2012 $2.9 Billion
FY 2013 2.93
FY 2014 2.3
FY 2015 2.3
Kansas needed 8% in spending cuts in order to balance their budget with 24% tax rate cuts. They didn't do that.
Other factors:
Kansas has an agricultural economy; farm prices and incomes are down. Tax rate on profits doesn't change that reality or incentivize a business that is losing money or barely breaking even. They face larger problems. In the Kansas oil industry, prices imploded. Their aerospace industry has been shrinking.
The Obama economy: True that Kansas under-performed against the national economy, but a surge of business in Kansas did not happen in part because business was not surging anywhere in America. Overall for all businesses in Kansas, tax disincentives and all government burdens on business including regulations and Obamacare were worsening over this time. There was no general incentive to expand - anywhere.
Another factor largely lost in the analysis is that other states still have much lower tax burdens than Kansas. South Dakota, Texas and Florida for example all have no state income tax. Businesses moving on that criteria will not choose Kansas for the 4.9% rate or the 6%, especially in a time of no growth generally.
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Good discussion full of usable bullet points.
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To match this former Bush adviser's never Trump stance, I should post never-Mankiw. He misses the biggest point, the incentive to grow wealth, but he makes a couple of very good ones here, fairness and consistency.
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Why Taxing Fairly Means Not Taxing Inheritances
Economic View
By N. GREGORY MANKIW SEPT. 9, 2016
Does it make sense to tax inheritances and, if so, how much? The answer to this question is a perennial political football.
President George W. Bush, to whom I was an adviser, pushed for the elimination of the estate tax. He succeeded, but only briefly. In 2001, he signed legislation that phased out the tax and eliminated it in 2010. But the tax was back in 2011.
Today, the federal government imposes a tax of 40 percent on estates over $5.45 million ($10.9 million for married couples). And many states take a piece of the action as well. The state of New York, for instance, has a top estate tax rate of 16 percent.
Now, Hillary Clinton wants to increase the tax by reducing the threshold to $3.5 million and raising the rate to 45 percent. Donald J. Trump wants to eliminate it again.
It is easy to understand the appeal of the estate tax. We live in a time of great economic inequality, and the tax is levied only on the very wealthy. The tax helps fund government programs (though it raised only $19 billion last year, 0.6 percent of federal receipts).
But the estate tax is only one of many policy tools that can be used to make sure those at the top pay their fair share. Another would be to limit itemized deductions, as the Bowles-Simpson commission appointed by President Obama proposed in 2010. We could also reform the tax treatment of carried interest, which hedge fund managers use to reduce their tax burden to extraordinarily low levels.
From my perspective, the estate tax is a bad way to tax the rich because it violates a principle that economists call horizontal equity. The basic idea is that similar people should face similar tax burdens.
Consider the story of two couples. Both start family businesses when they are young. They work hard, and their businesses prosper beyond anything they expected. When they reach retirement age, both couples sell their businesses. After paying taxes on the sale, they are each left with a sizable nest egg of, say, $20 million, which they plan to enjoy during their golden years.
Then the stories diverge. One couple, whom I’ll call the Frugals, live modestly. Mr. and Mrs. Frugal don’t scrimp, but they watch their spending. They recognize how lucky they have been, and they want to share their success with their children, grandchildren, nephews and nieces.
The other couple, whom I’ll call the Profligates, have a different view of their wealth. They earned it, and they want to enjoy every penny of it themselves. Mr. and Mrs. Profligate eat at top restaurants, drink rare wines, drive flashy cars and maintain several homes. They spend their time sailing the Caribbean in their opulent yacht and flying their private jet from one luxury resort to the next.
So here’s the question: How should the tax burdens of the two couples compare? Under an income tax, the couples would pay the same, because they earned the same income. Under a consumption tax, Mr. and Mrs. Profligate would pay more because of their lavish living (though the Frugals’ descendants would also pay when they spend their inheritance). But under our current system, which combines an income tax and an estate tax, the Frugal family has the higher tax burden. To me, this does not seem right.
I recognize, however, that not all economists share my judgments about the estate tax. That is largely because issues of fairness transcend economics and thrust us into the realm of political philosophy, where agreement is all the more difficult.
But there is one thing that everyone can agree on: The estate tax you owe should not depend substantially on the exact moment you happen to expire. A person who died in 2010 paid no estate tax, no matter how wealthy he or she was. A year earlier or later, things would have been very different.
To avoid this particular unfairness, we need more stability in the tax code than we have had in the past. This stability is possible only if those with opposing points of view reach a compromise that, while not perfect from either perspective, is acceptable enough for everyone to live with. Neither Mrs. Clinton’s proposal of 45 percent nor Mr. Trump’s proposal of zero passes this test.
International comparisons are a natural benchmark. Over all, the United States is a low-tax country compared with many of our developed-nation peers. But that is not true when it comes to the estate tax.
Many countries do not tax inheritance at all, including Australia, Canada and Sweden. Most do, but the tax rates are usually much lower than what we impose in the United States. Among the nations in the Organization for Economic Cooperation and Development, the average for the top estate tax rate is 15 percent. The median is only 7 percent, which is the rate in Switzerland.
If the United States were ever to adopt such a low estate tax rate, it would surely put a lot of the estate planning industry out of business. Hiring expensive legal talent may make sense when the rate is 40 or 45 percent, but not when it is 7 or 15 percent. Yet that would be a good thing. The time those lawyers spend helping the rich skirt the estate tax is, from an economic standpoint, pure waste.
N. GREGORY MANKIW is a professor of economics at Harvard.
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I'm real sick of trying to point out what virtually no one in power is capable of learning. ObamaCare had two dozen tax increases in it. 'We' ended 'Bush tax cuts for the wealthy', meaning we raised tax rates. We, meaning Obama and the Democrats, increased the estate tax rate by infinity-fold. We, meaning the US, have the highest corporate tax rates in the world, especially in NY, CA and MN to name a few overtaxed places. We should be raking in the revenue.
Meanwhile:
"After adjusting for inflation, the amount of taxes collected by the federal government in fiscal year 2016 is slightly lower than the $3.3 trillion the government collected in fiscal year 2015".
(http://freebeacon.com/issues/government-collects-3-27-trillion-taxes-fiscal-year-2016/)
Higher rates didn't bring in higher revenues.
Who fucking knew?!
The deficit went back up by 34% IN THE MIDDLE OF A "RECOVERY". (Or is it the tail end of a 'recovery'?
If economics is a science, aren't these static analysis advocates like Obama, Hillary and every Democrat-run 'fact check' site DENIERS OF SCIENCE?? ?? ?? ?? !!
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After all said and done I may not get one cent off my taxes next year while those making hundreds of thousands will save tens of thousands:
https://www.yahoo.com/finance/news/middle-class-trump-plan-mean-tax-increase-153628510--finance.html
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After all said and done I may not get one cent off my taxes next year while those making hundreds of thousands will save tens of thousands:
https://www.yahoo.com/finance/news/middle-class-trump-plan-mean-tax-increase-153628510--finance.html
Being that a number of these "single parents" are women who provoked the divorce, and bent the man over for child support and no 50/50 custody, and not ever letting the man have child tax credits, my heart is breaking.
I love how the liberal media finds the ONE case of a single mother who decides to share custody and tax credits with her ex, and cites that as a reference.
"Kelly Rodriguez, 47, who lives in Tampa, Florida, voted for Trump and is a single mother who claims two of her four children as dependents. (Her ex-husband claims the other two.)"
Sorry CCP.... and for you, I really am.... as for the single mother, child support protitutes, I could care less. The whole of America has let them screw over men for a couple of decades now (per US Department of Health and Human Services' own numbers - IIRC, something like 173 billion due in child support arrears, than has grown by 200 percent since 1970.... $1.50 federal tax dollars paid to every state, for every $1. the state collects.... more than 80% of child support is paid by men and women provoke most of the divorces and are granted primary custody in 11 of very 12 cases, while the guy gets to pay her lawyer, and goes to jail if he doesn't work, while the exact opposite happens to the woman). Well done America... you've created a growing class of men that no longer care.
Single families are going to take a hit? Men have been taking a hit for year, WHILE providing the cash for everyone else. I feel so bad.
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http://www.newsmax.com/Finance/LarryKudlow/donald-trump-tax-reform-economy/2016/12/23/id/765440/
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http://thehill.com/homenews/administration/314710-ryan-bannon-strike-surprising-truce
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As I am understanding the tax proposal not yet made, they will keep 2 of the 3 essential deductions in place while lowering the rates. Mortgage interest and charitable - in, state and local taxes paid deduction - out.
I think this is partly right in principle but will not work in practice.
Kind of fun to tell NY and Calif that their over-taxation at the state and local level does not give them anyu advantage on federal taxes. Plus they didn't voter for Trump and the Republicans anyway.
In my case, I cannot pay taxes with after tax money. There isn't enough left to do that.
Money paid in taxers isn't income, and it isn't cash available to pay more taxes. This is a bigger problem than 100 refugees stranded in an airport...
I am normally willing to vote against my own interests but I can't support policies that bankrupt me or force me out of my home.
I wrote to the author of this piece for further information, will update if I receive any reply of substance.
Get ready for a fight.
https://taxfoundation.org/details-and-analysis-2016-house-republican-tax-reform-plan
Read it at the source if these table format unreadable here.
Details and Analysis of the 2016 House Republican Tax Reform Plan
July 5, 2016
Kyle Pomerleau
Download FISCAL FACT No. 516: Details and Analysis of the 2016 House Republican Tax Reform Plan (PDF)
Key Findings
The House Republican tax reform plan would reform the individual income tax and would move towards destination-based cash flow taxation of businesses.
According to the Tax Foundation’s Taxes and Growth Model, the plan would significantly reduce marginal tax rates and the cost of capital, which would lead to 9.1 percent higher GDP over the long term, 7.7 percent higher wages, and an additional 1.7 million full-time equivalent jobs.
The plan would reduce federal revenue by $2.4 trillion over the first decade on a static basis. However, due to the larger economy and the broader tax base, the plan would reduce revenue by $191 billion over the first decade.
Although the plan would reduce federal revenue by $2.4 trillion on a static basis in the first decade, much of the revenue loss is one-time. As a result, the plan will cost much less in subsequent decades.
On a static basis, the plan would lead to 0.7 percent higher after-tax income for all taxpayers and 5.3 percent higher after-tax income for the top 1 percent. When accounting for the increased GDP, after-tax incomes of all taxpayers would increase by at least 8.4 percent.
Introduction
In June, the House Republicans released a tax reform plan.[1] The plan would reform the individual income tax code by lowering marginal tax rates on wage, investment, and business income; broaden the tax base; and simplify the tax code. The plan would also lower the corporate income tax rate to 20 percent and convert it into a destination-based cash-flow tax. Finally, the plan would eliminate federal estate and gift taxes.
Our analysis finds that the House Republican tax plan would reduce federal tax revenue by $2.4 trillion over the next decade. The plan would reduce marginal tax rates on labor and substantially reduce marginal tax rates on investment. As a result, we estimate that the plan would boost long-run GDP by 9.1 percent. The larger economy would translate into 7.7 percent higher wages and result in 1.7 million more full-time equivalent jobs. Due to the larger economy and the broader tax base, the plan would reduce revenue on a dynamic basis by $191 billion over the next decade.
Changes to the Individual Income Tax
Consolidates the current seven tax brackets into three, with rates of 12 percent, 25 percent, and 33 percent (Table 1).
Table 1. Tax Brackets for Ordinary Income Under Current Law and the House Republican Tax Plan
Current Law Proposal Single Filers Married Joint Filers Head of Household Filers
10% 12% $0 to $9,275 $0 to $18,550 $0 to $13,250
15% 12% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
25% 25% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
28% 25% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
33% 33% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350
35% 33% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000
39.6% 33% $415,050+ $466,950+ $441,000+
Taxes capital gains and dividends as ordinary income and provides a 50 percent exclusion of capital gains, dividends, and interest income. This is equivalent to taxing capital gains, dividends, and interest income at half the rate of ordinary income, with three brackets of 6 percent, 12.5 percent, and 16.5 percent (Table 2).
Table 2. Tax Brackets for Capital Gains and Dividends Under Current Law and the House Republican Tax Plan
Current Law Proposal Single Filers Married Joint Filers Head of Household Filers
0% 6% $0 to $9,275 $0 to $18,550 $0 to $13,250
0% 6% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
15% 12.5% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
15% 12.5% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
15% 16.5% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350
15% 16.5% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000
20% 16.5% $415,050+ $466,950+ $441,000+
Increases the standard deduction from $6,300 to $12,000 for singles, from $12,600 to $24,000 for married couples filing jointly, and from $9,300 to $18,000 for heads of household.
Eliminates the personal exemption and creates a $500 non-refundable credit for dependents who are not children.
Increases the Child Tax Credit to $1,500 per child, limits the refundability of the credit to $1,000, and raises the phaseout threshold for the Child Tax Credit for married households from $110,000 to $150,000.
Eliminates all itemized deductions besides the mortgage interest deduction and the charitable contribution deduction.
Eliminates the individual alternative minimum tax.
Changes to Business Income Taxes
Reduces the corporate income tax rate from 35 percent to 20 percent.
Eliminates the corporate alternative minimum tax.
Taxes income derived from pass-through businesses at a maximum rate of 25 percent.
Allows the cost of capital investment to be fully and immediately deductible.
Eliminates the deductibility of net interest expenses on future loans.
Restricts the deduction for net operating losses to 90 percent of net taxable income and allows net operating losses to be carried forward indefinitely, and increased by a factor reflecting inflation and the real return to capital. Does not allow net operating losses to be carried back.
Eliminates the domestic production activities deduction (section 199) and all other business credits, except for the research and development credit.
Creates a fully territorial tax system, exempting from U.S. tax 100 percent of dividends from foreign subsidiaries.
Enacts a deemed repatriation of currently deferred foreign profits, at a tax rate of 8.75 percent for cash and cash-equivalent profits and 3.5 percent on other profits.
Modifies all business income taxes to be border-adjustable, disallowing the deduction for purchases from nonresidents and exempting export profits and foreign-derived profits from taxation.
Other Changes
Eliminates federal estate and gift taxes.
Impact on the Economy
According to the Tax Foundation’s Taxes and Growth Model, the House Republican tax plan would increase the long-run size of the economy by 9.1 percent (Table 3). The larger economy would result in 7.7 percent higher wages and a 28.3 percent larger capital stock. The plan would also result in 1.7 million more full-time equivalent jobs.
The larger economy and higher wages are due chiefly to the significantly lower cost of capital under the proposal, which is due to the lower corporate income tax rate and the full expensing of capital investment.
Table 3. Economic Impact of the House Republican Tax Plan
Source: Tax Foundation Taxes and Growth Model, March 2016
GDP 9.10%
Capital Investment 28.30%
Wage Rate 7.70%
Full-time Equivalent Jobs (in thousands) 1,687
Impact on Revenue
If fully enacted, the proposal would reduce federal revenue by $2.4 trillion over the next decade on a static basis (Table 4). The plan would reduce individual income tax revenue by $981 billion over the next decade. Corporate tax revenue would fall by $1.2 trillion. The remainder of the revenue loss would be due to the repeal of estate and gift taxes.
On a dynamic basis, the plan would reduce federal revenue by $191 billion over the next decade. The larger economy would boost wages and thus broaden both the income and payroll tax base. As a result, the federal government would see $566 billion in additional individual income tax revenue and $683 billion in additional payroll tax revenue. On the other hand, corporate income tax revenue would actually decline even more on a dynamic basis. This is because the plan would encourage more investment and result in businesses deducting more capital investments, which would reduce corporate taxable income.
Table 4. Ten-Year Revenue Impact of the House Republican Tax Plan (Billions of Dollars)
Tax Static Revenue Impact (2016-2025) Dynamic Revenue Impact (2016-2025)
Source: Tax Foundation Taxes and Growth Model, March 2016.
Note: Individual items may not sum to total due to rounding.
Individual Income Taxes -$981 $566
Payroll Taxes $0 $683
Corporate Income Taxes -$1,197 -$1,324
Excise taxes $0 $57
Estate and gift taxes -$240 -$240
Other Revenue $0 $68
Total -$2,418 -$191
The House Republican tax plan contains a number of significant base broadeners. Eliminating all itemized deductions except for the mortgage interest deduction and the charitable deduction would significantly broaden the income tax base and raise about $2.3 trillion over the next decade.[2] In addition, the plan would eliminate most individual credits, except for the Child Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit. This would raise an additional $104 billion over the next decade.
Expanding the standard deduction, replacing the personal exemption with a dependent credit, and expanding the Child Tax Credit would reduce revenue slightly ($127 billion over the next decade).
On the business side, there are two significant base broadeners. The elimination of the interest deduction would raise $1.2 trillion over the next decade. In addition, making business taxes border-adjustable would raise another $1.1 trillion over the next decade. The elimination of business credits and deductions and the limit on net operating losses would bring in an additional $701 billion over the next decade.
The largest sources of revenue loss in the first decade would be the individual and corporate rate cuts and the move to full expensing of capital investments. Reducing individual income tax brackets to 12, 25, and 33 percent would reduce revenue by about $2 trillion over the next decade, while cutting the corporate income tax to 20 percent would reduce revenue by $1.8 trillion over the next decade.[3] Capping the tax rate on pass-through businesses would reduce revenue by $515 billion (after accounting for the new, lower tax brackets). Full expensing of capital investment would reduce revenue by $2.2 trillion over the next decade.
Table 5. Ten-Year Revenue and Economic Impact of the House Republican Tax Plan by Provision
Provision Billions of Dollars, 2016-2025
Static GDP Dynamic
Eliminate the alternative minimum tax -$354 -0.3% -$428
Eliminate all itemized deductions except for the mortgage interest and charitable contributions deduction $2,331 -0.4% $2,218
Eliminate most personal credits $104 0.0% $104
Tax capital gains and dividends as ordinary income, allow a 50% deduction for capital gains, dividends, and interest -$609 0.3% -$531
Allowfull expensing of capital investments -$2,236 5.4% -$883
Disallow interest deduction on new loans $1,194 -0.1% $1,176
Border adjust business taxes $1,069 -0.4% $936
Eliminate section 199 and all business credits, and limit net operating loss deductions $701 -0.1% $677
Repeal the estate and gift taxes -$241 0.9% -$20
Expand and consolidate the standard deduction, replace the personal exemption with a dependent credit, and expand the Child Tax Credit -$127 0.0% -$112
Consolidate individual income tax brackets into three of 12 percent, 25 percent, and 33 percent -$1,954 1.5% -$1,641
Tax income derived from pass-through business at a maximum rate of 25% -$515 0.6% -$388
Lower the corporate income tax rate to 20% -$1,807 1.7% -$1,325
Enact a deemed repatriation of deferred foreign-source income $185 0.0% $185
Move to a territorial tax system -$160 0.0% -$160
Revenue Impact Beyond the First Decade
Although the plan will reduce federal revenues by $2.4 trillion over the next 10 years, much of the cost is due to transitional, or one-time, revenue losses that disappear eventually. There are two provisions that contribute significantly to these transitional costs: full expensing of capital investments and the elimination of the interest deduction.
As stated above, moving to the full expensing of capital investments would reduce federal revenue by $2.2 trillion over the next decade. There are two revenue impacts from moving to expensing. First, businesses will be allowed to fully write off investment costs the first year. This speedup of cost recovery increases the present value of cost recovery and reduces federal revenue each year. Second, after full expensing is enacted, businesses will continue to write off investments they made under the old depreciation regime. When businesses fully write off new investments and continue to write off old investments, corporate taxable income falls significantly in those years, greatly reducing corporate revenue. However, once old depreciation has expired, the annual cost of expensing drops.
The plan also eliminates the deduction for net interest payments by businesses. We assumed that this provision would be prospective, or it would only apply to interest on loans made after the proposal went into effect. As a result, businesses would continue to deduct interest from loans acquired before enactment of the plan, reducing the amount of revenue this provision would raise in the first decade. In later decades, as old debt is retired, more interest would no longer be deductible, resulting in more revenue.
The plan also has one transitional revenue raiser: deemed repatriation. This proposal would tax corporations on their current deferred offshore profits. We assume that this provision would only raise revenue in the first 10 years.
As a result of these transitional issues, the plan would cost much less in subsequent decades. We estimate that the proposal would reduce federal revenue by 1.1 percent of GDP in the first decade, 0.5 percent of GDP in the second decade, and 0.4 percent of GDP after all transition costs have phased out.
Components of the Dynamic Revenue Estimate
The dynamic revenue impact of -$191 billion over the next decade can be broken down into three pieces: the marginal tax cuts, growth, and the base broadeners.
The first piece is the marginal tax rate reductions in the plan. These provisions include, but are not limited to, the cut in the corporate income tax rate to 20 percent, full expensing of capital investments, and the reduction in marginal tax rates for most individuals. Combined, these tax cuts would reduce federal revenue by $8 trillion over the next decade if enacted alone.
The second piece is the expected increase in revenue due to economic growth. As stated previously, this plan would reduce marginal tax rates on work, saving, and investment. Our model finds that these marginal tax rates would significantly increase the long-run size of the economy. The larger economy would boost wages and thus increase the tax base, especially for the individual income and payroll taxes. As a result, the growth from the plan would reduce the 10-year cost of the plan by roughly $2.5 trillion.
The third and final piece is the base broadeners in the plan. The House Republican tax plan contains a number of significant base-broadening provisions, such as the elimination of most itemized deductions, the elimination of the deduction for net interest expenses for businesses, and the border adjustment of businesses taxes. Combined, these provisions significantly broaden the tax base and reduce the revenue loss of the tax plan by $5.3 trillion over the next decade.
Distributional Impact of the Plan
On a static basis, the House Republican tax plan would increase the after-tax incomes of taxpayers in every income group. The bottom 80 percent of taxpayers (those in the bottom four quintiles) would see a small increase in after-tax income between 0.2 percent and 0.5 percent. Taxpayers in the top 10 percent would see a 1 percent increase in after-tax income. Taxpayers in the top 1 percent would see the largest increase in after-tax income on a static basis of 5.3 percent, driven by both the lower top marginal tax rate and the lower corporate income tax.
On a dynamic basis, all taxpayers would see an increase in after-tax income of at least 8.4 percent. The top 1 percent of taxpayers would see an increase in after-tax income of 13 percent on a dynamic basis.
Table 6. Static and Dynamic Distributional Analysis
Changes in After-Tax Incomes
Income Group Static Dynamic
Source: Tax Foundation, Taxes and Growth Model (March 2016 version)
0% to 20% 0.3% 8.4%
20% to 40% 0.5% 8.6%
40% to 60% 0.2% 9.1%
60% to 80% 0.2% 8.5%
80% to 100% 1.0% 8.8%
90% to 100% 1.5% 9.3%
99% to 100% 5.3% 13.0%
TOTAL 0.7% 8.7%
Conclusion
The House Republican tax plan would reform both the individual income tax and convert the corporate income tax into a destination-based cash flow tax. This plan would significantly reduce the cost of capital and reduce the marginal tax rate on labor. These changes in the incentives to work and invest would greatly increase the U.S. economy’s size in the long run, boost wages, and result in more full-time equivalent jobs. On a static basis, the plan would reduce federal revenue by $2.4 trillion, most of the revenue loss being from one-time transitional costs. However, due to the larger economy and the significantly broader tax base, the plan would reduce revenue by $191 billion over the next decade.
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Under the proposal the bottom pay more and top get by far the biggest breaks and many in between get jack shit. I am not for this.
Current Law Proposal Single Filers Married Joint Filers Head of Household Filers
10% 12% $0 to $9,275 $0 to $18,550 $0 to $13,250
15% 12% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
25% 25% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
28% 25% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
33% 33% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350
35% 33% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000
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"I wrote to the author of this piece for further information, will update if I receive any reply of substance."
Please do!
I would note however that this is from July of last year. My guess whatever happens now will vary quite widely from it.
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Under the proposal the bottom pay more and top get by far the biggest breaks and many in between get jack shit. I am not for this.
Current Law Proposal Single Filers Married Joint Filers Head of Household Filers
10% 12% $0 to $9,275 $0 to $18,550 $0 to $13,250
15% 12% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
25% 25% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
28% 25% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
33% 33% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350
35% 33% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000
The article lists both static and dynamic scoring. Look only at the dynamic numbers (from a reliable source). The static numbers are only for the deniers of the science, and to know in advance what the left will say.
In general, I disagree with you. Some rich are losing hundreds of thousands in deductions. Still they will face a lower marginal tax rate on the next dollar of income - making them more likely to earn it, which is a good thing for the economy. It's hard to help the lower earners with tax rate cuts; the lowest two quintiles pay in very little. They will be helped by a growing economy.
This is a step in the right direction. And as Crafty suggests, not necessarily the final draft.
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Doug,
I have seen this chart before . It is right on Trump's website.
people making 37 to 91 K and 190 to 413K get no tax break at all. While others get something. And if mortgage interest can no longer be deducted then at least for those and probably many others who fall in between they get an effective tax increase.
He ran on tax cuts for "everyone"
Not true , plain and simple. We were bamboozled
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"Eliminates all itemized deductions besides the mortgage interest deduction and the charitable contribution deduction."
This sounds to me like mortgage can still be deducted , , ,
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We talked about the details, I've been wondering about the timing. I have been telling people that the tax reform will be retroactive to Jan 1. My prediction record around has not been so good...
I realize he has cabinet officials to get through, a porous border to stop up and a Supreme Court pick of the highest priority. Not to mention healthcare and he is already being accused of presenting change in shock and awe fashion. In addition to all that and regulatory reform that is equally urgent, he will be judged a complete failure if his economic growth record is not FAR above Obama's, and tax reform is the most direct way to get at that.
I can only hope they are taking their time in order to get it right. It has to be good. It has to pass. It has to work, and it has to have some cover to answer the completely predictable complaints that will come from his opponents. But everyday he waits, we are giving away revenues and delaying the surge of growth that most of us want.
Why would investment pick up based on unannounced new rates and how do you split the calendar year into a two system return. e.g. How much of your 2017 income was earned before March 3rd or April 7th??! Delay it a year or phase it in and certain recession sets in while people postpone transactions and investments decisions in waiting. See 1981-1982.
http://www.foxbusiness.com/politics/2017/02/09/trump-says-big-league-tax-reform-details-coming-in-weeks.html
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________________________________________
Keep It Simple, Stupid (KISS) To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/13/2017
The biggest tax debate in Washington right now is not between Republicans and Democrats, but between Republicans and Republicans. Both sides of the debate seem to understand that the US tax code, particularly the fact that the US has the highest corporate tax rate of any industrialized country, is harming the competitiveness of US companies.
Both sides want to cut this tax rate and both sides want to allow for full and immediate expensing of business investment in plant and equipment. Both sides also propose to end the deduction for the interest companies pay on their (new) debts.
What they're fighting about is making the US corporate tax system "border adjustable." Some want to exempt from taxation any income generated by exports, and at the same time, no longer allow US companies to deduct the cost of imports from revenue. Like a Value-Added Tax (VAT) used in many other countries, the idea would be to promote exports. Meanwhile, it would create a level playing field between foreign and US companies trying to sell to US consumers.
Let's say the new tax rate is 20%. A Napa Valley vineyard could produce a $100 wine and pay $20 in taxes. Then, after a retailer sells that bottle for $150, the retailer pays a $10 tax on their $50 profit. Total, the IRS gets $30. If the retailer buys the $100 bottle from a French vineyard and sells it for the same $150, the retailer now pays the 20% tax rate on the full $150, and so sends the IRS the total tax of $30.
The retailer's revenues don't change, but its tax payments to the IRS soar while its after-tax profits plummet. In effect, a border adjustable tax forces US retailers to attempt to extract tax payments from foreign producers or US consumers. This is why retailers in the US are fighting so hard against it.
Some say retailers shouldn't care because the value of the dollar will soar as well, reducing the cost of imports. But, if this is really true, why haven't all the other countries with border adjustments in their VATs been able to take down the dollar? The theory might work on an academic chalkboard, but the value of the dollar depends on many factors. Betting on a stronger dollar to fix border adjustable tax rate problems is a HUGE gamble.
Don't get us wrong, the US should have lower tax rates. But why not just do it within the corporate tax system we already have instead of a system that's never been tried before? Trillions of dollars of decisions have been made based on the tax system we have in place today. Having the government suddenly change the "rules of the game" will create massive windfall winners and losers that may completely offset any potential positives from a change in the tax code.
Meanwhile, what if the forecast of a stronger dollar really happens? Many emerging-market companies borrow in dollars and might find it hard to repay their debts at the same time they find it tougher exporting to the US. Would the US find itself on the hook for foreign bailouts? And what about US exporters? Wouldn't a stronger dollar make it harder for Boeing to sell abroad and compete against Airbus? Would Boeing then lobby the government for looser monetary policy and a weaker dollar?
Instead, we need to keep tax reform simple. Policymakers should focus on cutting tax rates and excessive regulation (to make the US more competitive) and not get distracted by policy changes that will create big (and often arbitrary) windfall winners and losers.
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Sen. Gramm has a PhD in Economics IIRC:
How ‘Border Adjustment’ Poisons Tax Reform
The House’s 20% import fee is political industrial policy that will convulse the economy. Better to follow the 1986 model.
Photo: Getty Images/iStockphoto
By Phil Gramm
Updated Feb. 22, 2017 7:03 p.m. ET
137 COMMENTS
The goal of tax reform is to collect revenues while reducing the distorting influence that taxes impose on economic efficiency and growth. The 1986 tax reform stripped out deductions and credits—which had distorted resource allocation and sapped economic efficiency—and collected roughly the same amount of taxes with a 28% top individual rate and a 34% corporate rate that had previously been collected with a 50% top individual rate and a 46% corporate rate.
The economy boomed not only because the lower individual and corporate rates increased incentives to work, save and invest, but because stripping out tax-favored provisions reduced the drag on economic efficiency that is caused by allocating resources politically. Today the lesson of 1986 has been almost completely lost in the fixation on lower rates. The House border-adjustment proposal, with its 20% corporate tax rate, is a prime example.
Under that plan, revenues from exports would be excluded when determining profits for tax purposes, while the cost of imports would not be deductible as a business expense. That’s the equivalent of heavily subsidizing exports and imposing the new 20% corporate tax on imports. By assuming that the plan would not change international capital transactions, and therefore trade balances, the House assumes it would ultimately push up the value of the dollar by 25%.
This would offset the cost that the proposal imposes on consumers, who would be buying imports with a more valuable dollar. In the same way, the tax preference for exporters would also disappear as the cost of buying U.S. exports abroad rises with the dollar. Thus all exchange-rate-adjusted prices would return to where they were before border adjustment—except that with imports accounting for $600 billion more than exports, the 20% tax would produce a $120 billion annual revenue windfall.
In this happy world of assumptions, foreign producers, not American consumers, would absorb the cost of the new tax. Yet what is missing is any analysis of how tax preferences for exports and penalties on imports would drive up the value of the dollar. The real-world adjustment process would involve painful dislocations of capital and labor.
If imports cannot be deducted as a business expense, retailers selling imports and manufacturers using imported parts would face an immediate explosion in costs, which they would try to pass on to customers. Higher retail prices would result in fewer purchases, lower profits, layoffs, and the failure of marginal businesses. As the demand for imports declines, fewer dollars would be exchanged for foreign currencies to buy imports, and the value of the dollar would start to rise.
Similarly, since revenues coming from exports would not be taxable under the House bill, profits, capital investment and employment would surge in exporting industries. Cheaper U.S. exports would cause foreigners to demand more dollars to purchase them, and the value of the dollar would rise.
If the value of the dollar actually appreciates over time by 25%, all of these business adjustments then would have to be reversed. The 12% of the economy that produces exports would experience first a boom and then a bust, while the 15% of the economy using imports would experience a bust and then a boom.
If everything eventually returns to where it started—an improbable event, given that the value of U.S. exports plus imports makes up only 0.3% of total dollars traded—border adjustment is simply a gimmick that convulses $5.2 trillion of the economy to collect $120 billion in new taxes. If the value of the dollar does not rise by 25%, border adjustment is a massive industrial policy that distorts a larger share of the economy than all the special-interest provisions in all the other U.S. tax laws combined.
Even if we imagine that the value of the dollar could instantly rise by 25%, circumventing the adjustment process, the list of unintended consequences would still be immense. Much of the world’s public and private debt is denominated in dollars, and a rapid increase in the value of the dollar would cause massive financial upheavals and bankruptcies. A 25% increase in the dollar’s value would imperil American investments abroad—including hundreds of billions of dollars in private and state pension funds and university endowments. The domestic tourism industry, which does not get a tax subsidy on its sales to foreigners visiting the U.S., would be devastated.
Border adjustment will be challenged under international trade agreements. Proponents tell us that not taxing exports is only treating our income tax like a value-added tax, which normally is not imposed on exports. But countries with VATs also have income taxes. Could the U.S. persuade the World Trade Organization that exempting exports from income taxes is the equivalent of doing so for a VAT or sales tax? That’s doubtful, but if the answer is yes, other countries could do it as well—dissipating any U.S. advantage from subsidizing exports.
No other country in the world disallows the deductibility of imports, and here there is no parallel to a VAT. This policy is protectionism pure and simple, and the WTO would surely say so, opening America up to retaliation and possibly triggering a trade war.
Lower tax rates stimulate the economy only in the broader context of the overall tax code. The 1986 reform not only cut rates, it also made the rest of the tax code more efficient. The House bill “pays” for its 20% corporate tax rate by implementing policies that have little basis in economic logic, hinder economic efficiency, violate the letter and the spirit of numerous trade agreements, subject the economy to excruciatingly painful adjustments, expose America and the world to unacceptable economic risks—and in the process diminish or even eliminate the positive effect of the 20% rate.
If we do the hard work of stripping away subsidies and preferences in the existing tax code while lowering rates, Republicans can follow a proven path by adopting another 1986-type tax reform that would make the tax system more efficient and expand economic growth. Even if the resulting corporate tax rate is substantially above 20%, such a reform would help the economy, and federal revenues, grow.
Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute.
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The property tax deduction is in danger . So effectively many people in the middle will get tax increase if they own property and are in tax brackets that are NOT getting any break
Some of Tthe rich already don't pay property tax in NJ. They have ways around it - like hiring a low wage employee to grow some vegetables and claim it is farm.
https://www.yahoo.com/finance/news/gop-tax-plans-could-eliminate-083155224.html
Fairness my ass
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The property tax deduction is in danger . So effectively many people in the middle will get tax increase if they own property and are in tax brackets that are NOT getting any break
Some of Tthe rich already don't pay property tax in NJ. They have ways around it - like hiring a low wage employee to grow some vegetables and claim it is farm.
https://www.yahoo.com/finance/news/gop-tax-plans-could-eliminate-083155224.html
Fairness my ass
Yes, but it's a nice way to hammer the blue states.
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Yes, but it's a nice way to hammer the blue states.
Right, but also (further) punishing the red voters in the blue states.
I wrote about this earlier, that NJ ad MN among others were going to get hammered.
Yes it makes sense, but it could be a partial exclusion or have a phase in period.
One thing about extreme ideas like this is that it most likely isn't going to happen. Why not propose tax reform they can pass and pass it now, instead of talking like a think tank while they have a most certainly temporary governing majority.
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If you live in a blue state, it's past time to leave.
Yes, but it's a nice way to hammer the blue states.
Right, but also (further) punishing the red voters in the blue states.
I wrote about this earlier, that NJ ad MN among others were going to get hammered.
Yes it makes sense, but it could be a partial exclusion or have a phase in period.
One thing about extreme ideas like this is that it most likely isn't going to happen. Why not propose tax reform they can pass and pass it now, instead of talking like a think tank while they have a most certainly temporary governing majority.
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First this, GM: "If you live in a blue state, it's past time to leave."
Tax prison: If I move to the moon, the inflation-only "gains" on my holding of MN property for decades are still taxable in MN and the US at punitive personal rates. I don't plan to earn much more for our lousy government at these rates. I just want back whatever I can get of what I already earned.
---------------------------------------------------------------
Treasury Secretary Mnuchin says: We're committed to 'very significant' tax reform by August recess
http://www.cnbc.com/2017/02/23/treasury-sec-mnuchin-says-were-committed-to-very-significant-tax-reform-by-august-recess.html
I know they have a lot on their plate and this is hard but I don't understand why this isn't ready to go now, retroactive to the first of THIS YEAR. The so-called 'unified' Republican government told the American people they were ready to govern. I did not understand that to mean, ready to govern using the Obama-Pelosi-Reid-Schumer-Durbin-Ellison tax code!
The delay in implementing tax rate cuts under Reagan cost us two years of extreme economic calamity:
https://en.wikipedia.org/wiki/Early_1980s_recession
A human tragedy of measurable proportions. See the graph below.
The current economic miss is avoidable. As Scott Grannis might say, close the gap, and do it before $3 trillion lost of GDP becomes 4, 5 and 6 trillion!
(http://i603.photobucket.com/albums/tt114/dougmacg/Real2BGDP2Bvs2B325252Btrend_zpsecazphnm.jpg)
Look at the flat line stagnation before the Reagan tax rate cuts took effect and the steep recovery that closed that gap. Then look at the gaping hole caused by our 1.9% Obama "growth" and ask why we want to wait to August, or never(?), to try to close it. We are going on 10 years of lost economic growth. Some of those millions leaving the work force aren't ever coming back. What part of crisis and disaster don't they understand. Do we need to become Venezuela eating zoo animals before we take decisive action? http://www.telegraph.co.uk/news/2016/08/19/hungry-venezuelans-break-into-caracas-zoo-and-butcher-a-horse/
As I wrote before inauguration, skip the endzone dance and PLEASE get to work. This isn't some B or C level priority!
Crisis, What Crisis?
(https://upload.wikimedia.org/wikipedia/en/thumb/f/f5/Supertramp_-_Crisis.jpg/330px-Supertramp_-_Crisis.jpg)
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http://www.vox.com/policy-and-politics/2017/3/3/14772242/republicans-tax-cuts-reform-kevin-brady-corporate-border-adjustment
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http://www.newsmax.com/Newsmax-Tv/Steve-Forbes-Border-Tax-Trump/2017/03/09/id/777881/
As for me I have given expecting even a smidgeon of a tax break.
As always I get screwed for being *sorta* "upper middle" class.
Gee I don't feel rich having to go to work like everyone else. I have no problem giving tax breaks to everyone and to businesses. But most people are not business owners they are employers.
And employers are not going to increase wages with their windfalls. Yes they may create more jobs but what about the people who already have jobs who are working hard and going no where which is the majority of Americans.
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http://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=2450&context=law_and_economics
Conclusions
Implementing a tax system base
d on the Brady plan will present a substantial
challenge. Many implementation problems a
rise because nothing like this has
ever been tried by a developed country, not to speak of in a country the size of the
United States. It is likely that over time, solu
tions to most issues will be found.
Given the substantial number of issues, however, it is naïve to think that the plan
can be passed into law quickly.
Some issues, such as correcting the treatment of land and inventory are
straightforward. Others
, such a
s the elimination of the regimes for pass
-through
taxation and rules for major corporate transactions, are conceptually
straightforward but will be involve more substantial changes to current law. And
others will be difficult. Among the most important and difficult issues are the
following:
•
Deferral and the collection of the capital income tax on individuals
.
•
The legality of border adjustments
and possible design changes to
improve the odds of compliance with the GATT
.
•
The treatment of financial institutions
.
•
The treatment of businesses that consistently generate tax losses while
making economic profits.
•
Distinguishing between real and financial flows
, and making a consistent
choice to have an R
-based system (or an R+F system).
•
Transition
.
These i
ssues do not have straightforward solutions and will need careful analysis
as the legislative process moves forward.
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I believe Crafty expressed an interest in this. I don't happen to like it for a number of reasons.
https://www.nytimes.com/2017/02/08/opinion/a-conservative-case-for-climate-action.html?mtrref=gregmankiw.blogspot.com&gwh=5B262B7F86320D4D9C013D0E904A212A&gwt=pay&assetType=opinion
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What don't you like?
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Tax carbon ($40?) per ton. Pay back to all, $500 per capita per year at the start.
What don't you like?
1. I don't trust it would be implemented as proposed. For sure we will pay in more; I don't believe for a minute we would see most or all of it back.
2. If they instead promised to use the revenues to reduce the burden of other taxes, income taxes for example, I don't believe those rates will go down or stay down either. New taxes lead to new spending.
3. The purpose is to reduce emissions. If it succeeds, it is a declining and unreliable source of revenue. Yet the proposal says it will increase over time.
4. I'm not persuaded that carbon dioxide is a pollutant, or that our federal government can accurately or honestly measure and assess the 'cost'. Carbon dioxide is a trace element in the atmosphere, less than one part per thousand, and yet is an essential building block of life. I would be far more concerned if CO2 levels were declining.
5) The revenue stream creates its own moral hazard. People will want more and more. The government will want more and more, from what it wants less of.
6) In compromise, I propose we tax only the carbon dioxide emitted into the atmosphere that did not originate in the atmosphere.
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Taxes are like government programs. Once in place, they only grow.
Tax carbon ($40?) per ton. Pay back to all, $500 per capita per year at the start.
What don't you like?
1. I don't trust it would be implemented as proposed. For sure we will pay in more; I don't believe for a minute we would see most or all of it back.
2. If they instead promised to use the revenues to reduce the burden of other taxes, income taxes for example, I don't believe those rates will go down or stay down either. New taxes lead to new spending.
3. The purpose is to reduce emissions. If it succeeds, it is a declining and unreliable source of revenue. Yet the proposal says it will increase over time.
4. I'm not persuaded that carbon dioxide is a pollutant, or that our federal government can accurately or honestly measure and assess the 'cost'. Carbon dioxide is a trace element in the atmosphere, lees than one part per thousand, and yet is an essential building block of life. I would be far more concerned if CO2 levels were declining.
5) The revenue stream creates its own moral hazard. People will want more and more. The government will want more and more, from what it wants less of.
6) In compromise, I propose we tax only the carbon dioxide emitted into the atmosphere that did not originate in the atmosphere.
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I'm with GM and Doug on this.
In fact... to me (speaking for myself), I'm fine if there are absolutely no taxes. It's been done before.
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As you guys probably remember, my proposal was for this sort of tax REPLACING other taxes; that said I find the politics of this proposal intriguing , , ,
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As you guys probably remember, my proposal was for this sort of tax REPLACING other taxes; that said I find the politics of this proposal intriguing , , ,
It is intriguing in the theoretical sense, to tax pollution for its social cost instead of regulating it. A number of things don't line up on that for this IMHO. It's not pollution. We don't know the cost. If we tax it enough to make it go away, which is the goal, it doesn't make a solid revenue source to pay for defense, healthcare etc. to replace other taxes. At some price, we could switch to nuclear grid power for example, which is carbon free, and the budget crashes.
Moving from the theoretical to the political, it doesn't replace the federal income tax unless we repeal the 16th amendment. To repeal the 16th and move to any or every kind of consumption tax as this would be passed along to the consumer, we would need 288 votes in the House, 67 votes in the Senate and ratification in 38 states.
As GM points out, other taxes won't go away just because we have more sources of revenue. The politics for taxing income (punitively) remains the same, no matter how much other money we can find.
MHO.
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As you guys probably remember, my proposal was for this sort of tax REPLACING other taxes; that said I find the politics of this proposal intriguing , , ,
If it helps in a race to zero, I'm all for it.
Unfortunately, the point that had been brought here by others, is that the government has a terrible track record on relinquishing power or money.
Doug makes a great point on the budget. I have to think that perhaps we're spending far too much anyways.
I can say, that living here, going from 100K a year to 10,000 pesos a month, I live a higher quality of life than I did there in many ways. As soon as I finish law school, some lawyers in el DF, clear a million USD a year.
The problem isn't just the budget,,, it's the price of supporting people who (you rightly elude to on another thread), will not be productive because they make more not to be in terms of welfare.
We have to find a way to quit supporting people who simply will not support themselves. It isn't heartless, it's smart.
When that happens, a high quality of life will be less expensive, and there will be fewer people breeding for cash, because they won't be being rewarded for it.
Bring back the family model, stop encouraging divorce... women receive 90% of the welfare. That has to stop. It's destroying everything and everyone... even if it's through destroying society itself.
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The failure of Obamacare repeal makes tax reform harder. 24 Obamacare taxes were not repealed and the coalition is badly damaged. The bill being floated around is flawed in many ways and no one has an answer that would both succeed if passed and pass.
The blue state penalty (lose deductibility for state and local taxes, property taxes) won't pass. The rates don't drop that far. The 'border tax' isn't going to be understood even if it was a good idea. The CBO won't score it accurately or dynamically. The talking points against it will be generated by Congress's own budget office. Guess what, tax rate cuts will benefit the people first and most who pay the highest rates. Get over it, but they won't. It will feed the same narrative as kicking low income people off of healthcare, with no conservative messaging to answer it.
Treasury Secretary Mnuchin wants this done by August recess.
Even if it eventually is watered down enough to pass, it will be too late in the year to make it retroactive to the first. They can't measure what part of your income is before and after passage so the effective date has to be delayed to 2018, locking is a slowdown for this year - if it hasn't started already.
Investors and markets hate uncertainty, and uncertainty is now the law of the land. The effect of both delayed tax rate cuts and uncertainty is to freeze decision making and delay and destroy valuable economic activity.
What will be the consequences of that? Sustained (Obama plowhorse) growth? Doubtful. Growth you might expect from tax reform without tax reform? Not a chance. A stall or pause that feeds on itself and leads to a correction, recession or worse? All possible.
What happens if/when it all fails, negotiations break down on both healthcare and tax reform? Add to that other potential problems brewing here and around the world? I don't want to know.
Some of us wrote here in the 2012 election cycle that that was the last chance to get it right, and we didn't. I didn't think we were writing hyperbole nor overstating the dangers. What if we were right?
Meanwhile Washington marches on with a Crisis? What Crisis? attitude. Ho hum, maybe we should try some tax reform over the summer, start with a completely unpassable, incomprehensible bill with no plan to sell it after screwing up healthcare and letting popularity levels of the President and Congress to drop to the thirties and the teens respectively.
What could possibly go wrong?
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I posted this on the energy politics thread on Feb 13. CD thought he could stomach it if other taxes were reduced to counter act it. (not unreasonable IF libs were EVER reasonable - they never are or at least in the last 25 yrs)
That said isn't the fact that Robert Reich thinks the Baker et al plan is a good idea ALONE enough reason to be AGAINST it?
http://www.newsweek.com/robert-reich-carbon-tax-would-give-each-family-2000-year-555065
Does anyone think a chump change bribe to people to get them to buy into what would be one of the largest tax hikes in human kind is good idea except for big Government libs?
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Yeah he was saying this on his show. Of course we all know cutting business taxes will allow employers to increase wages:
http://www.nationalreview.com/article/446346/gop-congress-must-do-business-tax-cuts-now
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We know we are in trouble when even the Republican pols are for taxes. Rush had great discussion of why it is so hard to do anything about taxes. It is because they are the main source of politicians power. They ain't about to give it up ever. Tax break will nearly always be combined with another way to tax elsewhere:
https://www.conservativereview.com/commentary/2017/04/big-nanny-republicans-west-virginia-proposes-gop-backed-soda-tax
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We know we are in trouble when even the Republican pols are for taxes. Rush had great discussion of why it is so hard to do anything about taxes. It is because they are the main source of politicians power. They ain't about to give it up ever. Tax break will nearly always be combined with another way to tax elsewhere:
https://www.conservativereview.com/commentary/2017/04/big-nanny-republicans-west-virginia-proposes-gop-backed-soda-tax
AMEN.
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'Taxes are the main source of politicians power'
That's right. Even the right talks about "Revenue Neutral" tax cutting. But what is revenue neutral about taxation? It is the shifting of trillions of dollars a year of revenues to people who didn't earn it. Some of it is spent for good public uses like a river crossing or national defense and most of it is not.
Trump put out a budget that had serious cuts in it. Why not couple that with a tax rate cut that would grow the economy and sell it as a package?
The deficit is also a source of their power. Because of the deficit and the addiction to spending, tax revenues can never be cut or cut much.
In politics, they talk about a wedge issue where as you push on it, it opens wider. In taxes, maybe they should reduce all rates by 1% or even 0.1%, just to establish the consensus that we know they are too high and we know how to lower them.
And cut all spending too by at least as much!
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https://www.conservativereview.com/commentary/2017/04/yes-change-may-be-coming-to-americas-tax-code-and-its-going-too-cost-you-more
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https://www.conservativereview.com/commentary/2017/04/yes-change-may-be-coming-to-americas-tax-code-and-its-going-too-cost-you-more
That's right. And why are we constantly trying to divide conservatives?
From the article:
"A carbon tax, a VAT, a BAT, and raising taxes on investors are all bad ideas. It would be one thing if Washington were planning to abolish the income tax or the corporate tax altogether. But to add another revenue stream in return for a promise of some other tax cuts, which invariably make the code even more progressive … conservatives should not waste their time on this issue."
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" it doesn't replace the federal income tax unless we repeal the 16th amendment"
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg102751#msg102751
"Taxes are like government programs. Once in place, they only grow." (G M)
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg102735#msg102735
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Republicans (conservatives?) just won the House, Senate and White House. They should have cut tax rates, spending and the deficit on the first day, retroactive to the first of the year - by whatever amount that could be agreed on.
All these new ideas are so clever and complicated that they will never be understood and passed in time to do any good. By the time they could get passed, Democrats will just raise them back up anyway.
R's act like Democrats, thinking this is some kind of permanent political majority - after winning by -2.5 million votes.
How about governing with some sense of urgency, like we believe what we said - that the left's policies, taxes and programs are destroying the country.
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Doug writes:
"Republicans (conservatives?) just won the House, Senate and White House. They should have cut tax rates, spending and the deficit on the first day, retroactive to the first of the year - by whatever amount that could be agreed on.
All these new ideas are so clever and complicated that they will never be understood and passed in time to do any good. By the time they could get passed, Democrats will just raise them back up anyway.
R's act like Democrats, thinking this is some kind of permanent political majority - after winning by -2.5 million votes.
How about governing with some sense of urgency, like we believe what we said - that the left's policies, taxes and programs are destroying the country."
Yup. They refuse to give up their power which is to spend our money and also afraid of being labelled the usual Democrat mantra 'tax cutters for the rich"
(even though 47 % pay NO federal income tax so who the hell are they to complain? and the top 20% pay the majority of all taxes)
The only 'valid' reason for *caution* is the Deficit but we know that is not the main reason they will not cut taxes.
Whatever we do get it will be watered down , not for those who really need it, those who pay nothing continue to do so, and in the end it will likely be shell game.
:cry:
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The Border-Adjustment Sleight of Hand
The double levy on U.S. companies’ overseas profits is the actual ‘Made in America tax.’
Photo: Phil Foster
By Veronique de Rugy and
Daniel J. Mitchell
April 16, 2017 2:10 p.m. ET
27 COMMENTS
With Republicans in control of Capitol Hill and the White House, this should be an opportune time for major tax cuts to boost American growth and competitiveness. But much of the reform energy is being dissipated in a counterproductive fight over the “border adjustment” tax proposed by House Republicans.
The plan calls for dropping the top corporate tax rate to 20% from 35%, while exempting exports and taxing imports. House Republicans have latched onto the border-adjustment tax for a very practical and understandable reason. It supposedly would generate more than $1 trillion of tax revenue over 10 years. That money could finance other parts of their agenda to generate growth, such as replacing today’s onerous depreciation rules with immediate expensing.
Although their intentions are reasonable, this strategy is questionable. Start with the political blunder: Republican tax plans normally receive overwhelming support from the business community. But the border-adjustment tax has created deep divisions. Proponents claim border adjustability is not protectionist because it would automatically push up the value of the dollar, neutralizing the effect on trade. Importers don’t have much faith in this theory and oppose the GOP plan.
Their concerns are legitimate. No country has ever imposed a border-adjusted corporate-income tax, so this is uncharted territory. But many countries have value-added taxes, or VATs, that are border-adjustable, and their experience might serve as a reasonable proxy. A review of the empirical literature shows that currencies adjust when a VAT is applied, but they do so neither entirely nor quickly. Factors such as poor design or improper administration can get in the way.
If the currency adjustment were perfect, there should be no effect on trade volume. But research has shown that VATs are associated with both lower exports and imports. A 2005 academic study examined 136 nations and concluded: “Countries using VATs have one-third fewer exports than do countries not using VATs, and 10 percent greater VAT revenue is associated with two percent fewer exports.”
Proponents of the border-adjustment tax also are using a dodgy sales pitch, saying that their plan will get rid of a “Made in America Tax.” The claim is that VATs give foreign companies an advantage. Say a German company exports a product to the U.S. It doesn’t pay the American corporate income tax, and it receives a rebate on its German VAT payments. But an American company exporting to Germany has to pay both—it’s subject to the U.S. corporate income tax and then pays the German VAT on the product when it is sold.
Sounds horribly unfair, right? Don’t be fooled. Like magicians, those making this argument are distracting the unwary, hoping that nobody will notice the trick.
Here’s the real story: What matters from a competitive perspective is whether the playing field is level—and it is. When the German company sells to customers in the U.S., it is subject to the German corporate income tax. The competing American firm selling domestically pays the U.S. corporate income tax. Neither is hit with a VAT. In other words, a level playing field.
What if an American company sells to a customer in Germany? The U.S. government imposes the corporate income tax and the German government imposes a VAT. But guess what? The German competitor selling domestically is hit by the German corporate income tax and the German VAT. That’s another level playing field. This explains why economists, on the right and left, repeatedly have debunked the idea that countries use VATs to boost their exports.
Companies can be disadvantaged, though, if their country’s tax regime is onerous. One big plus for Americans is that Washington does not impose a VAT, which would enable government to grow. This is a major reason that the U.S. economy is more vibrant than Europe’s. In Germany, the VAT raises so much tax revenue that the government consumes 44% of gross domestic product—compared with 38% in America.
On the other hand, America’s top corporate income tax of 35% is the highest in the developed world. If state corporate income taxes are added, the figure hits nearly 40%, according to the Congressional Budget Office. That compares very unfavorably with other nations. Europe’s average top corporate rate is less than 19%, and the global average is less than 23%, according to the Tax Foundation. The damage is compounded because the U.S. has a “world-wide” tax system, putting an extra levy on income that American companies earn overseas. That’s the real “Made in America Tax,” and it’s our own fault.
The solution is to reduce the corporate rate and adopt a territorial tax system, taxing only profits earned at home, as almost all other Western countries do. The good news is that the House plan does both these things. The bad news is that the proposal is weighed down by the border-adjustment tax. Republicans should drop this controversial provision and focus on the policies that will boost growth.
To get the maximum bang for the buck, the final package should include restraints on spending—which doesn’t even mean an absolute budget cut. If Congress simply limits the growth of outlays to about 2% a year, that would create enough fiscal space to balance the budget over 10 years and adopt a $3 trillion tax cut. If Republicans want a win-win, dropping the border-adjustment tax is the way to get one.
Ms. de Rugy is a senior fellow at George Mason University’s Mercatus Center. Mr. Mitchell is a senior fellow at the Cato Institute.
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https://mobile.nytimes.com/2017/04/21/upshot/tax-code-business.html
How Best to Tax Business
APRIL 21, 2017
Economic View
By N. GREGORY MANKIW
The details of the tax code may not make your heart sing, but they are enormously important and, at long last, they may be changing. In fact, the next 12 months are shaping up to be a critically important time.
Despite an uneven start, tax reform is on the agenda in Congress. And the ideas being considered, especially regarding business taxation, are not mere tweaks to our ossified system. They would profoundly alter how the government raises money and upend the incentives for private decision makers. This is fascinating to tax policy nerds like me. But it is important for everyone to understand.
The motivating force behind business tax reform is that the statutory corporate tax rate in the United States is one of the highest in the world. The high rate encourages all kinds of perverse behavior, such as leaving money parked in overseas subsidiaries and inverting corporate structures to take advantage of lower rates abroad.
The current corporate tax finds no fan in Kevin A. Hassett, the economist recently nominated by President Trump to lead the Council of Economic Advisers. Some of Mr. Hassett’s research suggests that our high corporate taxes may be so distortional that a cut in the rate might increase tax revenue.
In another paper, Mr. Hassett finds that corporate taxes depress wages for manufacturing workers. In a world where capital is mobile and labor is not, capital escapes from high-tax nations, leaving workers behind to bear the burden of lower productivity and reduced incomes.
The debate in Congress, however, has gone beyond a simple discussion of tax rates. The Better Way plan, championed by House Speaker Paul D. Ryan and Representative Kevin Brady, the Republican chairman of the Ways and Means Committee, promises fundamental changes in the nature of business taxation, most of which would, in my view, be steps in the right direction. There are four key issues.
WORLDWIDE VS. TERRITORIAL Most nations aim to impose taxes on economic activity that takes place within their borders. Such a system is called territorial. By contrast, the United States has a worldwide corporate tax. If a company based in the United States produces a product abroad and then sells it abroad, our Treasury takes a cut of the profits when they are brought back home.
The House tax bill would move our system toward international norms. American companies would be able to compete abroad on a level playing field with companies based in other nations. The tax incentive for corporate inversions would be eliminated.
INCOME VS. CONSUMPTION Many economists have argued that taxes should be levied based on consumption rather than income. Consumption taxes would do less to discourage saving and investment and would thus be more favorable to economic growth. In addition, consumption taxes are arguably fairer: They tax the standard of living people enjoy rather than the value of what they produce.
The House plan moves toward a consumption tax by allowing businesses to deduct their investment spending immediately, rather than depreciating it slowly over time. By exempting the income that businesses reinvest, the government would essentially be taxing consumed profits.
ORIGIN-BASED VS. DESTINATION-BASED TAXATION The corporate tax system is now origin-based. It levies taxes on the profit from goods produced in the United States, regardless of where they end up. An alternative, proposed in the House bill, would be to tax all goods consumed in the United States, regardless of where they are made. This destination-based approach would tax imports and exempt exports, which is sometimes called a border adjustment. In this way, the business tax would resemble many of the value-added taxes used in Europe.
Some advocates have argued that the switch to destination-based taxes would make American goods more competitive and reduce our trade deficits. Some critics have suggested that it would unduly hurt firms that rely on imports and their customers. Both arguments are probably wrong.
To be sure, the immediate impact of the change would be to discourage imports and encourage exports. But that in turn would mean Americans would supply fewer dollars in foreign-exchange markets, and foreigners would demand more dollars. As a result, the dollar would appreciate, making foreign goods cheaper for Americans, and American goods more expensive for foreigners. The movement in the exchange rate would offset the initial impact on imports and exports.
The main advantage of destination-based taxation is that it is easier to determine where a good is consumed than where it is produced. In a world where multinationals produce goods using parts from around the world, origin-based taxes invite firms to game the system with transfer pricing schemes. Destination-based taxation is less easily gamed.
DEBT VS. EQUITY Now, firms can deduct interest payments to bondholders, but they cannot deduct dividend payments to equity holders. This treatment encourages firms to rely on debt rather than equity, making them more financially fragile than they would otherwise be.
The House plan fixes this asymmetric treatment of debt and equity by no longer allowing firms to deduct interest payments. A business’s taxes would be based on its cash flow: revenue minus wage payments and investment spending. How this cash flow is then paid out to equity and debt holders would be irrelevant.
While I like the policy choices proposed by the House bill, not all economists agree. Some view the bill as too radical, risking too many unintended consequences. Others worry that transitioning from the old system to a new one is not worth the cost, even if the new one is better.
Without a doubt, the coming debate will involve immense politicking. Any large tax change creates winners and losers, and the losers are sure to make their voices heard. But what matters most is whether the changes are better for the United States over all, not for special-interest groups. The more voters understand, the better off we all will be.
N. Gregory Mankiw is a professor of economics at Harvard.
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https://www.nytimes.com/2017/04/26/us/politics/trump-tax-cut-plan.html
"Significantly Aiding Wealthy"
[Can't seem to get coverage of this without liberal spin. Good example of why they say you don't have to turn to the opinion page to get the NYT opinion - they conveniently put it on the front page in every story.]
Have we found some way of cutting the tax burden on the half of the country that doesn't pay a federal income tax? Have we found some way of improving the demand for and value of labor without easing the burden of businesses and employers?
As usual, I don't understand the strategy. Cut corporate rates from 35% federal to 15%. Great, except it won't happen.
Also, I can barely find it - even searching WhiteHouse.gov. Here is a Jpeg:
(http://www.journalofaccountancy.com/content/dam/jofa/news/2017-tax-reform-for-economic-growth.jpg)
Cutting the top rate from 39.6 back to 35% (plus up to 10% state tax) is a giveaway to the rich?
Anyway, the current one page document merely brings the issue forward and is starting point for negotiations.
"Throughout the month of May the Trump Administration will be holding listening sessions with stakeholders..."
At the rate this is going, I don't see how it ever gets done.
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"Don't tax you. Don't tax me. Tax that fellow behind the tree."
I forget who said this decades ago, but he was the head of the Ways and Means Committee or something like that. Dirk Everetson (sp?)?
FWIW gents, do you really think a major overhaul of the tax code is not going to be a big rip roaring fight taking time?
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http://www.thedailyreview.com/news/2015-12-09/Letters_to_the_Editor/Dont_tax_me.html
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"Don't tax you. Don't tax me. Tax that fellow behind the tree."
The Lefts modern version is
"tax the rich"
My version is
"they should tax Democrats and all liberals only"
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"they should tax Democrats and all liberals only"
ccp: You aren't going to like the 'blue state penalty'. It doesn't follow your motto above.
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg101397#msg101397
Of the big 3 deductions, mortgage interest, charitable giving and state/local taxes, only the first two survived the first draft.
The problem with this has to do with tyranny of the majority and consent of the governed. The penalty doubly applies to people who live in the blue states but oppose the big government, blue state model.
Take my state for example, please, take it. Hillary won MN by only 1.5%, down 10 points from Obama's 11.5% win in 2008. Meanwhile, Republicans won the State House and Senate, while a lame duck sits in the governor's mansion with pen and phone - no new tax cuts.
In one sense, I agree with the proposal. High income tax states should not get a break on federal taxes just because they tax themselves to death at the state level. We still need a military, and to fund research on spotted frogs, or whatever the feds do with the $4 trillion we give them.
On the other hand, property taxes can be a very unfair form of taxation. A homestead property doesn't have a stream of income or revenue to tax or pay a tax from. The homeowner does, but that is already double taxed progressively on the income side.
Imagine a retired person or couple on a fixed income. Property taxes go up and up over time; income does not. The longer you live the more you are unable to live in the house you bought and paid for over your adult lifetimes. We encourage home ownership for a reason, then we force people out with the other arm of the same big government - right at the point of their life where it is hardest to move. Why would we value borrowing to buy a house over a person's 'contributions to their local schools and communities. It makes no sense.
Therefore, Doug's compromise. Remove the state income tax deduction, but retain the property tax deduction.
While appearing to care and be more fair and inclusive, this will capture vast majority of the revenue IF they really do double the standard deduction.
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*****"they should tax Democrats and all liberals only"
ccp: You aren't going to like the 'blue state penalty'. It doesn't follow your motto above.
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg101397#msg101397****
yes , removing the state income tax deduction will of course hurt me since I live in NJ, but I was referring to all people who vote Democrats not blue states.
:lol:
That said I have learned to never expect to be able keep more of the money I earned fair and honestly.
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" Dirk Everetson (sp?)?"
Everet Dirkson?
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" Dirk Everetson (sp?)?"
Everet Dirkson?
Even backwards, that is a good memory!
“Don’t tax you, don’t tax me, tax that fellow behind the tree.” This quote is attributed to the late Sen. Everett Dirksen of Illinois back in the ‘60s when tax issues were the topic in the U.S. Senate.
http://www.thedailyreview.com/news/2015-12-09/Letters_to_the_Editor/Dont_tax_me.html
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John Kasich from ccp's post:
"I don't think there's any way they can say 'okay we're gonna cut all these taxes and it's going to pay for itself,'" Kasich, told students at the Ivy League school's Institute of Politics
1. Must note that he is out on big salary talking to Ivy Leaguers, not delivering milk(?) like his Dad. There goes the champion of the little guy - telling the big guys what they want to hear - for big money!
2. Any chance he was alive or aware during the 1980s? Reagan cut the top rate from 70% down to 28% and Revenues to the Treasury doubled over the decade.
Revenues 1980: $517,100,000,000 The last year before Reagan took office.
Revenues 1990 1,032,000,000,000 The first full year after Reagan left office, his tax policies still in place.
https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45010-breakout-appendixh.pdf
Rising tide lifts all boats.
3. Trump with all his warts won more votes and a higher percentage of the vote in the general election in Ohio than Kasich won in the primary with all his hometown advantage, FWIW.
Like McCain opposing tax cuts in 2000, the 'moderates' love to oppose Republican policy and avoid opposing Democrats. 'How can I get NYT and the Ivy Leaguers to like me?' Note that after the nomination, the msm was nowhere to be seen in support of McCain or any of that ilk, and the left hated Mitt every but as much as they despise Trump. They hated and mocked Reagan too. He defeated them with policy wins and economic results, not appeasement.
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Once upon a time Kasich was really good on tax and spending issues.
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Besides ignoring JFK and Reagan, the left and the media, I repeat myself, keep lying about the Bush 'tax cuts'. Under JFK, 90% rates made it easy to grow the economy and grow revenues by lowering rates, but most noteworthy was the pure, supply side rhetoric of the young, popular Democratic President. Under Reagan, revenues doubled in a decade and deficits came from the delays to the cuts and even faster growth of spending in compromise with the Tip O'Neill House.
Under Bush, the US economy eventually imploded when it became known with certainty that the Bush tax RATE cuts were ending, when Pelosi-Reid-Obama-HRC and Biden took control of Washington and congress promising tax rate increases. Besides the impending ending of tax rate cuts, we made all kinds of other economic policy errors, from the Fed's free money to the CRAp that required lenders to make bad loans.
Great article today (below) documenting what I have been trying to say on these pages.
Do you even know anyone who knows that revenues surged 60% in 4 years under the Bush tax cuts? Does Chuck Todd at Meet the dePressed or John Dickerson at deFace the Nation know that? Has either ever said that? They say 'blow up the deficit' without being able to do simple arithmetic or memory recall of basic numbers from the very recent past. (Or do they deceive intentionally?)
Here are the facts:
http://www.americanthinker.com/articles/2017/05/isnt_it_time_the_media_told_the_truth_about_bush_tax_cuts.html
In 2002, the top income tax rates for individuals was 38.6% on ordinary income and dividends and 21.2% on capital gains. George W. Bush got Congress to lower taxes across the board and the top bracket to 35% on ordinary income and 15% on dividends and capital gains. (Bush had inherited a recession and a collapsed stock market in 2001 and the economy had been stagnant or slowing up to these tax cuts).
Instead of the tax rate cuts costing the government money, revenues skyrocketed.
From FY 2000 to FY 2003 income tax proceeds had declined from around $1.2 Trillion to around $900 Billion in FY 2003. After the across the board cuts, income tax revenues skyrocketed over 60% to over $1.5 Trillion by FY 2007. The deficit also went down to $161 Billion by FY 2007, including both wars and Medicare Part D. Obviously, the tax rate cuts and the increasing revenue did not increase the deficit as we are repeatedly told.
The tax cuts gave the economy the boost that it needed. It is an extremely simple concept that the more money that is left in the hands of individuals and businesses, the more opportunity there is to spend, save and invest -- and all are good for the overall economy. It is also a simple concept that the more money the government confiscates, the less opportunity there is for growth.
As for jobs, in January 2001 when President Bush took office, there were 132.7 million non- farm workers. By May 2003, when Bush passed the tax cuts, employment had dropped to 130.2 million. At the end of 2007, employment had jumped to 138.4 Million. If employment was trending down before the cuts and jumped substantially after the tax cuts occurred it certainly appears that there is both a correlation and causation related to the tax rate cuts as to the significant boost to the economy.
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http://jewishworldreview.com/cols/sowell050217.php3
One societal sickness that we still can't eradicate: Political lies
Thomas Sowell
By Thomas Sowell
Published May 2, 2017
http://jewishworldreview.com/cols/sowell050217.php3One societal sickness that we still can't eradicate: Political lies
A classic example is the phrase "tax cuts for the rich," which is loudly proclaimed by opponents, whenever there is a proposal to reduce tax rates. The current proposal to reduce federal tax rates has revived this phrase, which was disproved by facts, as far back as the 1920s -- and by now should be called "tax lies for the gullible."
How is the claim of "tax cuts for the rich" false? Let me count the ways. More important, you can easily check out the facts for yourself with a simple visit to your local public library or, for those more computer-minded, on the Internet.
One of the key arguments of those who oppose what they call "tax cuts for the rich" is that the Reagan administration tax cuts led to huge federal government deficits, contrary to "supply side economics" which said that lower tax rates would lead to higher tax revenues.
This reduces the whole issue to a question about facts -- and the hard facts are available in many places, including a local public library or on the Internet.
The hardest of these hard facts is that the revenues collected from federal income taxes during every year of the Reagan administration were higher than the revenues collected from federal income taxes during any year of any previous administration.
How can that be? Because tax RATES and tax REVENUES are two different things. Tax rates and tax revenues can move in either the same direction or in opposite directions, depending on how the economy responds.
But why should you take my word for it that federal income tax revenues were higher than before during the Reagan administration? Check it out.
Official statistics are available in many places. The easiest way to find those statistics is to go look at a copy of the annual "Economic Report of the President." It doesn't have to be the latest Report under President Trump. It can be a Report from any administration, from the Obama administration all the way back to the administration of the elder George Bush.
Each annual "Economic Report of the President" has the history of federal revenues and expenditures, going back for decades. And that is just one of the places where you can get this data. The truth is readily available, if you want it. But, if you are satisfied with political rhetoric, so be it.
Before we turn to the question of "the rich," let's first understand the implications of higher income tax revenues after income tax rates were cut during the Reagan administration.
That should have put an end to the talk about how lower tax rates reduce government revenues and therefore tax cuts need to be "paid for" or else there will be rising deficits. There were in fact rising deficits in the 1980s, but that was due to spending that outran even the rising tax revenues.
Congress does the spending, and there is no amount of money that Congress cannot outspend.
As for "the rich," higher-income taxpayers paid more -- repeat, MORE tax revenues into the federal treasury under the lower tax rates than they had under the previous higher tax rates.
That happened not only during the Reagan administration, but also during the Coolidge administration and the Kennedy administration before Reagan, and under the G.W. Bush administration after Reagan. All these administrations cut tax rates and received higher tax revenues than before.
More than that, "the rich" not only paid higher total tax revenues after the so-called "tax cuts for the rich," they also paid a higher percentage of all tax revenues afterwards. Data on this can be found in a number of places, including documented sources listed in my monograph titled "'Trickle Down' Theory and 'Tax Cuts for the Rich.'"
As a source more congenial to some, a front-page story in the New York Times on July 9, 2006 -- during the Bush 43 administration -- reported, "An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year." Expectations, of course, are in the eye of the beholder.
Thomas Sowell, a National Humanities Medal winner, is an American economist, social theorist, political philosopher and author. He is currently Senior Fellow at the Hoover Institution, Stanford University.
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Arthur Laffer also makes the case for tax policy that brings growth and he compliments Trump on choices in the plan
http://www.washingtonexaminer.com/arthur-laffer-trumps-tax-plan-should-follow-the-reagan-model/article/2621763
"...the faulty logic that their tax cuts must be revenue-neutral in a static analysis. "
Static analysis is false when the whole point of the policy change is to accelerate economic growth!
"Voters want and need economic growth... and they want it now!"
Economic growth was 0% last quarter. This is now May, another quarter shot. In 7 months we start the next election year and economic results lag policy changes. I just don't get the lackadaisical approach to the timing of this, as if the policy change doesn't matter. This isn't the transition or the first 100 days anymore. Trump should not want his Presidency's economy scored under the Obama administration's tax disincentives system. If the new reform is so simple, write it up, sell it and pass it. Let's go!
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Can we find a donor for a brain, spine and testicular implants for the stupid party's leadership?
Arthur Laffer also makes the case for tax policy that brings growth and he compliments Trump on choices in the plan
http://www.washingtonexaminer.com/arthur-laffer-trumps-tax-plan-should-follow-the-reagan-model/article/2621763
"...the faulty logic that their tax cuts must be revenue-neutral in a static analysis. "
Static analysis is false when the whole point of the policy change is to accelerate economic growth!
"Voters want and need economic growth... and they want it now!"
Economic growth was 0% last quarter. This is now May, another quarter shot. In 7 months we start the next election year and economic results lag policy changes. I just don't get the lackadaisical approach to the timing of this, as if the policy change doesn't matter. This isn't the transition or the first 100 days anymore. Trump should not want his Presidency's economy scored under the Obama administration's tax disincentives system. If the new reform is so simple, write it up, sell it and pass it. Let's go!
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"Can we find a donor for a brain, spine and testicular implants for the stupid party's leadership?"
Under 'stupid party', you will find at least 2 listings.
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"Can we find a donor for a brain, spine and testicular implants for the stupid party's leadership?"
Under 'stupid party', you will find at least 2 listings.
Repubs = Stupid party
Dems = Evil party
Libertarians = Crazy party
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"Please feel free to post that in the Tax thread here and the Economics thread on the SC&H forum too."
http://www.heritage.org/node/18247/print-display
The tax rate cuts of the 1920s were followed by a 61% increase revenues over 7 years.
The Kennedy tax rate cuts brought a 62% increase in revenues over 7 years.
The Reagan tax rate cuts yielded a 54% increase over 6 years (100% over 10 years).
Then when Bush or Trump propose tax rate cuts, the media demands to know how they will deal with the static revenue loss - a demonstrably false premise question.
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WSJ, Schumer’s choice: Play on tax reform or lose the state and local deduction.
https://www.wsj.com/articles/trumps-blue-state-revival-plan-
Can blue state ideologues be leveraged to act in their own best interest? I doubt it.
I draw a distinction. State income taxes are a direct tax on high income earners. Property taxes are not.
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WSJ, Schumer’s choice: Play on tax reform or lose the state and local deduction.
https://www.wsj.com/articles/trumps-blue-state-revival-plan-
Can blue state ideologues be leveraged to act in their own best interest? I doubt it.
I draw a distinction. State income taxes are a direct tax on high income earners. Property taxes are not.
Between this and California's new and exciting single payer, Crafty is going to have to think real hard about where to live.
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House speaker, Trump aides vow tax reform by end of 2017
"The goal is to get tax legislation to the floor of Congress during the first two weeks of September, Trump economic adviser Gary Cohn told technology industry representatives at the White House."
http://www.reuters.com/article/us-usa-congress-tax-idUSKBN19B09U
Good grief.
I wonder if anyone has told them 2018 is an election year where sitting on their asses while Rome burns will be be a topic. Put off the most important reforms, what could possibly go wrong?
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A proposal to reform the taxation of corporate income
http://www.aei.org/publication/a-proposal-to-reform-the-taxation-of-corporate-income/
Alan D. Viard, Eric Toder
"This report updates and revises the authors’ 2014 proposal to replace the corporate income tax with taxation at ordinary income rates of dividends and net accrued capital gains of American shareholders. The new proposal retains a 15 percent corporate income tax, gives taxable shareholders a credit for corporate taxes paid, imposes a 15 percent tax on interest income of non-profits and retirement plans, and addresses stock price volatility and shifts between private and publicly-traded status. The reform encourages domestic investment and sharply reduces incentives for corporate inversions. It is approximately revenue neutral and makes the tax system more progressive."
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https://www.wsj.com/articles/the-1-5-trillion-business-tax-change-flying-under-the-radar-1498388402?mod=djemCFO_h
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CD,
won't let me see article without subscribing.
Is it referring to the mortgage interest tx deduction?
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Here ya go:
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The $1.5 Trillion Business Tax Change Flying Under the Radar
GOP proposal to scrap interest deduction would have profound impact on debt-reliant businesses
Losing the deduction could mean higher tax bills for crop growers who depend on bridge loans to work through seasonal business fluctuations.
Losing the deduction could mean higher tax bills for crop growers who depend on bridge loans to work through seasonal business fluctuations. Photo: Michael Zamora/Associated Press
By Richard Rubin
Updated June 25, 2017 8:18 p.m. ET
319 COMMENTS
Republicans looking to rewrite the U.S. tax code are taking aim at one of the foundations of modern finance—the deduction that companies get for interest they pay on debt.
That deduction affects everyone from titans of Wall Street who load up on junk bonds to pay for multibillion-dollar corporate takeovers to wheat farmers in the Midwest looking to make ends meet before harvest. Yet a House Republican proposal to eliminate the deduction has gotten relatively little sustained public attention or lobbying pressure.
Thanks in part to the deduction, the U.S. financial system is heavily oriented toward debt, which because of the tax code is often cheaper than equity financing—such as sales of stock. It also is widely accessible. In 2015, U.S. businesses paid in all $1.3 trillion in gross interest, according to Commerce Department data, equal in magnitude to the total economic output of Australia.
Getting rid of the deduction for net interest expense, as House Republicans propose, would alter finance. It also would generate about $1.5 trillion in revenue for the government over a decade, according to the Tax Foundation, a conservative-leaning think thank.
The plan would raise money to help offset Republicans’ corporate tax cuts and reduce a “huge bias” toward debt financing, said Robert Pozen, a senior lecturer at MIT’s Sloan School of Management. That bias, he said, hurts companies built around innovation, which tend to not have the physical assets that banks usually require as collateral.
“What we’re proposing is to take the tax preference from the source of funds—borrowing—and take that preference to the use of funds—business investment and buildings, equipment, software, technology,” Rep. Kevin Brady (R., Texas), the author of the plan, said at The Wall Street Journal CFO network conference this month.
In a world with no interest deduction, debt-fueled leveraged buyouts by private-equity titans could become more expensive to finance and junk bonds less appealing. “That’s not necessarily bad for society,” said David Beim, a retired Columbia University finance professor. “We have too much systemic financial risk in our economy.”
The dollar size of repealing the net-interest-expense deduction is even larger than another controversial proposal being pushed by House Republicans known as border adjustment, which would tax imports and exempt exports. The border adjustment plan has been under attack from retailers and Republican senators, whose resistance has put it on the brink of failure. But the idea of eliminating or limiting the interest deduction has generated less vocal opposition, giving it a real chance of passage, perhaps in a scaled-back form.
Republicans are aiming to agree on a framework for tax policy by September and send a bill to President Donald Trump this year. It will be an uphill fight fraught with intraparty political divides, and companies who want to keep the interest deduction will have plenty of clout.
For some debt-reliant businesses, the interest deduction’s demise could be a blow. Crop growers who depend on bridge loans to work through seasonal business fluctuations could face higher tax bills.
Andy Hill, who farms corn and soybeans on about 600 acres in north-central Iowa, said he pays less than $10,000 a year in interest on a line of credit between $100,000 and $200,000. That loan helps him bridge gaps between his expenses and his income, between when he needs to buy seed and fertilizer and when he sells his crops.
“[Losing the ability to deduct interest] wouldn’t put me in the red by any stretch of the imagination, but it makes it very debilitating as far as household income,” said Mr. Hill, who added that he has reached out to both of his senators and his House member about the issue.
Midsize businesses may also get squeezed.
“The people that utilize debt, they utilize it because they don’t have the cash and they don’t have the access to equity,” said Robert Moskovitz, chief financial officer of Leaf Commercial Capital, which finances businesses’ purchases of items like copiers and telephone systems. “A dry cleaner in Des Moines, Iowa? Where is he going to get equity? He can’t do an IPO.”
The idea behind the Republican plan is to pair the elimination of this deduction with immediate deductions for investments in equipment and other long-lived assets. Party leaders expect the capital write-offs would encourage more investment and growth and greater worker productivity, but not the debt often associated with it.
From an accounting standpoint, the tradeoff could hurt companies’ reported earnings because immediate expensing would just shift the timing of deductions and the loss of the interest deduction would be a permanent change.
Dennis Kelleher, chief financial officer of CF Industries Holdings Inc., a fertilizer manufacturer, said at a conference in May that the most important thing for the company would be a lower corporate tax rate.
“I don’t think that’s a good thing,” he said of repealing the interest deduction. “I suspect that won’t happen because it would be rather destabilizing, just to the capital markets generally.”
Unlike border adjustment, the idea of accelerating investment write-offs has broad support from conservative groups, such as the National Taxpayers Union, and some support from Democrats, including Jason Furman, who was President Barack Obama’s chief economist. It was a move in the opposite direction, toward longer depreciation schedules, that helped doom a Republican tax plan in 2014.
The tax code treats equity financing more harshly than debt. While interest is deductible, dividend payments typically aren’t. Corporate profits can thus be subject to two layers of tax—once at the business level and then when they go to shareholders in the form of dividends.
That means the effective marginal tax rate on equity-financed corporate investments is 34.5%, according to a report released by the Treasury Department this year in the waning days of the Obama administration. The corresponding rate for debt-financed investment is negative 5%. That subsidy for corporate debt “potentially creates a large tax-induced distortion in business decision making,” the report says.
But borrowing and deducting interest are deeply ingrained in American corporate finance as a normal cost of doing business. Dislodging the traditional practice will be challenging. Some firms might look to borrow offshore instead to reap tax benefits elsewhere.
“I don’t even think people think about it much,” said MIT’s Mr. Pozen. “It’s clear that they’re going to finance it by debt if they have a big acquisition or a big project.”
Because so much is at stake for so many sectors, writing the law could get messy. Mr. Brady said small businesses and utilities could get exceptions or specialized rules, as could debt-financed purchases of land, which wouldn’t be eligible for immediate investment write-offs.
The administration, including a president who has proclaimed himself the “king of debt,” has been wary of repealing the interest deduction but hasn’t drawn a hard line, according to multiple statements. Treasury secretary Steven Mnuchin has said his preference is to keep it. Resistance could build among Republicans in Congress and among real-estate firms and the agriculture industry, which have formed a coalition to fight the proposal. Yet financial markets so far have registered little reaction to the prospect of the interest deduction going away. One reason: The tax change most likely would apply to new loans only.
Junk-rated bonds, issued by companies that typically carry a large amount of debt, have returned 4.6% this year—better than the 4.3% returns of investment-grade bonds, according to Bloomberg Barclays data.
Without repealing the interest deduction, Republicans’ hopes of providing full and immediate deductions for capital investment are dim. They probably wouldn’t have enough money to offset the upfront fiscal cost of accelerating those deductions.
The plus for the GOP is that this issue is more familiar and less black-and-white than the complex border adjustment plan. Limits on interest and accelerated write-offs could be dialed to a politically comfortable spot. If Republicans can’t stomach full repeal of the interest deduction and immediate write-offs, they could try something short of that with, say, half of capital expenses being deductible and half of interest being deductible.
Andrea Auerbach, head of global private investment research at Cambridge Associates, which advises institutions that invest in private equity, said the industry would survive a tax overhaul that removes the interest deduction.
“The effects will reverberate for sure,” especially among larger firms that rely more on debt, she said. “But debt is still going to be cheaper than equity, so I don’t think it’s going away.”
—Sam Goldfarb contributed to this article.
Write to Richard Rubin at richard.rubin@wsj.com
Appeared in the June 26, 2017, print edition as 'A $1.5 Trillion Tax Change Flies Under the Radar.'
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http://www.seattletimes.com/seattle-news/politics/seattle-council-to-vote-today-on-income-tax-on-the-wealthy/
The measure applies a 2.25 percent tax on total income above $250,000 for individuals and above $500,000 for married couples filing their taxes together. A legal challenge is expected.
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This begs two questions:|
Do liberal leftist cities, states and nations want the rich to leave? ... or
Are they deniers of Science?
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http://www.seattletimes.com/seattle-news/politics/seattle-council-to-vote-today-on-income-tax-on-the-wealthy/
The measure applies a 2.25 percent tax on total income above $250,000 for individuals and above $500,000 for married couples filing their taxes together. A legal challenge is expected.
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This begs two questions:|
Do liberal leftist cities, states and nations want the rich to leave? ... or
Are they deniers of Science?
Seattle to California: "Hold my beer and watch this!"
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It's all I can do to keep this thread from falling off the first page. What's the matter, isn't saving the country from total government confiscation sexy enough?
Governors and Mayors Should Be Begging for Trump’s Tax Cut
Expanding the economy means more revenue for states and cities—just as it did in Reagan’s day.
By Arthur Laffer and Stephen Moore
July 13, 2017 7:04 p.m. ET
These are brutal days for state governments, especially progressive ones. Last week Illinois passed its first budget in two years, raising taxes by $5 billion—despite already having a state and local tax burden that’s among the highest in the nation. Connecticut’s deficits are so big, according to the fiscal watchdog group Truth in Accounting, that every taxpayer would have to pony up an extra $49,500 to pay off all the liabilities. In Oklahoma, where low oil prices have tanked state revenue, some public schools open only four days a week.
Liberal groups warn that President Trump’s proposals would make things worse by reducing the funds Washington sends states under programs like Medicaid. Governors and mayors, the argument goes, would be forced either to slash social services or raise taxes to make up the difference.
But focusing on federal support obscures the real problem. The biggest cause of states’ budget woes is the anemic condition of the national economy. Over the past eight years, growth in state and local revenue has slowed to a crawl. In fiscal 2017, total state revenue rose by less than 1% after adjusting for inflation, according to the National Association of State Budget Officers.
What states need most to regain fiscal health are national policies that accelerate the growth of the economy. Governors and mayors should be lobbying nonstop for the tax cuts proposed by Mr. Trump, which would revitalize state finances.
When the federal government cuts taxes, more money is left in the hands of businesses and workers. The Trump plan would free up an estimated $2 trillion to $4 trillion over 10 years—an enormous influx of cash for state and local economies.
Compare state finances during the go-go Reagan years with President Obama’s tenure, beginning after the end of the recession each president faced. After the recession of 1983, the national economy grew an average of more than 4% a year through 1990. During the Obama recovery between 2009 and 2016, the economy grew just over 2% annually. Remember that those effects compound: Strong growth year on year increases the size of the economy over time.
If state and local tax revenue had grown under President Obama at the rate it did under President Reagan, receipts in 2016 would have been greater by about $650 billion, or 26%, according to national income and product account data. If the economy in the Obama years had grown at 3.5% to 4%, the average rate for postrecession recoveries, states and cities would have had about $430 billion more. Think what they could do with nearly half a trillion dollars in additional tax revenue each year.
Even if Republican tax reform eliminates the federal deduction for state and local income taxes—a move we support—its effect on states would still be overwhelmingly positive. When federal income taxes were high in the 1970s, people could write off as much as 70% of their state and local taxes. Slashing rates in the 1980s brought that figure down to as low as 28%. Yet state fiscal health improved dramatically in the ’80s. The main effect of eliminating the deduction today would be to reduce the federal subsidy to high-tax states.
Critics will say this forecast for economic and revenue growth is wishful thinking, but it is based on the historical record. In the seven years after the Kennedy tax cuts, real state and local receipts grew by more than 60%, according to data from the Federal Reserve Bank of St. Louis. In the seven years after the Reagan rate cuts, the real increase was 37%. After Mr. Obama’s tax increases, real growth was a meager 10%.
The nonpartisan Tax Foundation estimates that after 10 years the Trump tax reform would increase America’s long-run gross domestic product by up to 8.2%. State and local governments capture about 13% of GDP in taxes according to 2016 Internal Revenue Service data, meaning the growth spurred by the proposed cuts would give them about $200 billion more each year by 2027 to balance their budgets, reduce taxes, or spend on education and social programs.
With the Trump tax cuts in place, the cumulative increase in state and local revenue over the following 10 years would be roughly $1 trillion. Could any imaginable tax increase raise that kind of money?
Amazingly, the bean counters at the Congressional Budget Office and Joint Tax Committee completely ignore this effect when they tally the “cost” of tax cuts in terms of forgone revenue. Almost a third of the lost federal revenue from Mr. Trump’s tax reform would be recouped by states and cities.
We only have one question: Why aren’t more governors and mayors—especially those in economically depressed areas—demanding the Trump tax cuts?
Mr. Laffer is chairman of Laffer Associates. Mr. Moore is a senior fellow at the Heritage Foundation. They are co-chairmen of the Committee to Unleash Prosperity.
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Famous people reading the forum. We are going to have a mid-term referendum on the economy in 2018, about a minute from now, and we are governing the American private sector with the exact tax plan left in place by Obama, Biden, Pelosi, Reid, Sanders, Ellison, Schumer, Maxine Waters, et al. Talk about self destructive behavior. And this is okay because, well, we just can't come to agreement amongst ourselves and well we didn't really expect to win?? Good grief, get going, DO SOMETHING!
http://www.investors.com/politics/commentary/a-tax-cut-victory-before-labor-day/
A Tax Cut Victory Before Labor Day
LAWRENCE KUDLOW, STEPHEN MOORE, ARTHUR B. LAFFER and STEVE FORBES7/14/2017
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President Trump and Republican leaders in Congress must act with much more urgency and decisiveness on tax cuts.
In recent weeks the tax cut agenda seems stalled out and the delays and indecision are negatively affecting growth and the stock market. We hear that a tax plan from the White House may not come until the fall and may not even pass Congress until 2018 – if at all.
Is it any wonder that investors are getting jittery? The stock market had priced in much of the anticipated benefits to business, wages and profits, which accounts in no small part for the $3 trillion rise in equity values and the surge in business and consumer confidence after the election. Now the confidence is waning.
Without a tax cut passage in 2017, the odds of Republicans losing the House and Senate in November 2018 are heightened. The economy needs time to respond to the growth hormones from the Trump tax plan. A prosperous economy in 2018 is by far the best way for the GOP to build on its historic victory in 2016.
We reject the idea that a simple, clear, growth-oriented tax cut can't happen this summer. Barack Obama passed an $830 billion so-called "stimulus bill" within weeks of his new presidency in 2009. Ronald Reagan signed into law at his ranch in Santa Barbara, Calif. his historic tax cut — then the largest in history — by August of his first year in office. The only reason Republicans haven't made this happen is that the tax cut has not been a priority.
To jump-start the tax debate, we are suggesting a Three Easy Pieces initiative:
A 15% business tax rate for small and large businesses, with full and immediate expensing for capital purchases.
A repatriation tax at 10% for foreign earnings brought back to the United States.
A doubling of the standard deduction from $6,500 to $13,000 for individuals and $13,000 to $25,000 for couples, to put more money into their pockets now and to simplify tax returns.
This plan over 10 years would deliver a $3 trillion tax cut to workers and businesses, and the boost in growth in jobs and output will produce higher-than-predicted increases in federal, state and local tax receipts. A 3%-plus growth rate over the next decade will yield more than $3 trillion in lower deficits at the federal level and almost $1 trillion more in revenues for the states and cities.
We estimate that the business tax cut and full expensing would expand business investment and inflows back into the United States by potentially trillions of dollars in 2018. Instead of jobs, businesses and factories fleeing these shores, the U.S. would become an overnight magnet for capital and jobs. America would be the tax haven.
What does this mean for the middle class? First, the Congressional Budget Office estimates that about two-thirds of the benefits of the corporate tax cut would go to workers in more jobs and wages as businesses reinvest at a faster pace. Faster growth and higher wages would put after-tax revenue in the pockets of average families. Welfare would fall and prosperity would be the new mindset. The increase in the standard deduction would save many middle-class families about $1,500 to $2,000 a year on their taxes and simplify taxes by reducing the need for middle-class families to itemize their deductions.
This "keep it simple" tax plan would scrap three widely believed misconceptions on the way forward on tax policy. The first misconception is that a tax plan should be paid for with offsetting tax increases. No. Revenue neutrality is an inside-the-Beltway trap and will prevent passage of a strong tax cut. We fully recognize that because of arcane budget rules, rejecting revenue neutrality means that the tax cut will not be permanent.
But nothing is permanent in Washington. With 51 votes, the Senate can pass a "temporary" tax cut for that lasts for 10 or 15 years without a single Democrat vote. We would much prefer a powerful tax cut that is "temporary" over a revenue-neutral tax plan that is economically impotent.
The second misconception is that a border-adjustable tax is necessary. Incredibly, the House leaders still have not given up on this wildly unpopular and ill-designed sales tax. This obsession with the border tax is beginning to look like the Pickett's Charge of tax reform.
Third, is that passing a tax cut now will kill the move for tax simplification and broader reform with lower tax rates and elimination of special interest tax breaks. No. Winning creates its own momentum. A populist campaign to rip up the incomprehensible 60,000-page tax code should be the GOP crusade for 2018 and 2019 – and we will be right behind President Trump in that fight.
Finally, Trump will have to fight for this tax cut not just to take on the liberal class-warfare warriors, but also to get the knee-knockers in his own party off the dime. He should hold a nationally televised address from the Oval Office in the weeks ahead making the case to the American people that a tax cut is vitally important to the economic health, jobs and the vitality of the nation.
This is what Reagan did to push foot-dragging House and Senate members forward on passage of his tax plan in 1981. That changed the course of the American economy for nearly two decades, and Donald Trump can accomplish the same economic resurgence if he acts decisively — and with all due speed.
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Failure to end Obamacare and to cut taxes will result in real losses next year. The republican party never misses an opportunity to miss an opportunity.
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Speaker Paul Ryan (R-Wis.) told attendees at an event Tuesday at the Capitol Hill Club that the unified tax-reform framework would be unveiled later in the week, and that the House Ways and Means Committee would then write legislation based on the principles.
http://thehill.com/policy/finance/343918-white-house-gop-close-to-releasing-joint-tax-reform-principles
What say this group on tax reform?
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y The Editorial Board
July 27, 2017 7:16 p.m. ET
46 COMMENTS
The ‘Big Six” GOP tax negotiators released a statement of principles Thursday, and the main news is the death of the House border-adjustment tax. A favorite idea of Speaker Paul Ryan, the BAT was savaged by retailers who feared they’d pay more for imports. The problem is that the BAT would have raised as much as $1 trillion to pay for lower tax rates, so its defeat raises a new obstacle to reform.
This shows that tax reform may be even harder to pull off than repealing ObamaCare given how politicians have laced the tax code with subsidies and carve-outs. Interests clawing to keep their favors usually defeat the public interest in lower rates. But the potential payoff in faster growth and rising incomes is still worth the political effort, so give Congress and President Trump credit for setting the goal of a signing ceremony this year.
As the debate begins, this is a good moment to offer some principles to judge how reform is faring:
–– ADVERTISEMENT ––
• The growth priority. After 12 years of a lackluster economy, or worse, tax reform’s overriding goal should be to lift annual GDP to 3% or more. The current expansion is into its ninth year and showing signs of age. Europe has grown faster than the U.S. for some time. The Trump bump in financial markets hasn’t been matched in the real economy.
Amid a labor shortage and sluggish incomes, a capital spending surge is crucial to give the expansion a second wind. This is where tax reform must focus. This means lowering tax rates on business and individuals to spur risk-taking and investment.
In particular it means cutting the U.S. corporate tax rate low enough to compete with the rest of the world and return $2 trillion in capital that U.S. companies have stashed overseas. A corporate rate much higher than 20% won’t do the job. The evidence of economic research is overwhelming that cuts in corporate tax rates flow to workers in higher wages.
The political opposition will come from Democrats and many Republicans who view tax reform mainly as a populist lever to redistribute income. They include White House aide Steve Bannon, who wants to raise tax rates on the affluent, and conservatives like Mike Lee on Capitol Hill who think taxes should serve social policy. The risk is that they will steal money for tax credits that do nothing for growth and could be used to reduce rates.
• Make cuts immediate. One temptation in every reform debate is to phase-in tax cuts to fit inside Congress’s 10-year budget-deficit box. That is a growth killer as investors delay decisions to wait for lower rates. George W. Bush made that mistake with his 2001 tax cut, which was a growth bust. He corrected it by making his 2003 cuts immediate, and the faster growth that followed saved his re-election.
• Permanence. Businesses invest with a long tail, and they will scuttle some projects if they think lower rates go poof after five or 10 years. Mr. Bush made this mistake in 2003 and Barack Obama took advantage in 2013.
Thursday’s joint GOP statement says the goal “places a priority on permanence,” which is progress. Some provisions, such as business expensing, could end after five years without doing too much harm. But tax rates should be fixed in law so future Congresses will have a harder time changing them.
• Reform, not merely a tax cut. One reason tax reform spurs growth is by reducing subsidies so capital can flow where it gets the highest return. This efficiency increases productivity, which increases wages. But this means stripping out as much chaff as possible in the tax code like subsidies for electric cars, real estate or racetracks.
Ending these subsidies also helps pay for lower rates. But the GOP has already agreed not to change the mortgage-interest or charitable deductions, and now the trillion-dollar BAT is dead. Reformers will have to fight that much harder to end the big-dollar deductions for state and local taxes and for interest on business borrowing.
If that becomes too difficult, the temptation will be to abandon reform and default to the lowest-common political denominator of a simple tax cut. This would be better than nothing, but it won’t boost capital investment or the economy nearly as much in the medium- or long-run.
• The deficit-neutral trap. The budget outline now moving through the House promises a balanced budget in 10 years including tax reform. That may be necessary to pass the outline but it could be the death of tax reform if it locks the GOP into the fiscal prison of budget “scores” by the Congressional Budget Office and Joint Tax Committee.
Speaker Ryan has worked for years to get those bureaucracies to better account for rising tax revenues that flow from faster growth, but they still use models that underestimate the growth impact of tax cuts on capital and marginal rates.
Republicans need to find an exit from the deficit-neutral trap. Perhaps that means taking a revenue score from Treasury’s Office of Tax Analysis, rather than Joint Tax. Balanced-budget fetishists might keep in mind that Ronald Reagan’s 1981 tax cuts would never have happened had Congress not tolerated deficits. Faster growth caused revenues to boom and the deficit eventually fell.
With ObamaCare repeal foundering, Republicans can’t afford another “skinny” reform that fails to deliver on Mr. Trump’s promise to raise growth and wages. Tax reform will determine whether this Congress was worth electing.
Appeared in the July 28, 2017, print edition.
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This former House proposal is already dead, but the reasons need to be documented for future reference.
https://www.cato.org/publications/commentary/border-adjustment-tax-no-free-lunch
The Border-Adjustment Tax Is No Free Lunch
By Alan Reynolds
This article appeared on Investor’s Business Daily on June 16, 2017.
House Republican leaders Speaker Paul Ryan, R-Wis., and Ways and Means Chairman Kevin Brady, R-Texas, are still pushing their year-old scheme of a “border adjustable tax” (BAT) to exempt exports from their proposed 20% corporate tax while disallowing firms any deduction for the cost of imported parts, materials or inventories.
Congressmen Ryan and Brady claim the BAT will “level the playing field” which, in the plain English of Boston University economist Larry Kotlikoff, means “reducing the U.S. trade deficit.” The tax is also projected to raise $1 trillion over the next ten years. In other words, a “free lunch” that will pay for itself.
Unfortunately, if the tax truly is to raise $1 trillion dollars, it “cannot change the size of the trade deficit,” as BAT supporter and Harvard economist Martin Feldstein puts it. The BAT is a tax on the trade deficit, and would raise nothing if that deficit ceased to exist.
A BAT could wreak havoc on some of the largest employers in the country, including retailers and automakers.
Feldstein and other BAT advocates argue their plan won’t affect trade because it will drive the dollar up 25% and thus make imports cheap and U.S. exports costly.
The reason for the dollar’s assumed rise is that tax-free exports would rise, increasing the world’s demand for dollars, while newly taxed imports would fall, reducing the world dollar supply. The reason the trade deficit can’t change, in other words, is that imports and exports must first change quite a lot before the supposedly end up unchanged.
Why else would the dollar soar? Scholars may say that initial trade disruption is temporary, but they can’t tell us whether “temporary” means months or years.
The promised 10-year revenue windfall rests on a shaky foundation, and contradicts politicians’ promises of a level playing field. Yet foregoing that hypothetical treasure might mean “settling for a 25% corporate rate,” which isn’t ideal for Rep. Brady.
In reality, 25% under current law is about the same as 20% under the Ryan-Brady plan, which Goldman Sachs economists estimate has an effective rate of 24%. Why? Because the Ryan-Brady plan taxes costs as if they were income.
Companies could no longer deduct the cost of imports or interest, which makes a huge difference when imports or interest are an important cost of doing business. Former Treasury Secretary Larry Summers noted the Ryan-Brady tax could “substantially exceed 100% of profits” for large retail chains with thin margins who count on imports for much of their inventory.
Even in the same industry, a BAT would hit different firms differently. Refiners could still deduct the cost of Dakota crude oil under the BAT, but not Canadian crude. Manufacturers of electric motors could deduct the cost of Arizona copper, but not Chilean copper.
BAT proponents claim it is like a foreign VAT (value-added tax), but also entirely different. A VAT clearly raises consumer prices, for example, but BAT fans insist their plan won’t do that. A VAT applies equally to foreign and domestic goods, but a BAT only applies to imports.
BAT architect Alan Auerbach of U.C. Berkeley says retailers, refiners and automakers are wrong to worry; the 20% tax on corporate imports will be totally painless, because “a stronger dollar would make imports cheaper, offsetting the increase in taxes paid.”
Economists can’t predict exchange rates. But even if other currencies really did fall by 20%, there is no evidence import prices would fall nearly that much.
In a 2009 study for the U.S. International Trade Commission (ITC), Cathy Jabra surveyed the evidence and found that, aside from crude oil, very little of exchange rate changes were passed through to import prices. Only 18% of rate changes passed through in the case of consumer goods in general, only 12% for those from Japan and zero for imports from New Industrialized Economies such as China, Mexico and South Korea.
So even if all currencies did fall 20% against the dollar, prices of consumer goods might drop by only about 3.6%, rather than by the 20% required to make the BAT harmless. Prices of imports from the New Industrialized Economies might not fall at all.
Arguments for slapping a new border adjustment tax on corporate imports and exempting exports from the same are like running through a maze in Wonderland. The tax is said to level the playing field for trade and raise a ton of money, but that shimmering pot of gold on that horizon depends on trade being totally unaffected.
If these contradictory conjectures are half as mistaken as they appear to be, a BAT could wreak havoc on some of the largest employers in the country, including retailers and automakers. And if the U.S. economy goes down, tax revenue will too.
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Who knew??
A new Tax Foundation report finds that the 1.5-cent-an-ounce levy that took effect in January is hurting low-income workers and producing less revenue than promised, is helping beer sales.
https://www.wsj.com/articles/philadelphias-soda-tax-bust-1502661280
It's okay to hurt low income workers, right, I mean if you're a well-intended, leftist-run city?
Tax it and get less of it, unexpectedly, that doesn't apply to capital, investment, employment, labor or private sector growth, does it?
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Ummm , , , IIRC generally we here (and certainly me) have advocated taxing what we don't want (in my advocacy this includes pollution) and not taxing what we do want (jobs, income, savings, capital gains, inheritance, etc.)
IIRC Philadelphia is one of the fattest cities in America- if not THE fattest city.
No surprise that revenues were less than predicated by people who don't get the Laffer Curve, but on the whole, I'm not seeing anything to get upset about here.
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The Morning Ledger: Republican Tax Plan Poses Risk to U.S. Bond Market
By Kimberly S. Johnson
Good morning. A tax revamp meant to boost U.S. competitiveness and bring overseas earnings home may weaken a central pillar of U.S. capital markets, writes Vipal Monga. Republican plans to scale back corporate interest deductions stand to push more borrowing overseas, eroding benefits of the mammoth U.S. bond market.
CONTENT FROM OUR SPONSOR
Large U.S.-based companies like Apple Inc. and Microsoft Corp. routinely borrow billions in U.S. markets even as they retain billions of dollars in cash, knowing that interest payments will lower their local tax bills. Any U.S. limits on interest deductibility would break with the policies in many other rich countries and likely prompt companies to shift some borrowing to places where deductibility would still be in effect, say analysts.
“If you remove interest deductibility in one location and retain it in others, then of course companies will want to move their borrowing,” said Matt King, a credit analyst at Citigroup Inc.
Non-financial, investment-grade companies in the U.S. have borrowed roughly $575 billion so far this year, on pace to break the record of close to $800 billion set in 2015, according to Dealogic.
Ending or limiting that deduction is key to funding the House tax plan. Repeal would raise $1.5 trillion over a decade to replace some of the revenue lost from a corporate rate cut and immediate deductions of capital expenses, according to the Tax Foundation, a conservative-leaning think tank.
Removing interest deductibility would create a “strange and ironic” echo of such “corporate inversion” strategies in which firms move their headquarters overseas but keep their main operations in the U.S., said Citigroup’s Mr. King. In this case, companies could keep their funds in the U.S. and borrow elsewhere.
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Making Growth Great Again
The GOP should learn from how Trump is selling supply-side tax cuts.
President Trump in Springfield, Mo., Aug. 30.
President Trump in Springfield, Mo., Aug. 30. Photo: Kevin Lamarque/Reuters
By Kimberley A. Strassel
Aug. 31, 2017 7:10 p.m. ET
85 COMMENTS
In May 2014, a broad collection of thinkers and politicians gathered in Washington to celebrate a new conservative “manifesto.” The document called for replacing stodgy old Reaganite economics with warmer, fuzzier handouts to the middle class. Donald Trump must have missed the memo.
The president formally opened the tax wars on Wednesday with his speech in Missouri challenging Congress to meet his principles for reform. The media almost uniformly applied to the speech its favorite (though misused) descriptor: “populist.” But the real news was that Mr. Trump wants to make Reagan-style tax reform great again.
The left saw this clearly, which explains its furious and frustrated reaction to the speech. “Trump’s New Tax Scam: Selling Plutocracy as Populism,” ran a headline in Vanity Fair, bemoaning that “Trickle-down is back, baby.” Democratic strategist Robert Shrum railed in a Politico piece that the “plutocrat” Mr. Trump was pitching a tax cut for “corporations and the top 1 percent” yet was getting away with a “perverted populism.” Trump voters had been “tricked into voting against themselves,” and now Mr. Trump was pulling a similar con with taxes.
Nonsense. Mr. Trump is selling pro-growth policies—something his party has forgotten how to do. And there’s nothing very “populist” about it, at least not by today’s political standards. The left has defined the tax debate for decades in terms of pure class warfare. Republicans have so often been cast as stooges for the rich that the GOP is scared to make the full-throated case for a freer and fairer tax system. It was precisely the right’s desire for a more “populist” tax policy that gave us the Reformicons and their manifesto for buying off the middle class.
Mr. Trump isn’t playing this game—and that’s why the left is unhappy. The president wants to reduce business tax rates significantly and encourage American companies to repatriate billions of profits held overseas. He wants to simplify the tax code in a way that will eliminate many cherished carve-outs. He wants tax relief for “middle income Americans,” though he also praised to the sky the 1986 Reagan reform that reduced the number of tax brackets and significantly lowered top marginal rates.
Mr. Trump did sneak a nod to Ivanka into the speech by including her proposal to hand out taxpayer money for child care. But his address was largely a hymn to supply-side economics, stunning Democrats who believed they’d forever dispelled such voodoo.
What made the left even more apoplectic was the president’s manner of sales pitch. What journalists always fail to note is the difference between “populist” policies and a “populist” delivery (of which Reagan was a master). Mr. Trump has defined himself as the protector of America’s forgotten man, an outsider to the swamp, an America Firster. The result is that he is uniquely qualified to sell a tax plan decried as “elitist” to average Americans.
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Tax reform of 2017-2018 must now fight in the context that we already have $20 trillion of debt that has gained us nothing. https://www.cbsnews.com/news/national-debt-hits-historic-20-trillion-mark/
Besides liberals wanting tax rates even higher, plenty of so-called conservatives consider themselves to be deficit hawks and have a real fear of lowering the burden of big government. For them and for all of us I would say, cut spending rates too!
Failing to reform our tax code guarantees that debt will grow faster than our economy until it finally takes us under. The current tax code have been proven to limit growth to 1.6% max, making it impossible to grow beyond the burden of our ever increasing debt and balance our budget. And failing to grow the economy will also guarantee electoral losses giving power back to the people who want to take more and stifle growth further.
This economy is capable of growing at two or three times the current growth rate - and compounding that growth in trillions of dollars, tens of thousands of businesses and millions of jobs.
Economic growth, not high taxation, is what fills our Treasury and balances our budget.
Static analysis (falsely) says that all tax rate cuts yield fewer dollars to Treasury. In fixed-pie thinking, a 15% tax takes in less money than a 20% tax - all day long. Stop there and ask why then are Algeria and Bolivia not swimming in government revenues? As Carville-Clinton might say, it's the economy stupid. Static analysis is the denial of incentive economics science.
Straw man arguments ridicule Laffer and Supply Siders for saying all tax rate cuts bring in more revenues. That is NOT what the curve indicates. A zero rate doesn't maximize revenues, nor does a 100% rate. The question is, how do you maximize revenues while minimizing the negative impact of the disincentives that the taxes create.
Narrow academic analyses indicate that all tax rate cuts yield SOME recapture of revenues that the static analysis misses. It takes a wider analysis to see the big picture of the entire economy.
Take a capital gains rate cut for example. If the current top rate, federal plus state plus corporate plus ACA surcharge is stopping capital from moving to its most productive use, it is also stopping those most productive uses from employing people, putting or keeping millions out of the productive economy and onto a plethora of programs.
We mainstreamed the idea of not working to the point where 100 million adults do it and we don't even count most of them as unemployed. We mainstreamed the idea of having the government pay your healthcare and other living expenses. Meanwhile, we penalize entrepreneurs, employers and companies for making investments in plant and equipment that would allow people to move back to the productive economy.
We tax inflationary gains (oxymoron) as gains. We create inflation and then feed off of the penalty, moving the private sector to public and changing the emphasis of the remaining investment dollars from long term to short term. What could possibly go wrong with that?
Real tax reform is a paradigm shift. Every dollar of income brings in less government revenue yet the total grows more with the economy than with the tax rate.
Previously on these pages, Coolidge, Kennedy, Reagan, Clinton and Bush all had tax rate cuts that yielded much higher revenue:
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg103419#msg103419
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg103568#msg103568
http://dogbrothers.com/phpBB2/index.php?topic=1791.msg105084#msg105084
http://www.heritage.org/node/18247/print-display
The tax rate cuts of the 1920s were followed by a 61% increase revenues over 7 years.
The Kennedy tax rate cuts brought a 62% increase in revenues over 7 years.
The Reagan tax rate cuts yielded a 54% increase over 6 years (100% over 10 years).
Bill Clinton's Presidency may give the best look at whether of not tax rates cuts benefit only the wealthy. Clinton raised tax rates in 1983 and cut tax rates in 1997: Real wages under Bill Clinton grew at 6.5 percent rate after the capital gains tax rate cuts compared with 0.8 percent growth rate after his tax rate hikes of 1993.
http://www.heritage.org/research/reports/2008/03/tax-cuts-not-the-clinton-tax-hike-produced-the-1990s-boom
Real wages grew 8 times faster after tax rate cuts than after raising taxes on the wealthy.
And we balanced the budget.
Who knew?
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"Who knew?"
Well in addition to us here :-D Newt Gingrich and Art Laffer knew. :-D
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Coming out today, ZeroHedge has the details. Some good features. Overall, I'm not impressed.
http://www.zerohedge.com/news/2017-09-27/here-leaked-trump-tax-plan
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http://www.dailywire.com/news/21615/trumponomics-trump-tax-plan-proposes-tax-increase-ben-shapiro?utm_source=shapironewsletter&utm_medium=email&utm_content=092717-news-title&utm_campaign=lead
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Underwhelming. Some good features in it. Mark Levin (on radio) summed up some observations that overlap mine:
1) More and more people pay nothing at all. No skin in the game. Federal spending doesn't pay the bill. Moral hazard: a reason to keep income low for life. Political hazard: that makes two parties that support having large numbers of people not pay their fair share.
2) Trump offers a 4th tax bracket - for the "wealthiest", while bragging about only three brackets. Surcharge on the wealthy. Compare with Reagan for a moment. Reagan cut the top rate from 70% to 28% and doubled revenues in a decade. Reagan curt across the board.Trump is cutting top rate from 39.6 to 36, then add a surcharge, just like Pelosi-Obama in this regard.
3) Play the class warfare game with the Democrats and you will lose it. They are better at it. You can't defeat wrong headed thinking by joining in with it. The opponents aren't going to support it or support you just because you throw them a bone or two. Do what's right and explain it. What is the most efficient formula to raise revenue for the public sector while maximizing growth and income in the private sector.
My other concerns:
4) Does nothing with capital gains (that I can see). Index 'gains' to inflation!
5) Eliminating Blue State deductions will lose votes of blue state Republicans without winning any Democrat votes. Our red state friends say we deserve this penalty, but 40-50% in the blue state don't favor the punishing rates in the first place, and now get a second hit. A good compromise would be to eliminate the state income tax deduction but keep the property tax deduction. How is it that supporting your local schools with tax dollars isn't tax deductible? It isn't income available to pay federal taxes.
More info:
https://www.consumerreports.org/taxes/how-gop-tax-reform-plan-could-affect-you/
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Doug,
Move to where you and your money is treated better.
Underwhelming. Some good features in it. Mark Levin (on radio) summed up some observations that overlap mine:
1) More and more people pay nothing at all. No skin in the game. Federal spending doesn't pay the bill. Moral hazard: a reason to keep income low for life. Political hazard: that makes two parties that support having large numbers of people not pay their fair share.
2) Trump offers a 4th tax bracket - for the "wealthiest", while bragging about only three brackets. Surcharge on the wealthy. Compare with Reagan for a moment. Reagan cut the top rate from 70% to 28% and doubled revenues in a decade. Reagan curt across the board.Trump is cutting top rate from 39.6 to 36, then add a surcharge, just like Pelosi-Obama in this regard.
3) Play the class warfare game with the Democrats and you will lose it. They are better at it. You can't defeat wrong headed thinking by joining in with it. The opponents aren't going to support it or support you just because you throw them a bone or two. Do what's right and explain it. What is the most efficient formula to raise revenue for the public sector while maximizing growth and income in the private sector.
My other concerns:
4) Does nothing with capital gains (that I can see). Index 'gains' to inflation!
5) Eliminating Blue State deductions will lose votes of blue state Republicans without winning any Democrat votes. Our red state friends say we deserve this penalty, but 40-50% in the blue state don't favor the punishing rates in the first place, and now get a second hit. A good compromise would be to eliminate the state income tax deduction but keep the property tax deduction. How is it that supporting your local schools with tax dollars isn't tax deductible? It isn't income available to pay federal taxes.
More info:
https://www.consumerreports.org/taxes/how-gop-tax-reform-plan-could-affect-you/
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I helped create the GOP tax myth. Trump is wrong: Tax cuts don’t equal growth.
The best growth in recent memory came after President Bill Clinton raised taxes in the ’90s.
By Bruce Bartlett September 28 at 9:30 AM
Bruce Bartlett was a domestic policy adviser to President Ronald Reagan. He is the author of “The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take."
Play Video 3:02
Trump’s speech on the GOP tax plan, in three minutes
During a speech in Indianapolis, Sept. 27, President Trump said the GOP tax plan is a “once-in-a-generation opportunity” to lower taxes on the middle class and businesses. (Bastien Inzaurralde/The Washington Post)
Four decades ago, while working for Rep. Jack Kemp (R-N.Y.), I had a hand in creating the Republican tax myth. Of course, it didn’t seem like a myth at that time — taxes were rising rapidly because of inflation and bracket creep, the top tax rate was 70 percent and the economy seemed trapped in stagflation with no way out. Tax cuts, at that time, were an appropriate remedy for the economy’s ills. By the time Ronald Reagan was president, Republican tax gospel went something like this:
The tax system has an enormously powerful effect on economic growth and employment.
High taxes and tax rates were largely responsible for stagflation in the 1970s.
Reagan’s 1981 tax cut, which was based a bill, co-sponsored by Kemp and Sen. William Roth (R-Del.), that I helped design, unleashed the American economy and led to an abundance of growth.
Based on this logic, tax cuts became the GOP’s go-to solution for nearly every economic problem. Extravagant claims are made for any proposed tax cut. Wednesday, President Trump argued that “our country and our economy cannot take off” without the kind of tax reform he proposes. Last week, Republican economist Arthur Laffer said, “If you cut that [corporate] tax rate to 15 percent, it will pay for itself many times over. … This will bring in probably $1.5 trillion net by itself.”
That’s wishful thinking. So is most Republican rhetoric around tax cutting. In reality, there’s no evidence that a tax cut now would spur growth.
The Reagan tax cut did have a positive effect on the economy, but the prosperity of the ’80s is overrated in the Republican mind. In fact, aggregate real gross domestic product growth was higher in the ’70s — 37.2 percent vs. 35.9 percent.
Moreover, GOP tax mythology usually leaves out other factors that also contributed to growth in the 1980s: First was the sharp reduction in interest rates by the Federal Reserve. The fed funds rate fell by more than half, from about 19 percent in July 1981 to about 9 percent in November 1982. Second, Reagan’s defense buildup and highway construction programs greatly increased the federal government’s purchases of goods and services. This is textbook Keynesian economics.
Third, there was the simple bounce-back from the recession of 1981-82. Recoveries in the postwar era tended to be V-shaped — they were as sharp as the downturns they followed. The deeper the recession, the more robust the recovery. (MARC: which did not kick in until the tax rate cuts finished phasing in)
Finally, I’m not sure how many Republicans even know anymore that Reagan raised taxes several times after 1981. His last budget showed that as of 1988, the aggregate, cumulative revenue loss from the 1981 tax cut was $264 billion and legislated tax increases brought about half of that back.
Today, Republicans extol the virtues of lowering marginal tax rates, citing as their model the Tax Reform Act of 1986, which lowered the top individual income tax rate to just 28 percent from 50 percent, and the corporate tax rate to 34 percent from 46 percent. What follows, they say, would be an economic boon. Indeed, textbook tax theory says that lowering marginal tax rates while holding revenue constant unambiguously raises growth.
But there is no evidence showing a boost in growth from the 1986 act. The economy remained on the same track, with huge stock market crashes — 1987’s “Black Monday,” 1989’s Friday the 13th “mini-crash” and a recession beginning in 1990. Real wages fell.
Strenuous efforts by economists to find any growth effect from the 1986 act have failed to find much. The most thorough analysis, by economists Alan Auerbach and Joel Slemrod, found only a shifting of income due to tax reform, no growth effects: “The aggregate values of labor supply and saving apparently responded very little,” they concluded.
The flip-side of tax cut mythology is the notion that tax increases are an economic disaster — the reason, in theory, every Republican in Congress voted against the tax increase proposed by Bill Clinton in 1993. Yet the 1990s was the most prosperous decade in recent memory. At 37.3 percent, aggregate real GDP growth in the 1990s exceeded that in the 1980s. (MARC: The peace dividend from the collapse of the Soviet Empire, the cuts to the capital gains rate and other successes of the Gingrich Congress had quite a bit to do with this)
Despite huge tax cuts almost annually during the George W. Bush administration that cost the Treasury trillions in revenue, according to the Congressional Budget Office, growth collapsed in the first decade of the 2000s. Real GDP rose just 19.5 percent, well below its ’90s rate.
We saw another test of the Republican tax myth in 2013, after President Barack Obama allowed some of the Bush tax cuts to expire, raising the top income tax rate to its current 39.6 percent from 35 percent. The economy grew nicely afterward (Marc: NO IT DID NOT!) and the stock market has boomed — up around 10,000 points over the past five years. (Marc: US economy under Obama was the first eight year stretch since the Depression that the economy did not have a 3% year. Also arguably the zero rate interest policy drove savings into the stock market.)
Now, Republicans propose cutting the top individual rate to 35 percent, despite lacking evidence that this lower rate led to growth during the Bush years, and a drop in the corporate tax rate to just 20 percent from 35 percent. (Marc: Necessary to compete with the lowered rates of other countries, not to mention the inversion issues as a sign of US tax code driving/keeping trillions of dollars off-shore) Unlike 1986, however, this $1.5 trillion cut over the next decade will only be paid for partially by closing tax loopholes.
Republicans’ various claims are irreconcilable. One is that the rich will not benefit even though it is practically impossible for them not to — those paying the most taxes already will necessarily benefit the most from a large tax cut. And there aren’t enough tax deductions, exclusions and credits benefiting the rich that could be abolished to offset a cut in the top rate.
[Trump promised black voters equal justice. That’s all Kaepernick wants.]
Even if they had released a complete plan — not just the woefully incomplete nine-page outline released Wednesday — Republicans have failed to make a sound case that it’s time to cut taxes.
What’s in the GOP tax proposal
Republicans on Sept. 27 introduced a tax proposal that would deeply cut taxes but would also likely add to the national debt. (Danielle Kunitz, Bastien Inzaurralde/The Washington Post)
Nor have they signaled that they’ll commit to a viable process. It’s worth remembering that the first version of the ’81 tax cut was introduced in 1977 and underwent thorough analysis by the CBO and other organizations, and was subject to comprehensive public hearings. The Tax Reform Act of 1986 grew out of a detailed Treasury study and took over two years to complete. (Marc: Worth noting that back then between election campaigns there actually was bipartisan work being done see e.g. Reagan and Tip O'Neil)
Rushing through a half-baked tax plan, in the same manner Republicans tried (and failed) to do with health-care reform, should be rejected out of hand. As Sen. John McCain (R-Ariz.) has repeatedly and correctly said, successful legislating requires a return to the “regular order.” That means a detailed proposal with proper revenue estimates and distribution tables from the Joint Committee on Taxation, hearings and analysis by the nation’s best tax experts, markups and amendments in the tax-writing committees, and an open process in the House of Representatives and Senate.
There are good arguments for a proper tax reform even if it won’t raise GDP growth. It may improve economic efficiency, administration and fairness. But getting from here to there requires heavy lifting that this Republican Congress has yet to demonstrate. If they again look for a quick, easy victory, they risk a replay of the Obamacare repeal fight that wasted so much time and yielded so little.
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Crafty already pointed this out in places, but Bruce Bartlett is wrong throughout. The column is titled: "Republican trickle-down theory is lies" at USA Today. Bold claim, myth wasn't strong enough? Yet he doesn't identify a single lie and doesn't back up his own conclusions with any consistent or significant truth. The role he claims he paid earlier draws attention to his turnabout but this doesn't stand up on substance, starting with the straw man title.
"Trickle down" is an anti-growth, straw man argument. They say or imply the theory is to give money to the rich and hope it trickles down to the rest. But in tax rate cutting, no one is giving money to anyone, we are just changing the formula of what you're allowed to keep of what you legally earned, trying to ease the brakes of a monstrosity of a hindrance. Shamefully, the top tax bracket in this isn't really going to be lowered anyway and capital gains aren't reformed either, all in the interest of appeasing jackasses like this. But this article was most certainly written to respond to whatever Trump or the Republicans would come up with.
Is our current tax system is inhibiting growth? [YES] If so, how and by how much? Scott Grannis has a chart with the growth gap with an area under the curve is in the tens of trillions. Where is Bartlett's his math on that? Is he saying 1.5% growth is maximum growth? That is absurd IMHO.
Real growth in fiscal year 1984, the first full year after tax rate cuts was 6.8%.
https://www.forbes.com/sites/peterferrara/2011/05/05/reaganomics-vs-obamanomics-facts-and-figures/#9d8426a9ac95
No one can seriously argue that the potential for growth unleashed by reform isn't enormous. This package doesn't get there, but in my view, we could certainly triple the growth rate from 1.5 to 4.5% if we successfully reformed taxes and regulations. That kind of growth would change lives and balance budgets.
From the article:
Trump is wrong: Tax cuts don’t equal growth.
These aren't "tax cuts" and they don't "equal growth", they are rate cuts and reforms that remove inhibitors to growth, like companies and business leaving our country. That Trump can't articulate any of this is another matter.
The best growth in recent memory came after President Bill Clinton raised taxes in the ’90s.
Patently false. The growth rate by all measures was far better after Clinton lowered capital gains rates and reformed welfare later in his Presidency than after he raised tax rates. Wages grew 6 times faster after tax rate cuts than after rate hikes. Link for that is in this thread; I am happy to re-post it (again) anytime. Bartlett is inclined to conflate periods and ideas to draw wrong conclusions.
Reagan’s 1981 tax cut ... unleashed the American economy and led to an abundance of growth. True, but he has his dates wrong. The rate cuts were phased in delaying the effect to January 1, 1983.
...Based on this logic, tax cuts became the GOP’s go-to solution for nearly every economic problem.
Every significant tax rate cut has unleashed growth and economic growth is a far reaching solution.
Extravagant claims are made for any proposed tax cut.
No. They are mostly under-sold. Exactly the opposite is true. Every tax rate cut is met with a false, static, CBO score that is plastered as 'gospel' all over the media even though CBO has been wrong 100% of the time.
Wednesday, President Trump argued that “our country and our economy cannot take off” without the kind of tax reform he proposes. Last week, Republican economist Arthur Laffer said, “If you cut that [corporate] tax rate to 15 percent, it will pay for itself many times over. … This will bring in probably $1.5 trillion net by itself.”
If these really were aggressive and lasting reforms, the amount that economic growth would bring in over time would be in tens of trillions.
There’s no evidence that a tax cut now would spur growth. Companies and dollars fleeing, 100 million adults not working, zero growth for a decade, what would it take to call it 'evidence' that our government is crowding out our private sector?
The Reagan tax cut did have a positive effect on the economy, but the prosperity of the ’80s is overrated in the Republican mind. In fact, aggregate real gross domestic product growth was higher in the ’70s — 37.2 percent vs. 35.9 percent.
Oh good grief, is he really suggesting the 70s had a better economy than the 80s? Does anyone long for the economy of the 70s? His numbers for the 70s of course exclude the recession that followed (runners left on base) resulting from squeezing out the double digit inflation left by the 70s. Even so, revenues to the Treasury doubled in the 80s, while the top rates dropped from 70% to 28%. Think about how remarkable growth has to be to even bring in the same amount of revenue while multiplying by such a drastically lower tax rate.
If you don't believe me, then ask the voters of Reagan's time. Reagan won 49 states in his reelection. Carter of 70s growth lost 40 states in his reelection attempt. And tax-raiser Walter Mondale became the first person to lose statewide contests in all 50 states, when he came back to lose the only state he won. Growth rates under Reagan's rate cuts were far more than three times current rates.
There was the simple bounce-back from the recession of 1981-82. Recoveries in the postwar era tended to be V-shaped — they were as sharp as the downturns they followed. The deeper the recession, the more robust the recovery.
Why is that NOT HAPPENING NOW?
There is no evidence showing a boost in growth from the 1986 act.
During the entire period that the Reagan tax rates were left essentially intact we had a quarter century of growth that ended when the political arrow turned to pro-tax, anti-growth, and then economy then descended into a far deeper financila crisis and recession than the bad stock market day of 1987.
Strenuous efforts by economists to find any growth effect from the 1986 act have failed to find much.
On these pages we document the growth that came out of the Coolidge, Kennedy, Reagan, Clinton and Bush tax rate cuts, while he plays games with stats claiming the 70s were better than the 80s and the Clinton rate hikes spurred growth.
Despite huge tax cuts almost annually during the George W. Bush administration that cost the Treasury trillions in revenue, according to the Congressional Budget Office, growth collapsed in the first decade of the 2000s. Real GDP rose just 19.5 percent, well below its ’90s rate.
What a convoluted thought, putting decade against decade instead of analyzing the effects of the policies. REVENUES TO THE TREASURY grew by DOUBLE DIGITS after Bush tax rate were fully in effect and continued to grow at that rate until the economic outlook changed when Democrats swept the election in Nov 2006 promising to raise rates. Their victory BTW was based more on a successful flipflop on the war in Iraq than it was on economics.
CBO says federal government revenues rose from $1.782 trillion in 2003 to $2.568 trillion in 2007 (using fiscal years). That’s a 44 percent increase. (Left wing) Politifact says that increase came from economic growth, not lower rates. What was to be demonstrated, has been.
http://www.politifact.com/punditfact/statements/2015/jun/17/ron-christie/gop-strategist-christie-tax-revenues-rose-after-bu/
Economy Grew at 7.2% Rate in 3rd Quarter (2003), Fastest Since 1984
https://mobile.nytimes.com/2003/10/30/business/economy-grew-at-72-rate-in-3rd-quarter-fastest-since-1984-2003103090520159778.html?referer=https://www.google.com/
(Newspaper of amnesia)
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Doug really good analysis.
I am curios to see what the income brackets are going to look like.
I don't know why people in the bottom rung wind up paying 12 % rather then 10% . Or why other likely will see no cuts. Or if the state income tax deduction is dropped how anyone in the middle will wind up with anything more then where they started
I also don't know why 47 % pay nothing. Yet I am sure the MSM is happy to poll them on questions like :
should OTHERS pay more?
or why do have a right to participate in polls about taxes when you pay nothing. I digress... but if I see one more poll taken by popsugar or newsweek ....
also gotta love Dems when they say this tax "cut" will balloon the deficit. Suddenly the deficit is a major concern for them.
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Doug really good analysis.
I am curious to see what the income brackets are going to look like.
I don't know why people in the bottom rung wind up paying 12 % rather then 10% . Or why other likely will see no cuts. Or if the state income tax deduction is dropped how anyone in the middle will wind up with anything more then where they started
I also don't know why 47 % pay nothing. Yet I am sure the MSM is happy to poll them on questions like :
should OTHERS pay more?
or why do have a right to participate in polls about taxes when you pay nothing. I digress... but if I see one more poll taken by popsugar or newsweek ....
also gotta love Dems when they say this tax "cut" will balloon the deficit. Suddenly the deficit is a major concern for them.
"I don't know why people in the bottom rung wind up paying 12 % rather then 10%"
Doubling the standard deduction takes care of this mathematically if not politically.
"I also don't know why 47 % pay nothing."
That will take a real leader to call out the country on this. People like Trump and Romney are too personally vulnerable on the 'issue' of the 'rich' to take it on. Like Bush, Dole Bush, McCain and Romney, Trump cannot articulate why marginal rates need to be lower. Even Reagan could not articulate why everyone who is capable needs to have skin in the game.
Rush L used to say they had identified a group of Americans who are not paying their fair share... it's the poor!
That does not sell either, nor Romney conflating the 47% who do not pay in with the 47% who will never vote for him. Different but overlapping groups.
This current lousy package has some good points that are still not fully developed. If the top rate on S-corp pass through income is 25%, in a sense that becomes the new top rate. Many loophole protectors will be thrown in to prevent that kind of 'abuse', high earners taking the 25% rate.
There is no political will for it but a constitutional amendment should be passed that prevents spending above 20% of GDP without supermajority, emergency approval to exceed it and limit all federal marginal tax rates to 25%. If you want more spending on yourself, then vote yourself more taxes, not impose them on others. If you want more dollars to the Treasury, grow the economy, not penalize the participants.
A 25% rate still means a 35% rate in places like CA, NY, MN, NJ? Tax rates higher than that enlarge the importance of income and tax avoidance.
Also missing in the plan is indexing capital gains to inflation. Labor is nothing without capital and locking assets in place defines the opposite of a healthy, dynamic economy.
To think we can achieve optimum growth without reforming our monstrous tax code is to deny math, science and history.
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Scott Grannis: The media is full of stories claiming that lower tax rates will cause a huge and damaging increase in the federal deficit and will fail to stimulate the economy. Here are some charts which show that those claims are not backed by historical experience. On the contrary: worrying about tax cuts is not necessarily sensible at all.
(https://3.bp.blogspot.com/-ZRykF2nPVFw/Wc6kSJZQilI/AAAAAAAAXJU/0MevC_c4YYoBv5MmkNSYug1dz3ShKI6ogCLcBGAs/s400/Tax%2BRates%2Bvs%2Brevenues.jpg)
http://scottgrannis.blogspot.com/2017/09/tax-and-deficit-scaremongering.html
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The point I have tried to make on these pages is that even if there was no increase in revenues from a tax rate cut, it is phenomenally healthy for the economy to be able to take in the same amount at lower rates. When you do that, you have done less harm in terms of forcing people to make economic decisions that move them away from earning and reporting income.
If the rate drops 25% and the revenue stays the same, then pre-tax income has gone up by a theoretical 25% and take home by even more! And beyond that, revenues do go up - historically. Look at the Reagan years, the W Bush cuts, the Clinton capital gains rate cuts, the Kennedy cuts and the Coolidge for examples.
How do critics answer that? By conflating time periods, distracting with inequality data and by measuring tax % of GDP instead of dollars top the Treasury.
I'm happy to keep bringing this forward:
http://www.heritage.org/node/18247/print-display
The tax rate cuts of the 1920s were followed by a 61% increase revenues over 7 years.
The Kennedy tax rate cuts brought a 62% increase in revenues over 7 years.
The Reagan tax rate cuts yielded a 54% increase over 6 years (100% over 10 years).
Under Bill Clinton, Real wages grew 8 times faster after tax rate cuts later in his Presidency than earlier after he raised taxes on the wealthy.
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GOP eyes big prize for tax bill: Manchin's vote
Senate Majority Leader Mitch McConnell (R-Ky.) is making a bid for the support of Sen. Joe Manchin (W.Va.), a prominent centrist Democrat, on tax reform.
McConnell invited Manchin to his office shortly before the Columbus Day recess to talk about tax legislation, among other issues.
Manchin, who is running for reelection next year in a state that President Trump won in a landslide, is one of GOP’s top targets as they seek bipartisan support for their No. 1 legislative priority.
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It would be a breakthrough to get all republicans and a few democrats make this bipartisan. Win Manchin and Heitkamp and NOT lose Collins , Murkowski, etc.
If not and they don't care about reforming this country, let there be consequences.
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A friend dragged me into reading and commenting on Paul Krugman's latest NYT column.
https://krugman.blogs.nytimes.com/2017/10/14/lies-lies-lies-lies-lies-lies-lies-lies-lies-lies/?_r%3D0&source=gmail&ust=1508378025073000&usg=AFQjCNGkaBLY25QyycKRmiPDkQFHYxjGDg
Krugman the Nobel laureate opens his column by calling all conservatives liars and backs it up with Trump mis-speaks and his own distortions, see below. You would think his standard for accuracy and honesty would be at precision level in a column about his opponents titled, 'Lies, lies, lies, lies, lies, lies, lies, lies, lies, lies'. His civility isn't above Trump's either.
(Krugman, quoting Trump I presume) Lie #1: America is the most highly-taxed country in the world
If Trump said that, he's wrong, unless the context was our corporate tax rates that are highest in the developed world where we are 60% higher than the OECD average. More than 80% higher in MN!) The US was second highest to Japan before they began cutting theirs: https://www.reuters.com/article/us-japan-economy-tax/japan-to-cut-corporate-tax-rate-to-29-74-percent-in-two-stages-sources-idUSKBN0TV02D20151212
Our corporate tax rates are higher than so-called Communist China where they have rates of 25% and 15% for government preferred enterprises.
https://www.pwchk.com/en/services/tax/publications/wwts-201718.html
By coincidence, China's falling GDP growth rate is still many times greater than the US economy in recent years. https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
Let's not confuse correlation with causation, but over-taxation on employers isn't helping our workers.
Lie #2: The estate tax is destroying farmers and truckers
Besides morally offensive (at least to some), taking people's after-tax savings when they die is one of many forces working against the formation of capital. The defense that it only applies to very few others, not you, fails any reasonable test of equal protection under the law. Our government isn't stopping all capital formation, but at as we win the war against capital, labor and middle income people suffer more than the rich. See Republic of the Congo, and Venezuela.
Lie #4: Cutting profits taxes really benefits workers
Maybe the reverse is easier to understand. Take away too large a share of the return on capital and labor suffers. Every time. Capital employs labor. In a free country you can be on either side of that, or both.
Lie #5: Repatriating overseas profits will create jobs
Again, look at the reverse. Companies, dollars and innovation leaving the US hurts jobs here. Who disputes that? Money and jobs going overseas is only one sign of a disincentive system run amok. Companies that never started and jobs that were never created are hard to measure.
"Medtronic joined a parade of prominent U.S. companies that have set up operations overseas to lower their tax bills."
http://www.startribune.com/medtronic-now-based-in-ireland-still-reaps-u-s-benefits/392895471/
Lie #7: It’s a big tax cut for the middle class
Earners at the top pay the vast majority of the federal income taxes, before and after any tax reform. Therefore we should never reform taxes? There is no reform of a disincentive system that doesn't benefit those who are most invested. Saying the rich will keep more of what they earn doesn't mean they will pay less in taxes in a dynamic economy. (See Clinton's results below.)
People who pay little or no federal income tax are hurt more than the rich when over-taxation hinders growth. The rich can hold assets instead of capturing gains - or keep the old yacht. They can pay high taxes out of income and cash flow. But all of us pay the price of opportunities not created when growth stops. Lack of economic growth is what caps wages. When no one competes for your labor, your wage does not go up. Real wages and median wages were not helped in recent years by class warfare talk or implementing the policies of anti-growth. When we're done fighting each other ("middle class interests vs. the top 1%"), maybe we can get on with what Democrats a generation ago used to call, "a rising tide lifts all boats".
Lie #9: Cutting taxes will jump-start rapid growth
Krugman: "For Bill Clinton raised taxes, amid cries from the right that he would destroy the economy. Instead he presided over a boom that surpassed Reagan in every dimension. For what it’s worth, I don’t think this boom was Clinton’s doing. But it certainly refuted the proposition that cutting taxes is both necessary and sufficient for prosperity."
Bill Clinton's Presidency is a good period to compare tax policies since he both raised tax rates early and lowered them later. When Clinton raised rates in 1983, we continued a slow recovery already underway with below average growth. When Clinton lost Congress, he changed course. Unmentioned by Krugman, Bill Clinton "ended welfare as we know it" and cut the highest capital gains tax rate to 20% in 1997. What were the results (and where are Democrats on that now)?
https://www.washingtonpost.com/news/wonk/wp/2012/09/05/the-clinton-economy-in-charts/?utm_term=.33bbc790b05f
Real wages under Bill Clinton grew at 0.8 percent growth rate after the tax rate hikes and grew at 6.5 percent rate after the capital gains tax rate cuts. Wages grew 8 times faster after tax rate cuts. While calling others liars, Krugman is happy to draw a circle around the entire period and attribute Clinton's best success to his least effective policy. That's not liberal; that's dishonest.
Lie #10: Tax cuts will pay for themselves
What is the history on that?
The tax rate cuts of the 1920s were followed by a 61% increase revenues over 7 years.
The Kennedy tax rate cuts brought a 62% increase in revenues over 7 years.
The Reagan tax rate cuts yielded a 54% increase over 6 years.
After Bill Clinton cut the capital gains tax rate, capital gains revenues surged from $54 billion in 1996 to $99 billion in 1999.
(http://online.wsj.com/public/resources/MoneyInvesting/graphics/editchart1.gif)
Revenues surged 60% in 4 years under Bush tax rate cuts. One news story:
http://www.nytimes.com/2005/07/13/business/sharp-rise-in-tax-revenue-to-pare-us-deficit.html
Who knew? (Paul Krugman doesn't read the NYTimes or OMB data?)
Job growth ended exactly as Bush's opponents won congress promising to reverse the rate reductions. (Correlation is not causation, but that's when it happened.)
(https://i.pinimg.com/236x/35/5f/00/355f0057195a31234b685cf9d8254473--economics-the-one.jpg)
The crash occurred when the effects of our misguided policies caught up with us. The federal government with a 90% market share in the mortgage market pressured lenders to lend on criteria other than creditworthiness and when daylight peeked through the house of cards fell.
It is very Trump-like of Krugman to call a multi-year, double digit surge in revenues a "lackluster recovery", imply tax rate reductions caused the crash and higher tax rates fuel growth.
Don't take investment advice from this guy either.
http://dailycaller.com/2016/11/09/paul-krugman-says-markets-will-never-recover-from-trump-dow-hits-record-high/
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https://www.efe.com/efe/english/world/venezuela-raises-taxes-on-wealthy-big-business/50000262-2801473
http://money.cnn.com/2017/04/30/news/economy/venezuela-minimum-wage-hike/index.html
Hey! Can you argue with success, Doug?
A friend dragged me into reading and commenting on Paul Krugman's latest NYT column.
https://krugman.blogs.nytimes.com/2017/10/14/lies-lies-lies-lies-lies-lies-lies-lies-lies-lies/?_r%3D0&source=gmail&ust=1508378025073000&usg=AFQjCNGkaBLY25QyycKRmiPDkQFHYxjGDg
Krugman the Nobel laureate opens his column by calling all conservatives liars and backs it up with Trump mis-speaks and his own distortions, see below. You would think his standard for accuracy and honesty would be at precision level in a column about his opponents titled, 'Lies, lies, lies, lies, lies, lies, lies, lies, lies, lies'. His civility isn't above Trump's either.
(Krugman, quoting Trump I presume) Lie #1: America is the most highly-taxed country in the world
If Trump said that, he's wrong, unless the context was our corporate tax rates that are highest in the developed world where we are 60% higher than the OECD average. More than 80% higher in MN!) The US was second highest to Japan before they began cutting theirs: https://www.reuters.com/article/us-japan-economy-tax/japan-to-cut-corporate-tax-rate-to-29-74-percent-in-two-stages-sources-idUSKBN0TV02D20151212
Our corporate tax rates are higher than so-called Communist China where they have rates of 25% and 15% for government preferred enterprises.
https://www.pwchk.com/en/services/tax/publications/wwts-201718.html
By coincidence, China's falling GDP growth rate is still many times greater than the US economy in recent years. https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
Let's not confuse correlation with causation, but over-taxation on employers isn't helping our workers.
Lie #2: The estate tax is destroying farmers and truckers
Besides morally offensive (at least to some), taking people's after-tax savings when they die is one of many forces working against the formation of capital. The defense that it only applies to very few others, not you, fails any reasonable test of equal protection under the law. Our government isn't stopping all capital formation, but at as we win the war against capital, labor and middle income people suffer more than the rich. See Republic of the Congo, and Venezuela.
Lie #4: Cutting profits taxes really benefits workers
Maybe the reverse is easier to understand. Take away too large a share of the return on capital and labor suffers. Every time. Capital employs labor. In a free country you can be on either side of that, or both.
Lie #5: Repatriating overseas profits will create jobs
Again, look at the reverse. Companies, dollars and innovation leaving the US hurts jobs here. Who disputes that? Money and jobs going overseas is only one sign of a disincentive system run amok. Companies that never started and jobs that were never created are hard to measure.
"Medtronic joined a parade of prominent U.S. companies that have set up operations overseas to lower their tax bills."
http://www.startribune.com/medtronic-now-based-in-ireland-still-reaps-u-s-benefits/392895471/
Lie #7: It’s a big tax cut for the middle class
Earners at the top pay the vast majority of the federal income taxes, before and after any tax reform. Therefore we should never reform taxes? There is no reform of a disincentive system that doesn't benefit those who are most invested. Saying the rich will keep more of what they earn doesn't mean they will pay less in taxes in a dynamic economy. (See Clinton's results below.)
People who pay little or no federal income tax are hurt more than the rich when over-taxation hinders growth. The rich can hold assets instead of capturing gains - or keep the old yacht. They can pay high taxes out of income and cash flow. But all of us pay the price of opportunities not created when growth stops. Lack of economic growth is what caps wages. When no one competes for your labor, your wage does not go up. Real wages and median wages were not helped in recent years by class warfare talk or implementing the policies of anti-growth. When we're done fighting each other ("middle class interests vs. the top 1%"), maybe we can get on with what Democrats a generation ago used to call, "a rising tide lifts all boats".
Lie #9: Cutting taxes will jump-start rapid growth
Krugman: "For Bill Clinton raised taxes, amid cries from the right that he would destroy the economy. Instead he presided over a boom that surpassed Reagan in every dimension. For what it’s worth, I don’t think this boom was Clinton’s doing. But it certainly refuted the proposition that cutting taxes is both necessary and sufficient for prosperity."
Bill Clinton's Presidency is a good period to compare tax policies since he both raised tax rates early and lowered them later. When Clinton raised rates in 1983, we continued a slow recovery already underway with below average growth. When Clinton lost Congress, he changed course. Unmentioned by Krugman, Bill Clinton "ended welfare as we know it" and cut the highest capital gains tax rate to 20% in 1997. What were the results (and where are Democrats on that now)?
https://www.washingtonpost.com/news/wonk/wp/2012/09/05/the-clinton-economy-in-charts/?utm_term=.33bbc790b05f
Real wages under Bill Clinton grew at 0.8 percent growth rate after the tax rate hikes and grew at 6.5 percent rate after the capital gains tax rate cuts. Wages grew 8 times faster after tax rate cuts. While calling others liars, Krugman is happy to draw a circle around the entire period and attribute Clinton's best success to his least effective policy. That's not liberal; that's dishonest.
Lie #10: Tax cuts will pay for themselves
What is the history on that?
The tax rate cuts of the 1920s were followed by a 61% increase revenues over 7 years.
The Kennedy tax rate cuts brought a 62% increase in revenues over 7 years.
The Reagan tax rate cuts yielded a 54% increase over 6 years.
After Bill Clinton cut the capital gains tax rate, capital gains revenues surged from $54 billion in 1996 to $99 billion in 1999.
(http://online.wsj.com/public/resources/MoneyInvesting/graphics/editchart1.gif)
Revenues surged 60% in 4 years under Bush tax rate cuts. One news story:
http://www.nytimes.com/2005/07/13/business/sharp-rise-in-tax-revenue-to-pare-us-deficit.html
Who knew? (Paul Krugman doesn't read the NYTimes or OMB data?)
Job growth ended exactly as Bush's opponents won congress promising to reverse the rate reductions. (Correlation is not causation, but that's when it happened.)
(https://i.pinimg.com/236x/35/5f/00/355f0057195a31234b685cf9d8254473--economics-the-one.jpg)
The crash occurred when the effects of our misguided policies caught up with us. The federal government with a 90% market share in the mortgage market pressured lenders to lend on criteria other than creditworthiness and when daylight peeked through the house of cards fell.
It is very Trump-like of Krugman to call a multi-year, double digit surge in revenues a "lackluster recovery", imply tax rate reductions caused the crash and higher tax rates fuel growth.
Don't take investment advice from this guy either.
http://dailycaller.com/2016/11/09/paul-krugman-says-markets-will-never-recover-from-trump-dow-hits-record-high/
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Treasury Secretary Andrew Mellon, 1924:
The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income. The result is that the sources of taxation are drying up; wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people.
http://www.heritage.org/node/18247/print-display
Valuable resource, read his book on taxation free at:
https://archive.org/stream/taxationthepeopl033026mbp#page/n23/mode/2up
He was right.
Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates. Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.
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This (below) is thomas Sowell writing in 2012, quoting Andrew Mellon from 1924. Some things never change. George Gilder explained his move away from economics: I thought we won that argument. With the liberal left, an argument is never won. They keep pounding the same old failed ideas nearly a century later. Tediously, we need to keep answering them.
If you are a liberal, you want your country to collect dollars, not percentages of something, to pay for programs. The right tax strategy for you is to maximize the dollars, not the percentage of something, coming in. Countries maximize government revenues by having a healthy and dynamic sector, not by killing it.
If you are a leftist, cf. Obama, you want high rates on the rich for other purposes, to win elections or sabotage capitalism, enact social change. Rules for radicals. That is another matter. Let's get the facts straight and call out these activists like Krugman on their falsehoods, deceptions and/or radical intentions. Growing the American economy should be a bipartisan endeavor.
Ordinary, well meaning Dems in your family, friends and neighborhood are mostly not leftists trying to take down the country, but they are being led, educated and influenced by people who are. Spread the word; they aren't going to read any of this in the NYT or hear it on NPR.
http://jewishworldreview.com/cols/sowell052312.php3#.Wei7CWhSyyI
A Book for Republicans 5/23/2012
By Thomas Sowell
http://www.JewishWorldReview.com | Democrats have been having a field day with the cry of "tax cuts for the rich" — for which Republicans seem to have no reply. This is especially surprising, because Democrats made the same arguments back in the 1920s, and the Republicans then not only had a reply, but one that eventually carried the day, when the top tax rate was brought down from 73 percent to 24 percent.
What was the difference then?
The biggest difference is that Secretary of the Treasury Andrew Mellon took the trouble to articulate the case for lower tax rates, in articles that appeared in popular publications, using plain language that ordinary people could understand. Seldom do Republican leaders today even attempt to do any such thing.
In 1924, the ideas from these articles were collected in a book which Mellon titled "Taxation: The People's Business." That book has recently been reprinted by the University of Minnesota Law Library. Today's Republicans would do well to get a copy of Mellon's book, which shows how demagoguery about "tax cuts for the rich" can be exposed for the nonsense that it is.
People in the media could also benefit by seeing how the "tax cuts for the rich" demagoguery collapses like a house of cards when you subject it to logic and evidence.
Those who argue that "the rich" should pay a higher tax rate, and that the revenue this would bring in could be used to reduce the deficit, assume that higher tax rates equal higher tax revenues. But they do not.
Secretary Mellon pointed out that previously the government "received substantially the same revenue from high incomes with a 13 percent surtax as it received with a 65 percent surtax." Higher tax rates do not mean higher tax revenues.
High tax rates on high incomes, Mellon said, lead many of those who earn such incomes to withdraw their money "from productive business and invest it in tax-exempt securities" or otherwise find ways to avoid receiving income in taxable forms.
That is even easier to do today than in Andrew Mellon's time. The very same liberals who complain that Mitt Romney — among thousands of others — puts his money in the Cayman Islands nevertheless act as if raising the tax rates automatically raises tax revenues. It can instead drive money out of the country and drive jobs out of the country with it.
The United States has long been a place where foreigners from around the world have sent their money to be invested, more than offsetting the money that Americans invested abroad. But, in recent years, the net flow of investment is out of America to places overseas that don't tax as much.
Mellon cited statistics that showed the opposite of what the high-tax advocates claimed. Although incomes in general were rising from 1916 to 1921, the taxable income of people earning $300,000 and up dropped by about four-fifths.
That didn't mean that "the rich" were becoming poor. It meant that they had arranged to receive their incomes in forms that were not taxable. Mellon asked where the money of these high income earners went. He answered: "There is no doubt of the fact that much of it went into tax-exempt securities." In today's global economy, much of it can also easily be sent overseas — much more easily than workers can go overseas to get the jobs this money creates in other countries.
After Mellon finally succeeded in getting Congress to lower the top tax rate from 73 percent to 24 percent, the government actually received more tax revenues at the lower rate than it had at the higher rate. Moreover, it received a higher proportion of all income taxes from the top income earners than before.
Something similar happened in later years, after tax rates were cut under Presidents Kennedy, Reagan and G.W. Bush. The record is clear. Barack Obama admitted during the 2008 election campaign that he understood that raising tax rates does not necessarily mean raising tax revenues.
Why then is he pushing so hard for higher tax rates on "the rich" this election year (2012)? Because class warfare politics can increase votes for his reelection, even if it raises no more tax revenues for the government.
---------------------
Same is true today. The rhetoric war of 'taxes on the rich vs the middle class' is waged to lock in Democratic votes, not to increase dollars to the Treasury, the median wage, or the take home pay of a worker or voter.
They lowered the top rate (in the 20s) by 2/3rds and revenues surged. The rich actually paid a higher proportion of the total taxes at the lower rate. Isn't that what liberals want??
Counter-intuitive? Yes. So what. All of liberalism is first level thinking. We must challenge people to look and think past that - or we lose.
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tax experts:
https://pjmedia.com/video/trumps-tax-plan-called-bernie-sanders-plan/
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https://townhall.com/columnists/walterewilliams/2017/10/18/who-pays-what-in-taxes-n2395681
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Letter sent today to my congressman on the House Ways and Means Committee:
Index Long Term Capital Gains to Inflation.
It's simple. It costs nothing. It's fair. It helps the little guy, people saving and investing for the long term.
It frees up assets to move to their most valuable and productive use. Isn't that the definition of free market capitalism?
It gives tax reform another favorable talking point.
It's easy; the CPI 'Cola' is already published by the government. Have it apply only to assets held 5 years, 7, 10 or whatever... It doesn't have to muddle up the code.
When people sell a long term holding, the government gets a share. When they don't sell, hold until stepped up value at death because of punitive tax consequences, government gets nothing.
Here's a personal example even though this is not about me. I bought a house for 35,000 in 1981. Adjust for the value of the dollar and my basis is really 96,000. Zillow says it is worth 135,000. With an inflation adjusted basis, I sell and the government receives a reasonable percentage of a reasonable gain, and a new buyer gets a house.
Win, win, win. Under the current system, the tax rate on the real gain is WAY over 100%. No rational person would sell and the government gets zero on the capital gain not realized.
If the people who serve us on the House Ways and Means Committee don't address this now, who will and when??
Take a good bill and make it a great!
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https://www.investors.com/politics/editorials/democrats-attack-gop-plan-to-eliminate-state-and-local-tax-deductions-in-tax-cut-plan/
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"The tax code should be an exercise in civic responsibility in which all participate to pay for the legitimate functions of government."
https://townhall.com/columnists/starparker/2017/11/01/free-the-tax-code-from-special-interests-n2403048?utm_source=thdaily&utm_medium=email&utm_campaign=nl&newsletterad=
Words not lately uttered in Washington.
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High on Incentives
California learns a lesson in taxes from marijuana.
Photo: istock/Getty Images
By The Editorial Board
Nov. 1, 2017 7:27 p.m. ET
0 COMMENTS
Whatever its enjoyments, marijuana is not typically associated with sharper thinking. But in California, where recreational pot was legalized last year, citizens now have a much clearer view of the unintended consequences that come from high tax rates.
A new report from the global credit-rating firm Fitch Ratings highlights the effect of California’s high taxes on the marijuana market. The combined local and state rate on non-medical cannabis may be as high as 45% in some places, and Fitch says this acts as an incentive for Californians to shun legal pot dealers who pay the tax in favor of black-market sellers who don’t and can charge lower prices. As America’s largest producer of marijuana, California also risks driving business outside its own borders to lower-taxed states.
The irony is that one argument for legalizing pot has been to reduce illegal trafficking. But by imposing taxes that are too high on legal weed, politicians give pot heads an incentive to go back on the illegal market. This will come as no surprise to anyone who has followed the boon to illegal smokes from high cigarette taxes in places like New York City.
But old arguments always bear relearning, especially in precincts where understanding about market incentives is, well, not high. Hats off to Fitch Ratings for making the argument in terms even Marin County can understand.
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https://taxfoundation.org/details-tax-cuts-jobs-act/
Read the tables at the link.
Individual Income Taxes
Tax Brackets
Consolidates the current seven brackets into four, with a bottom rate of 12 percent (aided by a higher standard deduction) while retaining the current top marginal rate of 39.6 percent. An income capture provision (“bubble rate”) will phase out the 12 percent bracket for filers with income in excess of $1,000,000 ($1,200,000 for joint filers).
Single
Married
Head of Household
12.0% > $0
12.0% > $0
12.0% > $0
25.0% > $45,000
25.0% > $90,000
25.0% > $67,500
35.0% > $200,000
35.0% > $260,000
35.0% > $230,000
39.6% > $500,000
39.6% > $1,000,000
39.6% > $500,000
Indexing Provisions
Indexes tax bracket and other provisions to the Chained CPI measure of inflation.
Standard Deduction
Increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers (currently $6,350 for single filers, $9,350 for heads of households, and $12,700 for married filers). Eliminates the additional standard deduction and the personal exemption.
Itemized Deductions
Retains the mortgage interest and charitable deductions, as well as the property tax deduction (capped at $10,000), but repeals the remainder of the state and local tax deduction and other itemized deductions.
Other Deductions and Exclusions
Caps the mortgage interest deduction at $500,000 of principal for new home purchases. Eliminates the moving deduction, educator expense deduction, and exclusions for employer-dependent care programs, among others. Makes changes to the exclusion of capital gains on home sales.
Family Tax Credits
Replaces the personal exemption for dependents with an expansion of the child tax credit from $1,000 to $1,600, while increasing the phaseout threshold (from $115,000 to $230,000 for married filers). The first $1,000 would be refundable, increasing with inflation up to the $1,600 base amount. Also creates a new $300 nonrefundable personal credit and a $300 nonchild dependent nonrefundable credit, subject to phaseout. The $300 credit expires after 5 years.
Alternative Minimum Tax
Eliminates the individual alternative minimum tax.
Business Taxes
Corporate Tax Rate
Lowers the corporate income tax rate from 35 to 20 percent.
Pass-Through Rate
Creates a new 25 percent maximum tax rate on pass-through business income, subject to anti-abuse rules.
Pass-Through Anti-Abuse Rules
Begins with assumption that 70 percent of income derived from a business is compensation subject to ordinary rates and 30 percent is business income subject to the maximum 25 percent rate for active owners. Businesses can “prove out” of the 70/30 split based on demonstrated return on business capital at the short-term applicable federal rate (AFR) plus 7 percent. Certain specified service industries, like health, law, financial services, professional services, and the performing arts are excluded from the 70/30 split and can only claim the benefit of the lower pass-through rate to the extent that they can “prove out” their business income.
Capital Investment
Allows full expensing of short-lived capital investment (currently subject to “bonus” depreciation), such as equipment and machinery, for five years. Increases Section 179 expensing from $500,000 to $5 million and increases the phaseout threshold from $2 million to $20 million.
Tax Treatment of Interest
Limits the deductibility of net interest expense on future loans to 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA), with a five-year carryforward, for all businesses with gross receipts of $25 million or more.
Net Operating Loss Provisions
Allows Net Operating Losses (NOLs) to be carried forward indefinitely and increased by a factor reflecting inflation and the real return to capital, while restricting the deduction of NOLs to 90 percent of current year taxable income and eliminating NOL carrybacks, except for one-year carrybacks for certain disaster losses.
Business Credits and Deductions
Eliminates the Section 199 manufacturing deduction and the New Market Tax Credit, along with like-kind exchanges for personal property (retained for real property), and deductions for entertainment. Eliminates credits for orphan drugs, private activity bonds, energy, rehabilitation, and contributions for capital, among others.
Alternative Minimum Tax
Eliminates the corporate alternative minimum tax.
International Income
Moves to a territorial tax system, in which foreign-source dividends and profits of U.S. companies are not subject to U.S. tax upon repatriation. However, 50 percent of excess returns (those greater than a routine return, defined as AFR plus 7 percent) earned by controlled foreign corporations (CFCs) are included in U.S. shareholders’ gross income. In addition, payments made from US corporations to a related foreign corporation are subject to a 20 percent excise tax unless the US corporation claims the transaction as effectively connected income (ECI). ECI is added to the taxable income of the US corporation, but the related foreign corporation’s expenses can be deducted from this income.
Deemed Repatriation
Enacts deemed repatriation of currently deferred foreign profits, at a rate of 12 percent for cash and cash-equivalent profits and 5 percent for reinvested foreign earnings.
Estate Tax
Increases the estate tax exemption to $10 million, which is indexed for inflation, and repeals the estate tax after six years.
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tax benefits for businesses only and
for individuals it seems like a bait and switch and another shaft
What kind of shit is this?
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Disagree.
In that the corporate tax is passed on to customers in the form of higher prices it is, in essence a flat tax on everyone thus cutting it is perhaps the only way to give a tax cut to everyone.
Think on this.
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"In that the corporate tax is passed on to customers in the form of higher prices it is, in essence a flat tax on everyone thus cutting it is perhaps the only way to give a tax cut to everyone."
You assuming that lower corporate taxes will be passed on to consumers in the form of lower prices.
I think more jobs will result but I think you are overly optimistic to think we will get much in the way of lower prices.
" perhaps the only way to give a tax cut to everyone "
maybe but sound like the trick with the little ball and 3 cups and bait and switching if you ask me.
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Disagree.
In that the corporate tax is passed on to customers in the form of higher prices it is, in essence a flat tax on everyone thus cutting it is perhaps the only way to give a tax cut to everyone.
Think on this.
You can't tax a business, you can only tax the customers of that business.
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"You can't tax a business, you can only tax the customers of that business."
I suppose we might get lower prices from increase competition but I for one am not holding my breath
taxpayers are screwed again in my opinion.
Trump promised *everyone* will get tax breaks
The Republican cowards have put a stop to it.
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"You assuming that lower corporate taxes will be passed on to consumers in the form of lower prices."
Yup, pretty much.
The market has already revealed for how much profit they are willing to work, so unless there are oligopolistic/monopolistic dynamics involved then in follows a universal cost reduction will lead to universally lower prices.
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https://www.conservativereview.com/articles/the-gop-income-tax-plan-is-too-clever-by-half
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CCP, this tax plan gets it half right. On the other half, it fails to lower individual rates for you and it fails to lower capital gains rates for me.
But it will grow the economy and that is good.
The question of the moment is, are we better off to pass this plan or not pass it.
The reason we are better off to pass it, is that it will grow the economy and help to win the next election, therefore making it possible to come back and do the other half.
Politics doesn't allow us to just tax less because we aren't willing to spend less. And politics doesn't allow us to redistribute less until we change the narrative.
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I agree it is certainly better to get it half right and pass this vs doing nothing.
However that will be the end of further tax reform and the other half will never get done.
This may the only chance for any foreseeable future of getting it right and the best the cans can do is get it "half right"
The possible loss of the SALT deduction will certainly hurt me in a blue state like Jersey but the overall implications of moving political pressure onto the State and Locals pols for their punitive high taxes is very appealing.
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I agree it is certainly better to get it half right and pass this vs doing nothing.
However that will be the end of further tax reform and the other half will never get done.
This may the only chance for any foreseeable future of getting it right and the best the cans can do is get it "half right"
The possible loss of the SALT deduction will certainly hurt me in a blue state like Jersey but the overall implications of moving political pressure onto the State and Locals pols for their punitive high taxes is very appealing.
Sorry, but there is collateral damage in war.
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" Sorry, but there is collateral damage in war. "
Yeah
I guess you can say I was a civilian whose house got bombed because it was too close to the enemy arms depot that needed to be "taken out".
Shouldda stayed in Florida.
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The *business tax cut* to focus what it really does:
Compared to the Reagan cut :
http://www.foxbusiness.com/politics/2017/11/04/how-new-gop-tax-reform-plan-compares-to-reagans.html
for individuals, there is NO comparison.
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" Sorry, but there is collateral damage in war. "
Yeah
I guess you can say I was a civilian whose house got bomber because it was too close to the enemy arms depot that needed to be "taken out".
Shouldda stayed in Florida.
I would strongly recommend moving to a better environment than a coastal blue state for a variety of reasons.
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I concur with ending the state and local tax deduction.
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" I concur with ending the state and local tax deduction "
Isn't Kalifornicate its tax paying citizens have even higher taxes then NJ?
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ccp: "However that will be the end of further tax reform and the other half will never get done."
Doug: "... until we change the narrative."
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Let's say this passes before year end and goes into effect Jan 1 of a Congressional election year. In addition to that, Trump and the Republicans have already done a large number of small things to unleash growth.
One of two (or more) things is going to happen. If I and some other supply siders are right, GDP growth along with federal revenues is going to surge. Obama has set the bar so low that average growth, 3.0 - 3.1% now comes with bragging rights. Growth in 2018 Q1 and Q2 will be front and center in the analysis of how well Republicans have done coming into the final stretch and Q3 will be the news coming into the election (along with war, terrorism, healthcare, etc.).
This is not Reagan's tax rate cut but he didn't get it all done in the first round either. His first round tax rate cuts were fully in place on 1/1/83. Growth rates reported for the first 3 quarters were: 6.31%, 7.58%, 9.66%.
Remember we just came out of 8 years where they couldn't buy anything above 2% growth even with 4.5 trillion in stimulative quantitative expansion. Now Trump and the Republicans come in at 4 or 5% growth? And do it without funny money monetary game-playing of running up the deficit! The opportunity will exist to change the narrative.
A doubling of the growth rate of the largest economy in the world is a Big F***ing Deal. Of course the left will head right back to redistributionism arguments, but the table is set to win this argument (again).
Lowering the corporate rate from 35% to 20% should bring in 20/35ths of the revenue. That is static thinking. That is first level thinking. And that is what the conservative review author thinks as his article is laced with static thinking. But that is not what is going to happen. Revenues will increase in a growing economy. Mark my words!
Assuming this passes and the results look good, the country will still be at a fork in the road. If we have learned nothing or cannot win this argument, ccp's warning will come true, we will never have another chance to lower the rates.
Liberals will argue income inequality again and use false data and false logic again to do so. If conservatives are silent or message-challenged as usual, we will lose even though we won. But the table will be set to do it differently this time.
We tried their way. We tried a decade of it. We tried expanding government. We tried doubling the debt. We tried getting the 1% to pay for everything. We tried expanding healthcare and every other federal program down to 'cash for clunkers' and 'shovel-ready' projects that were really just 'kickbacks to kronies'. We tried redistributionism on steroids, and what happened?
Everyone they said would benefit did worse. Inequality widened. Black teenage unemployment was the worst. Tens of millions of people went on food stamps, while the main nutritional problem emerging became obesity. We had an SSI disability 'beneficiary' epidemic that the Surgeon General ignored. Everyone knew it was just a measure of the new economy where half the country looks for free shit and half the political spectrum looks for more people to give freebies for votes to.
And now, if this passes and succeeds, we will keep a record of their predictions of the doom and gloom of it. What is Paul Krugman and the rest saying? It will blow a hole in the deficit, only the top 1% will benefit, etc. But we will have data and we will see who benefits. The rising tide will lift all boats (didn't that use to be a Democratic expression?).
When the workforce participation rate improves, that is not the 1% jumping back in to take minimum wage jobs. When people opt off of food stamps and out of disability contracts that limit their income and demand for these programs eases, that is no the top 1% getting back in the game. When the black, teenage unemployment rate drops and the inner city murder rate plunges, that is not a giveaway to the rich.
If this passes, if this succeeds, the benefits will reach far and wide in an interconnected economy. The critics will be proven wrong. Leftist economic will be shown to be loser-economics. There will be an opportunity that America can have a teachable moment. Whether or not anyone will emerge who can articulate that, build on that and go back and cut the rest of the rates that need to be cut, we will see.
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I concur with ending the state and local tax deduction.
It is the right thing to do. My advice was to keep (mostly keep) the property tax deduction and they did. Paying for you local schools is as legitimate a deduction as most charities.
When we ended the deductibility of credit card debt, it was phased out, giving people an opportunity to change their ways in the face of the new law.
The other practical problem with elimination is that they need the vote of blue state Republicans. There are plenty of people, perhaps 40-49% of the population in these states, who are subject to high tax rates that they did not vote for. GM has good advice on relocation but I could move to the moon and my income on the disposal of my MN holdings will still be unfairly taxed in MN. I don't have move to not sell it and to not maximize my income. People have family and homes and other considerations.
This bill reaches an acceptable compromise on this nearly unresolvable issue.
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"If this passes, if this succeeds, the benefits will reach far and wide in an interconnected economy. The critics will be proven wrong. Leftist economic will be shown to be loser-economics. There will be an opportunity that America can have a teachable moment. Whether or not anyone will emerge who can articulate that, build on that and go back and cut the rest of the rates that need to be cut, we will see."
Maybe Trump could . Maybe some of the younger generations will get it.
Sure won't see Brock, or CNN saying "we were wrong".
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I asked Scott Grannis to comment on our recent comments. Here is his response:
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From my blog yesterday:
BEGIN
So what about Trump's tax reform proposal? It looks good, but it could be better. It's very business-friendly (e.g., cutting the corporate tax rate significantly, allowing for immediate expensing, shifting to a territorial system that taxes profits only at their source, and eliminating or limiting many deductions). But it's tainted by keeping a very high rate on top income earners (and a new, even higher rate on those who make more than a million), and by not reducing the tax on capital gains and dividend income. However, these negative effects are somewhat offset by the phaseout of the death tax, the elimination of the alternative minimum tax, and the indexation of tax brackets by future inflation.
Trump's proposal effectively shifts a lot of the corporate tax burden to individuals, which in principle is a good thing, because in theory there should be no tax on businesses. Whatever tax businesses do pay is effectively passed on to consumers, employees, and shareholders—better and more efficient to tax them directly than indirectly. The top rate for individuals is there purely for political purposes; it will do nothing to stimulate investment or the economy because it fails to increase the incentives of the most successful to invest, take risk, and work harder. That's like hobbling those most capable of creating new jobs. It will also mean that those in the middle class who strive to reach upper class status will face a very steep marginal tax rate curve, thus creating new burdens for the middle class. And by creating very different top rates for individuals and corporations, it will result in myriad efforts to arbitrage the difference (e.g., by switching from S corp to C corp status).
It will, however, very likely result in more investment in the US, since it sharply increases the after-tax returns to corporate risk-taking in the US relative to other countries. Lots of capital that has fled high US business tax rates will likely return, with the net result being to increase the ratio of capital to labor in the US. That in turn would have the salutary effect of boosting wage income, because when you add capital to an economy you automatically make labor relatively scarce, and that has the effect of boosting wages. (If you want to invest more in an economy, you need to hire people to run the business.) If this tax proposal passes, we can expect to see more overall growth in the economy, more jobs creation, PLUS higher real incomes for the vast middle class. Unemployment is low, so a significant increase in the demand for labor is almost certain to require higher real wages. Rising real incomes would be a very welcome thing for everyone.
True tax reform requires the elimination of deductions and a lower and flatter tax rate structure. This proposal goes part way on the deduction front and a long way on the corporate tax front. Unfortunately, it makes the individual tax rate structure steeper and more progressive. It's a shame that Republicans couldn't propose something worth doing on all fronts without first caving to potential political opposition. But I won't let the perfect be the enemy of the good. This proposal beats the heck out of doing nothing!
END
What’s missing in many of the "dogbrothers" comments is a focus on how the tax plan changes incentives; that’s all that really matters. For example, doubling the standard deduction increases after tax income for many, but it does nothing to increase the incentive to work more or invest. The only justification is that it offsets the elimination/capping of deductions. You have the correct position on the corporate tax cut, but the best way to understand its effects is to follow the incentives. Reduced corporate taxes invite more investment in the US. More investment means more hiring, higher incomes, more productivity and more prosperity.
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Scott is right on this in the big picture.
"What’s missing in many of the "dogbrothers" comments is a focus on how the tax plan changes incentives; that’s all that really matters."
I skipped over this important point in my comments, writing just that " it will grow the economy". The incentives are why it will grow the economy. All kinds of further reforms are possible if we restore growth and change the stuck on stupid, static economy narrative.
Out in the real world, I am hearing concern (rage) about every individual deduction lost, e.g. alimony, student loan deductions, even if the difference is made up for in new deductions. Republicans need to get out ahead of this with better messaging or get swept up in the criticism - from all sides. Rubio writes today in the NYT that the child tax credit increase is too small.
The main alternative to passing this partial reform right now is the status quo, a 75,000 page and growing tax code loaded with flaws, disincentives and unequal treatment of different income from different taxpayers, guaranteeing zero growth at best. Further, the result of Republicans failing to govern when given the chance is the pendulum swing in the opposite direction with more Democrats elected, more pages to the tax code, higher rates, economic downturn and ever-greater social spending needed to make up for the productive economy losses.
And China will sail by us economically and militarily if stagnation is our policy choice.
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Doug,
They may as well as just cut the corporate rate to 20 % and ditch the rest of it if you ask me.
The rest is switching things all around with in the end minimal tax cuts for some and tax increases for others.
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Doug,
They may as well as just cut the corporate rate to 20 % and ditch the rest of it if you ask me.
The rest is switching things all around with in the end minimal tax cuts for some and tax increases for others.
Cut the corporate tax rate by more than a third and do nothing for the middle class?
ccp, I will keep you as my doctor but fire you as my political strategist! )
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" Cut the corporate tax rate by more than a third and do nothing for the middle class?
ccp, I will keep you as my doctor but fire you as my political strategist! ) "
Quite the contrary Doug,
I don't know how I could do much worse then the Republicans as a political strategist.
I think it worse to promise tax cuts for everyone then change it so there are no or minimal tax cuts in the final product
Not Trump's fault in my opinion
but then who am I?
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"but then who am I?" (ccp)
Besides that I still owe you on a prediction bet, you correctly called from the beginning the political issue, illegal immigration, that the whole last election turned on. I, on the other hand, am a contrary indicator. The more sure I am about anything political, the more likely we are to turn in an opposite direction.
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On taxes, I am waiting and waiting for some ammunition on which to sell this proposal. For example that 87% of middle earners will pay in less under the plan or something like that. Not finding it.
Sen Lankford (R-OK) will vote against it if "it raises the debt too much". Static or dynamic, Senator? Concerned with what went wrong in Kansas. This is not Kansas.
From his website: "It is time to simplify and flatten the code." http://jameslankford.com/taxes
- Good. Do it.
"Our nation should promote economic growth so more people can move out of poverty and into work."
- Good Senator, do it.
"we should eliminate the wasteful spending in government."
- Find 50 more Senators and do it!
What are they waiting for, and why do they think it is Donald Trump with no experience and little aptitude in this area should lead? In the last campaign we had nearly every Senator thinking they should be President. How about they act like a leader first.
Marco Rubio writes in the NYT that the child tax credit increase isn't enough. Great, but exactly the kind of provision Scott Grannis points out that does nothing with incentives to grow the economy. If Rubio and Lee get what they want, Lankford will be out because it all comes with a price of opening the static deficit and making the economy static.
The WSJ editorialists don't like (neither do I) the bubble tax rate of 45.6% that applies to tax-filing couples who make between $1.2 million and $1.6 million. And the bill keeps the 3.8% ObamaCare surcharge making a top marginal rate of 49.4%, federal alone, plus 9-10% state and local and 60% goes to taxes at the top. "They can afford it" is right out of the Bernie playbook. Yet you drop that and lose people like Lankford, Collins, Murkowski.
Let's see. We can't cut spending. We can't count the dynamic effect of growth in a growth-based policy. We can't add a fictitious 1.5T to the debt over 10 years when they just added 10T in 10 years. We can't call it a tax cut when it raises some and lowers others. We can't simplify when everyone screams when they lose their deduction even if they end up paying less. If you're Jeff Flake or Bob Corker, you can't support anything that Trump might get credit for. We can't seem to get a single damn Democratic vote even if Trump won their state by 40 points. We can't get blue state Republicans because of the state and local fix. We can't lower individual rates or eliminate the inflation tax on capital gains. But we all know the status quo is the worst possible tax code holding back what should be the greatest country on earth causing our greatest companies to flee and preventing our future greatest companies from getting started.
We've had a full year to build a consensus or at least get the very best plan on the table that can pass and move us in the right direction. Were they busy accomplishing something else, healthcare, entitlement reform, a wall??
Screw this up now and we will have (President) Bernie Sanders' tax plan and the economic 'growth' of Venezuela.
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https://www.wsj.com/articles/n-j-voters-worry-about-taxes-as-they-elect-a-new-governor-1510005451
"New Jersey resident Kathy Loughran, 58, said she plans to vote for Ms. Guadagno because she fears her taxes will go up if Mr. Murphy is elected.“The only way he can pay for what he wants to do is to raise our taxes,” said Ms. Loughran, a real-estate appraiser. Michael Jorgensen, a 65-year-old woodworker from Essex County, agreed that taxes “just eat us alive,” but said he believes Mr. Murphy would seek to raise the tax burden on the wealthy to pay for education initiatives"
Typical NJ democrat , this guy Jorgensen, taxes "just eat us alive" but then his answer which is always the Democrat way : the rich should pay more........
Highest property taxes in the nation with schools and hospitals filled with illegals.
http://www.newsmax.com/FastFeatures/illegal-immigration-New-Jersey/2015/09/24/id/693109/
The WSJ can publish this article but in the end we will get another crat who will protect the unions who have signed on to him .
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woopti do! Oh I am all in folks ...................... :| since what 90 % of citizens are employees few are gong to relate to this and say thank Trump Thanks Republicans
" Trump is currently using much of his political capital to ram a controversial tax reform bill through Congress by year’s end. But the Journal/NBC poll finds that almost half of adults in those key counties have no opinion of the current bill — suggesting a hard-fought tax reform may do little to create an upswing in Trump’s political fortunes in 2017 "
suggesting the people in the counties that Trump won over don't believe a tax bull for business is going to do jack for them:
http://www.breitbart.com/big-government/2017/11/07/polls-donald-trump-losing-support-among-his-base-but-few-gains-for-democrats/
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Rules like these are why the rates cannot be cut across the board:
https://www.nytimes.com/2017/11/09/us/politics/facing-math-trouble-house-panel-races-to-adjust-tax-bill.html
Cannot have more than 1.5T of static loss over 10 years no matter how great the expected dynamic gain .
Where is the constitution does it give one congress the power to bind a future congress? I thought limits to the powers of Congress were set out IN the constitution.
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As documented often in this thread, Greg Mankiw, Chair of the Harvard Economics Dept quantifies it.
"if the tax rate is one third, then every dollar of tax cut to capital (on a static basis) raises wages by $1.50"
http://gregmankiw.blogspot.com/2017/10/an-exercise-for-my-readers.html?m=1
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To overcome the discrepancy between pass through and individual rates and to stimulate the economy far more, "cut personal income tax [rates] at the same time."
https://www.nytimes.com/2017/11/03/business/how-to-improve-the-trump-tax-plan.html
He closes with: "Mr. Trump is right that the current system is in desperate need of repair and that sensible reform could simplify our lives, promote economic growth and benefit all Americans. But I fear that what he is offering, while attractive in some ways, is not bold enough to get the job done."
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Given the budget rules, Mankiw offers two ideas ("nonstarters") to make up the lost static revenue as required by Senate rules, a carbon tax and a consumption tax.
Here are a couple of rocket science level ideas to consider in place of his nonstarters:
CUT SPENDING, and
MAKE BUDGET CALCULATIONS DYNAMIC
rather than deny the role incentives play in economics.
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https://www.yahoo.com/news/house-gop-tax-plan-soaks-234317128.html
I don't understand this. Is this article saying that students can deduct these waivers from taxes?
Or the school gives them "free or discounted tuition" then the school uses that as a deduction?
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https://www.yahoo.com/news/house-gop-tax-plan-soaks-234317128.html
I don't understand this. Is this article saying that students can deduct these waivers from taxes?
Or the school gives them "free or discounted tuition" then the school uses that as a deduction?
Businesses create and people take perks as a way of getting around the nasty tax code with other compensation. Health care for example and in this case, tuition.
Then when we simplify, someone screams to support every item in a 75,000 page tax code.
The article presents and avoids a number of points. Should people be able to take benefits under the table that other people in other industries cannot?
When they say, lose their deduction, they in all cases had their standard deduction doubled and something like 85% of people in these tax brackets do not itemize, so in most cases they did not lose a deduction.
Mostly it begs the need for higher education reform. My daughter's college was roughly a quarter million. They can throw that in free for a janitor and it costs them nothing? Amazing. And how often is this happening? Believe it or not, I too would like perks outside of the tax system. Better for everyone would be to get the tax penalty down and compliance up so everything is within the tax system.
From the article: "the income tax on the tuition waiver would tax the “full sticker price of tuition” rather than the discounted rate universities provide for most students."
A college similar to my daughter's has a local billboard saying 97% of the students receive some kind of assistance. What a racket they run, charging everybody a different amount for the same product. Instead of illegal or unconstitutional, our government encourages it, mandates it?
Third party pay IS what screwed up higher ed just like healthcare. Looks like they got caught.
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"Mostly it begs the need for higher education reform"
The education lobby which is a giant force to be reckoned with at all levels is asking for reform too!
But alas the reform is for more wealth confiscation to pay for more and more "free" education
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The Great Progressive Tax Escape
IRS data show an accelerating flight from high-tax states.
Opinion Journal: Blue-State Republican Blues
Opinion Journal Video: Former CBO Director Doug Holtz-Eakin on the politics of tax reform in states like New York and California. Photo Credit: Getty Images.
By The Editorial Board
Nov. 13, 2017 6:11 p.m. ET
512 COMMENTS
Democrats contend that marginal tax rates don’t matter to investment and growth, and even some conservative intellectuals are conceding the point. But the evidence from wealth fleeing high-tax states shows how sensitive the affluent are to rate increases.
The liberal tax model is to fleece the rich to finance spending on entitlements and government programs that invariably grow faster than the economy and revenues. IRS data on tax migration show this model is now breaking down in progressive states as the affluent run for cover and the middle class is left paying the bills.
Between 2012 and 2015 (the most recent data), a net $8.5 billion in adjusted gross income left New Jersey while $6.2 billion poured out of Connecticut—4% of the latter state’s total income. Illinois lost $13.6 billion. During that period, Florida with no income tax gained $39.3 billion in AGI. (See the nearby table.)
–– ADVERTISEMENT ––
The Great Progressive Tax Escape
Not surprisingly, income flows down the tax gradient. In 2015 New York (where the combined state and local top rate is 12.7%) lost a net $850 million in AGI to New Jersey (8.97%) and Connecticut (6.99%). At the same time, the Garden State gave up $335 million to Pennsylvania (3.07%), and $60 million left Connecticut for the state formerly known as Taxachusetts (5.1%). Taxpayers from New York, New Jersey and Connecticut escaped to Florida with $3.2 billion in income. Florida Gov. Rick Scott ought to pay these states a commission.
The affluent account for a disproportionate share of the income migration. For instance, individuals reporting more than $200,000 in AGI in 2015 made up 57% of the income outflow from Connecticut (compared to 48% of total state AGI) and 57% of the inflow to Florida.
Snowbird flight isn’t new, but migration has accelerated as taxes have increased. Income outflow from Connecticut averaged $500 million between 2003 and 2007. Then in 2009 GOP Gov. Jodi Rell raised the top tax rate to 6.5% from 5%, which her Democratic successor Dannel Malloy lifted a few years later to 6.7% and again two years ago to 6.99%. AGI outflow between 2012 and 2015 averaged $1.6 billion.
In 2004 Democrats raised New Jersey’s top rate on individuals earning more than $500,000 to 8.97% from 6.37%. Between 2012 and 2015, annual income outflow from New Jersey averaged $2.1 billion—twice as much as between 2000 and 2003 after adjusting for inflation.
Republican Gov. Chris Christie blocked his Democratic legislature’s attempts to reimpose a millionaire’s tax that lapsed in 2009. But Democratic Governor-elect won the election this month by promising to soak the rich even more, and his legislature will oblige.
The prospect of future tax hikes appears to have propelled an exodus of high earners from Illinois, which has a relatively low and flat 4.99% income tax. Democrats raised the rate from 3% in 2010, but the tax hike lapsed in 2015 after Bruce Rauner became Governor. House Speaker Michael Madigan finally this summer secured GOP legislative support to override the Governor’s veto and reinstate the higher rate.
But the tax increase won’t raise enough money to finance the state’s $250 billion unfunded pension liability, and the long-time goal of unions has been to enact a graduated income tax. The affluent know they’ll get soaked eventually and are seeking shelter. Top earners made up 47% of Illinois’s income flight in 2015 compared to 33% four years earlier. Income taxes from the 306 Cook County denizens who decamped to Palm Beach in 2015 with $258 million of income could have paid 200 teacher salaries. Alas.
This millionaires’ diaspora has harmed income and economic growth. Real GDP between 2011 and 2016 grew annually at a paltry 0.2% in Connecticut, 1% in Illinois and 1.2% in New Jersey, according to the Bureau of Economic Analysis. These states were the slowest growing in their respective geographic regions, though other high tax states in the Northeast didn’t fare much better.
As a result, revenues have repeatedly fallen short of projections in New Jersey, Illinois and Connecticut while budget deficits have ballooned. Democratic lawmakers have cut public services and funds to local governments, which have responded by raising property taxes.
The Tax Foundation says New Jersey, Connecticut, Vermont, New York and Illinois have the highest property taxes in the country. Over the last two years, the average Chicago homeowner’s property taxes have risen by roughly $1,000. Higher property taxes hit middle-class earners especially hard and are another incentive to leave a state.
***
As these state laboratories of Democratic governance show, dunning the rich ultimately hurts people of all incomes by repressing the growth needed to create jobs, boost wages and raise government revenues that fund public services. If the Republican House and Senate tax-reform bills follow through with eliminating all or part of the state and local tax deduction, progressive states will have an even harder time hiding the damage. They should be the next candidates for reform.
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" The Great Progressive Tax Escape "
I doubt the liberal leaving blue states are turning conservative. They are bringing their lib dogma with them to red states turning them blue .
" Republican Gov. Chris Christie blocked his Democratic legislature’s attempts to reimpose a millionaire’s tax that lapsed in 2009. But Democratic Governor-elect won the election this month by promising to soak the rich even more, and his legislature will oblige. "
like i pointed out before Christie's achievement was to hold the line on taxes. Bow that he is gone working class (except government employees) will be strangled for cash to pay pensions of those that were supposed to work for them. And since many in NJ pay nothing anyway that share of the electorate will cheer or not care.
Levin on tax shell game:
agreed great for some business on our (my ) backs :
https://soundcloud.com/conservativereview/levin-gop-dunderheads-have-screwed-up-tax-reform
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The thinking form the left moved over from another thread:
how the LEFT thinks they are entitled to confiscate money and hand out to others of their choosing rather then lifting all boats:
https://www.newsmax.com/newsfront/salt-local-tax-deduction-blue-states-cities/2017/11/19/id/827019/
Margaret Thatcher is smiling in heaven about now:
watching the Left panic fearing they will run out of OTHER people's money.
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http://dailysignal.com/2017/11/22/in-charts-how-these-7-taxpayers-bills-would-change-if-tax-reform-was-enacted/?utm_source=TDS_Email&utm_medium=email&utm_campaign=MorningBell%22&mkt_tok=eyJpIjoiWldWaU9HVXhNRFV5WTJZNCIsInQiOiJvUWtUZVwvWVwveEJQYWlLUzhhNWVXbnZRa3o4cXVxK1FZazhodWdqUUV5aHhvdXc1MnZ0UzBlRXdJMjJpNjFOZjRKcFZiMldCNzZIV2IzYythYVlSRjRTT09idGtlRWtJMVRwSlwvMVRcL1Z4V21LOU9qNktQbmw3SllNNGhmOG41NFMifQ%3D%3D
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http://dailysignal.com/2017/11/22/in-charts-how-these-7-taxpayers-bills-would-change-if-tax-reform-was-enacted/?utm_source=TDS_Email&utm_medium=email&utm_campaign=MorningBell%22&mkt_tok=eyJpIjoiWldWaU9HVXhNRFV5WTJZNCIsInQiOiJvUWtUZVwvWVwveEJQYWlLUzhhNWVXbnZRa3o4cXVxK1FZazhodWdqUUV5aHhvdXc1MnZ0UzBlRXdJMjJpNjFOZjRKcFZiMldCNzZIV2IzYythYVlSRjRTT09idGtlRWtJMVRwSlwvMVRcL1Z4V21LOU9qNktQbmw3SllNNGhmOG41NFMifQ%3D%3D
They need this type of analysis to come out okay in order to pass it but success in the longer term will be measured in economic growth, not just how static income is taxed.
There is a little bit of Nancy Pelosi-itis going on here too, we will need to pass the (final) bill to know what is in it.
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WSJ rips Marco Rubio and Mike Lee today for trying to kill the bill with a child tax credit amendment.
Nonetheless, expectations are for a vote tomorrow. Like healthcare, they will probably cancel vote if they don't have the numbers.
We still won't know what is in the final legislation because of differences with the House to be decided in conference.
This will not be a perfect bill, but it must be good enough to do two things, pass and grow the economy. If it is successful, really successful, it will be easy or at least possible to re-open the issue with further reforms and rate cuts.
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Maybe it will pass without this idiot's support. Corker 'refuses' to support an increase in the deficit, so he wants to "trigger" tax rate increases if the revenues they hope for do not materialize.
Hugh Hewitt is calling the market reaction to no bill passed, the "Corker Christmas Crash". Meanwhile, Ron Johnson is reportedly back on board. This is a developing story, but the bill SHOULD pass today. Getting a conference bill that can satisfy both chambers will be harder.
A 'trillion dollar' static deficit increase (over 10 years) is equal to something like 0.4% of economic growth. If you don't believe our existing humongous tax code is inhibiting at least 0.4% of growth (it is inhibiting at least 4% of growth, ten times the Corker concern) and you don't believe a "Republican tax cut" will fix it and you believe a tax rate increase might be a better path to greater revenues, then maybe your party affiliation is really Democrat. And if so, why didn't you tell the voters of Tennessee that when THEY had a say in it? If your tax reform package cannot generate 0.4% of economic growth, there is something wrong with the reform bill, not a need for a tax increase trigger!
In what foreseeable circumstance is a tax rate increase the best policy for America?? Deficits, FYI, are caused by spending and lack of economic growth when your tax rates are already so high they are constraining revenues.
This bill already has a mechanism for a trigger - called the constitution and the legislative process. Future congresses with more up to date information could conceivably be just as smart in years to follow as Bob Corker is now (a depressing thought) and can set future tax rates up, down or sideways as needed in the future, kind of like the Founders envisioned (minus the 16th amendment).
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odd that Corker is now , trying to amend the tax reductions when not long ago he was making a "rational" point about the phony yearly budget process that does NOTHING to 70% of the mandatory SPENDING (side of the equation we have in place:
https://www.vanityfair.com/news/2017/10/bob-corker-budget-hoax
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Exhibit A, The Grannis GDP Gap. Something, namely over-taxation and over-regulation, is keeping the US economy from growing at historic rates, and it has cost us $12-15 trillion dollars over the last decade.
(https://3.bp.blogspot.com/-Hv9LpCOb9wE/WfOvTTgLXTI/AAAAAAAAXN4/ktJaGh-hlYA77KiLGwE6Ol0BMuM5akUdwCLcBGAs/s400/Real%2BGDP%2Bvs%2B3%2525%2Btrend.jpg)
B. Panic over deficits: According to the CBO, every 0.1 percent increase in the gross domestic product adds over $250 billion in revenue over 10 years.
http://www.foxnews.com/opinion/2017/11/30/tax-reform-is-on-track-and-democrats-want-to-derail-it-dont-believe-these-myths-about-senate-s-bill.html
https://www.wsj.com/articles/tax-reform-growth-and-the-deficit-1511730170?mod=wsj_review_&_outlook
C. Deficits if we don't pass this: Economic stagnation will make permanent the epidemic of working age people living outside of the workforce. The demand of these people on spending services like food, clothing, shelter and healthcare is boundless. Capped revenues and exploding expenditures is not how you close the deficit.
A U.S. growth rate of 1.9% will never balance the federal budget.
https://www.wsj.com/articles/tax-reform-growth-and-the-deficit-1511730170?mod=wsj_review_&_outlook
D. Nine prominent economists write to support the package writing that the corporate reform alone will grow the economy by at least 2% annually, economics professors from Harvard, Stanford and former chairs of the council of economic advisers:
https://www.wsj.com/articles/how-tax-reform-will-lift-the-economy-1511729894
E. 100 Economists (including our own Brian Wesbury) signed a letter urging congress to pass the bill and watch the economy roar.
http://www.businessinsider.com/trump-tax-reform-opinion-congress-pass-2017-11
F. Other economists, deniers of science and history who sound the deficit alarm, say that repairing all these disincentives will only will only grow the economy by 0.8% over 10 years.
https://www.nytimes.com/2017/11/30/us/politics/tax-overhaul-senate-debate.html
http://www.businessinsider.com/trump-gop-tax-reform-plan-economic-growth-2017-11
G. If we had reformed the corporate tax code sooner we could have prevented 4600 companies and hundreds of billions of dollars from leaving the US.
https://www.bloomberg.com/news/articles/2017-09-19/tax-code-hurts-u-s-firms-in-m-a-market-roundtable-study-finds
More so than the wall or Hillary's emails, economic stagnation of the Democrats is what brought Republican control of the House, Senate and Presidency. There is only one way to determine who is right and who is wrong on this important economic debate. Pass the bill!
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They all say it goes to conference now, but why not instead have the House just pass the Senate bill and take away the opportunity for some of those Flakes to screw it up. Lock this in and then bring up anew bill to improve it.
Heritage shows details and differences in a chart:
http://www.heritage.org/taxes/commentary/1-chart-the-differences-between-the-house-and-senate-tax-reform-bills-0
(http://www.heritage.org/sites/default/files/inline-images/TaxBillComparison4.jpg)
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Michael Barone is a voice of sanity in this case. It looks like he has been reading the forum.
http://www.washingtonexaminer.com/michael-barone-hurtling-gop-tax-bills-are-actually-serious/article/2642056
Michael Barone: 'Hurtling' GOP tax bills are actually serious
by Michael Barone | Nov 30, 2017
The Republican tax bills are something more serious and responsible than "hurtling" missiles "tilting" the tax code toward the "wealthy." (AP Photo/J. Scott Applewhite)
“The Republican tax bill hurtling through Congress is increasingly tilting the United States tax code to benefit wealthy Americans.” That’s the beginning of the 37-word first sentence in the New York Times’s stage-setting front page story on the tax bill under consideration in the Senate this week.
It’s a nice illustration of creatively phrased advocacy journalism. “Hurtling” suggests irrational, uncontrolled, threatening movement; “tilting” suggests abandoning upstanding fairness; spelling out “the United States tax code” suggests an ominous attack on a respected national institution. And all this “to benefit wealthy Americans.”
This is less reportage than advocacy journalism, written to advance the argument, with which many people agree, that Republican tax bills are harmful because they make federal taxation less progressive. But it’s also an argument against any tax cut at any time. After all, if you start off with a progressive system that imposes higher rates on high earners and doesn’t tax low earners at all — as the current federal income tax does -- then every tax cut takes that shape.
Missing from the arguments of Republicans’ critics is acknowledgement that we already have what is, by most measures, the most progressive national tax system in the world. Other advanced countries tend to rely more heavily on regressive sales (value-added) taxes and many have less steeply graduated income taxes.
Currently, the top one percent of U.S. earners pays about 40 percent of federal income tax revenue; the next 9 percent about 30 percent more. You could make the system even more progressive with more progressive income tax rates or by raising the amount of income subject to the payroll tax, but only at the risk of redirecting high earners’ attention from productivity to tax avoidance. Such changes tend to reduce economic growth, just as tax cuts tend to increase it.
In fact, this year, Republican tax writers have devoted much less attention to cutting income tax rates for high earners than their predecessors did in 1981 or 2003 or their presidential nominees in 2008 or 2012. Instead, they increase the child tax credit and double the standard deduction. That reduces taxes for many modest earners and gets the government—and Congress—out of the business of encouraging some behaviors and therefore discouraging others. This could reduce the scope for lobbyists to lard up the tax code with special exemptions and favors.
The Republican bills attack two of the three largest “tax expenditures,” by limiting or eliminating the deductions for home mortgage interest and state and local taxes. The dollar benefits of those deductions are hugely concentrated on “wealthy Americans,” especially in high-tax, high-housing-cost states where people vote heavily Democratic. These progressive changes could only be made by Republicans, who have few House members and zero senators from such constituencies.
Sophisticated critics of the Republicans’ bills, like former Treasury Secretary Lawrence Summers, avoid arguing against any tax cut ever, but instead say that, with low unemployment and increasing growth, this is the wrong time. Economic policy should depend on the economic not the political calendar.
The problem with this argument is that the biggest cuts in the Republican bills are to the corporate income tax—from 35 to 20 percent. Today’s corporate rate is the highest of any advanced nation. It encourages multinational firms to park billions of dollars abroad rather than invest them here, or to be merged into a foreign-based rival.
Moreover, economists of just about every stripe agree that the economic burden of the corporate tax falls not just on stockholders, but also and perhaps largely on employees and consumers. The only disagreement is on who bears how much.
So there’s a widespread consensus for a corporate rate cut. Former President Barack Obama proposed one in February 2012, but never got around to negotiating seriously with congressional Republicans. Republicans today are only acting responsibly, at the political risk of demagogic charges that rate cuts for corporations and unincorporated businesses paying as individuals are aiding “wealthy Americans.”
Some critics focus on provisions fashioned to take advantage of budget procedures and Congressional Budget Office scoring rules mostly set in the 1970s. Both parties are guilty of gaming this increasingly dysfunctional system, especially CBO’s wildly oscillating cost estimates of the Obamacare mandate.
...the Republican tax bills are something more serious and responsible than “hurtling” missiles “tilting” the tax code toward the “wealthy.”
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I propose a NYT tax
let *them* pay for everything they propose
not a peep from the communist rag about Obama running up the deficit.
but of course that is an issue now.
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while most individuals get chump change. These polls should EXCLUDE all those in the lowest brackets who pay nothing though those who pay noting who do so because of deductions can be included first of all.
I am all for business tax cuts and for cuts for the "rich" since they pay most .
But don't expect the rest of the country to cheer for this as Larry Kudlow with 75 mill in investments:
https://www.cnbc.com/2017/12/05/the-gop-isnt-getting-a-political-payoff-from-its-tax-plan.html
I don't believe it is because many people simply do not understand this bill and how good it is for everyone. sorry we are not all that dumb....
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https://www.bloomberg.com/news/articles/2017-12-15/everything-you-need-to-know-about-the-gop-tax-overhaul-bill
Proposed bill as reported by Bloomberg.
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https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968
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https://www.wsj.com/articles/get-ready-for-next-years-big-tax-stimulus-1513593000
They increased their estimate in the first year by more than was falsely forecasted over 10 years.
This is from the news side of the paper, not editorial.
Who knew? [Everyone here!]
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The opposition is incoherent and apoplectic. Ron Wyden, ranking Democrat of the Senate finance committee:
https://www.nbcnews.com/think/opinion/republican-tax-bill-insidious-way-fail-working-americans-ncna830946
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No real analysis or even a mention that the old system of anti-growth and wage stagnation drove 4700 successful companies out of our country. Just first level thinking if that, fixed pie static analysis and drivel for their masses to repeat and their candidates to spout.
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Updating and moving this post to the tax thread.
unless your poll is mainstream media who only asks those who pay no taxes if they are for tax cuts for the "rich":
https://www.conservativereview.com/articles/polling-shows-broad-support-for-policies-in-gop-tax-bill
PS I am for tax cuts for everyone. But like Michael Savage (not nearly as rich however) I am going to get a tax increase and am not happy.
It looks like there will be 5-10% of filers who are hurt more by the limiting of the state and local tax deduction than they get back in doubling the standard deduction and a slight lowering of the highest rates. This introduces a level of fairness, that states that overtax still owe their share of federal. Some of the big taxers deserve this correction but it doubly screws the anti-tax voter in the high tax state. All you have done 'wrong' is exist and produce.
I also did not get what I wanted, any lowering of the capital gains rate and especially my most reasonable proposal that capital gains should be indexed to inflation. Also my property taxes tend to be more than 100% of take home income.
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After we look at the first level effect, how the new code applies to existing incomes, we need to look at the second and higher level effects that come from improved incentives to produce and thus greater production all around us. Some like CBO (or whoever scored this) think it will affect economic growth by less than 0.1% per year. I think that is ludicrous given that economic growth has already jumped 2.0 full points, a doubling of the nation's growth rate from 2-4%: https://www.newyorkfed.org/research/policy/nowcast
Look at the Grannis GDP Gap Chart. We add $3 trillion to our annual GDP just by closing the gap back to the line of our long term growth rate. That is a 15% increase; more than 15-fold more growth than what the experts told us we would get - even if it takes us 10 years to get there.
Some 4700 profitable companies left the country over the last years due to over-taxing rates. Do all these companies instantly come back? No, but the trend gets reversed. Fewer will leave, some will come back and other companies from elsewhere have better incentives to come here, invest and hire. Competition for labor at all levels is what drives wages and incomes up.
Most importantly, a lowered and reformed tax system along with regulatory relief will unlock energy into new startups. We need hundreds and thousands of new googles, facebooks, apples, teslas, amazons, berkshires. to compete and innovate. Not a handful of these companies and a dearth of new competitors like we have now.
ccp, your situation is the hardest to help because honest medicine is more a practice or a service than a business. But look at it this way. If these changes are successful, your patients will have more money and more affordability for healthcare services. Your retirement money will be invested in a better economy. Your children, nieces, nephews will live and work in a more prosperous country. This helps each of us more than we immediately see. Or look at the reverse. Without a change of course, with growing programs and a stagnating private sector we were headed for collapse. Averted.
In the campaign, Trump had the best tax plan. This isn't exactly that but it's the best plan that could get through this Corker-Flake-McCain Congress. As this moves from idea into signed law, conservatives can worry about failure, that the positive effects were oversold and will take too long to materialize while liberals worry about economic success - that everyone will soon know that Republicans just made America great again.
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ccp, "I think it is a very safe bet to make that this is the last tax cut we will ever see. Certainly in my life time."
My I add a note of optimism. Success of this is what will make further reform possible.
If this does NOT blow a hole in the deficit. If this proves the CBO stagnatists wrong. If this doubles the growth rate from 2% Obama to 4% sustained. If wages measurably go up. If workforce participation improves and program dependency declines. If people start to notice the improved economy and SOME make the connection to tax rate cuts. If Republicans hold the House and Senate... Then we could see a second round of cutting.
That may sound like pie in the sky wishful thinking, but all of the above could and should come true.
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Not bipartisan was by design - of the Democrats, on both policies. The other criticism is that the individual cuts are temporary, which is repairable anytime 8 democrats want to join in or when 51 Rs want to change the rules.
https://townhall.com/tipsheet/guybenson/2017/12/22/manchin-so-it-looks-like-the-tax-bill-i-voted-against-will-um-help-a-lot-of-west-virginians-n2425940
The business cuts were made permanent, just like Schumer said they had to be when he was working on that.
If the growth rate doubles from 2% to 4% and all lost revenue is recaptured as it was in the 80s, Dems and media will still argue it was a failure because someone got richer and because they are invested in failure.
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http://www.startribune.com/tax-on-medical-devices-to-resume-after-2-year-suspension/467537213/
Saving lives with stents needs a sin tax? Tax something and get less of it, like extending and improving lives? Tax exhaling, will we tax oxygen consumption next?
If this was a stand alone issue, we could get Democrats from states like MN that depend on this industry for jobs and income to vote for repeal. But it needs is a corresponding repeal of almost any spending item and Democrats don't know one wasteful program they could trim to save lives and one of our most vitl industries. Shift it all to the black market and cut out the FDA and the IRS altogether? Back alley CPAP anyone? Let China or someone else take the lead in medicine while we dither.
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Revolution To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/2/2018
One word that could describe Donald Trump's unexpected ascendancy to the presidency is – "revolt." Revolt against the "establishment." Revolt against the "status quo."
After all, status quo bureaucracies, tax rates, institutions, regulations, and narratives promised prosperity, yet the economy was mired in slow growth and many felt it was hard to get ahead. Reliably blue states tilted red, and the pendulum swung the other way.
Since 1993, the top federal tax rate on US corporations has been 35%, one of the highest in the world. This has forced US companies to expand overseas. Both sides of the political spectrum knew it was a problem, yet nothing was ever done.
Now the rate is 21%, and full expensing of business investment for tax purposes is law. These changes will boost the incentive to invest and operate in the US, leading to more demand for labor, which means lower unemployment and faster wage growth, as well. From an economic perspective, this is a revolution.
But there's more. We're referring to the new limit for state and local tax deductions. That change, combined with a larger standard deduction, will launch an overdue revolution in the policy choices of high tax states as well as the geographical distribution of business activity.
California's top marginal income tax rate is 13.3%. Under the old tax system, tax payers who itemize could deduct their state income taxes from their taxable federal income. So for the highest earners, the effective marginal rate was 8.0%, not 13.3%. [Deducting 39.6% of 13.3% saved them 5.3%. 13.3% minus 5.3% is 8.0%.]
Politicians in California could raise state income tax rates, and up to 39.6% of the cost would be carried by taxpayers in other states. The same goes for New York City residents, where the top income tax rate is roughly 12.7%.
Now taxpayers are limited to $10,000 in state and local tax deductions (with a 37% top federal tax rate). The financial pain of living in high tax states is now exposed. California and New York City - and many other high tax jurisdictions - look a lot less attractive than states like Texas, Florida, and Nevada.
This change may limit the measured income and wealth gap in the US between the rich and poor. California and New York don't just have high taxes, they also have a high cost of living. So, if some high earners in these places leave to take lower pay in places with lower taxes and a lower cost of living, the income and wealth gap would narrow.
But incentives work on all institutions, and policymakers in high-tax states have massive pressure to cut tax rates.
Meanwhile, the Supreme Court is set to rule on Janus vs. American Federation of State, County, and Municipal Employees. Based on a similar case from a few years ago, it's likely the Court will rule that all government workers (state, local and federal) will have a choice to pay union dues, or not. We know from experience that, when given a choice, many workers stop supporting the political activities of unions. This would be another force significantly altering the balance of power.
Whether you agree with these developments or not, the U.S. hasn't seen economic policy changes like this in a long time. The forces that support markets and entrepreneurship over government control are reasserting themselves.
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I have posted before I am not fan of the WSJ :
http://www.nationalreview.com/corner/455109/wsj-vs-rubio-again
It should really be WSJ vs main street. Yes I know corporate tax cuts help the middle class blah blah blah .......
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"Dimon said the recent tax reform bill, which cut the corporate rate from 35% to 21% will create jobs, boost incomes and spur competition in America."
"You're going to see more people coming back into the workforce, you're going to see wage increases like we want."
"I'm kind of surprised to see people saying an uncompetitive tax system would be good for America."
"...over time that retained capital will be used to grow businesses, R&D, hire people, wages, competition and over time that will be very good for America."
"The number one thing for jobs is a healthy and vibrant economy, which drives jobs and wages. The competitive tax system, proper smart regulation, cutting some of the bureaucracy, those will help jobs."
https://www.realclearpolitics.com/video/2018/01/09/jaime_dimon_after_tax_cut_animal_spirits_are_back_in_american_economy.html
https://www.youtube.com/watch?v=aL_ejSKgsxg
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"I'm kind of surprised to see people saying an uncompetitive tax system would be good for America."
I don't care for JD . didn't he also vote for Hillary.
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"I'm kind of surprised to see people saying an uncompetitive tax system would be good for America."
I don't care for JD . didn't he also vote for Hillary.
I've heard of him but knew nothing about him. He is head of the biggest bank so I assume people hate him. Here is Huff Post attacking him: https://www.huffingtonpost.com/2012/06/13/jamie-dimon-who-benefited_n_1594556.html
That said, he nailed it in this interview from my point of view. A vibrant economy is what drives wages and employment up and having corporate tax rates double what your competitors have is a treasonous breach of duty to let that happen under your watch - he had a nicer way of saying that in the quote above.
In MN we had corporate rates 80% above the OECD average and watch our best companies leave, one after another and do nothing about under Obama and our bumbling Dem governor. They smugly think they can let that happen without damage while Pillsbury, Medtronic, 3M leave, and thousands more never start. They say punish these companies for doing what is most obviously in their own best interest and almost no one calls them out on it. So I am posting some views that give this sanity and clarity.
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"He is head of the biggest bank so I assume people hate him."
not automatically for me.
he has spoken like progressive globalist and liberal Democrat at times
Nothing like being part of the world but I like "America first "
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More than 90% of economists said the tax cuts would increase GDP growth over the next two years.
https://www.wsj.com/articles/economists-credit-trump-as-tailwind-for-u-s-growth-hiring-and-stocks-1515682893
Who knew.
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CNBC Jan 17, 2018: https://www.cnbc.com/2018/01/17/it-looks-like-apple-is-bringing-back-home-nearly-all-of-its-250-billion-foreign-cash.html
"It looks like Apple is bringing back home nearly all of its $250 billion in foreign cash"
Who could have seen coming??
http://dogbrothers.com/phpBB2/index.php?topic=1023.msg108022#msg108022
Doug Jan 11, 2018: "Maybe Apple will come to the US someday too!"
My only question, why did it take these hypocritical opponents and beneficiaries of growth 6 days to admit that Republican policies are making America great again.
By their politics, you might think they would rather destroy America and work in China.
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Given who the author is, the conclusion is no surprise. Is he right though about projected deficits?!?
===========================================================================
‘Repeal and Replace’ the Trump Tax Cuts
With the deficit set to hit $1 trillion, the law isn’t stable. Reformers next time should aim higher.
By Jason Furman a professor of practice at the Harvard Kennedy School, was chairman of the White House Council of Economic Advisers, 2013-17.
Jan. 25, 2018 7:10 p.m. ET
Everyone who debated last year’s tax law can agree that it won’t be the last word. The legislation addressed almost none of the “tax extenders,” temporary tax breaks that Congress typically reauthorizes every year. Some of the law’s key provisions expire after 2022 or 2025.
More important, the tax cuts put the country on an unsustainable fiscal trajectory, with next year’s deficit set to hit 5% of gross domestic product, a record outside of major wars and recessions or their aftermath. Finally, anything widely known as the “Trump tax cuts” is politically unstable given that Democrats will eventually take back power.
The question is how Democrats should proceed once they do. After the George W. Bush tax cuts, they focused on repealing the provisions that benefited only high-income households. That approach will not work this time. Although the Trump tax cuts are tilted toward the rich, few provisions benefit them alone.
Another problem is that repealing the law’s parts in isolation could be counterproductive. Democrats are rightfully upset about the new $10,000 cap on the deduction for state and local taxes, but eliminating it would cost more than $600 billion over 10 years, with half that going to households earning more than $1 million annually.
Democrats should instead aim for something more radical: “repeal and replace” of the Trump tax law—or, Republicans could join the process and call it comprehensive tax reform. It should have four goals: stability, efficiency, simplicity and help for American families.
Stability doesn’t mean simply that the tax code shouldn’t be changed on a whim. It also means Congress should raise sufficient revenue to finance the spending it has committed to. Under the current trajectory the deficit is set to hit $1 trillion starting in 2019. If the Trump tax cuts are extended or made permanent, the situation will get even worse. The government will raise about 17% of GDP in taxes over the next decade. A sustainable trajectory will require something closer to the 21% of GDP proposed in 2010 by the Simpson-Bowles Commission. Even then, the U.S. would still be in the bottom quarter of the 35 countries in the Organization for Economic Cooperation and Development.
On the corporate side, raising revenues can be done while increasing the tax system’s efficiency. What would that look like? A higher corporate tax rate, say 25% or 28%, combined with permanent expensing, no interest deductibility, stronger protections against shifting income abroad, and more favorable treatment of research and development.
Repealing the Trump tax bill’s complicated new loophole for pass-throughs would raise revenue while simplifying and reducing distortions. So would ending the so-called Gingrich-Edwards loophole, which allows some pass-through owners to avoid paying their full payroll taxes.
Raising individual capital-gains taxes a bit would help recoup some of the cost of the corporate tax cuts. One of the most efficient ways to do this would be to reduce the incentives to lock in asset allocations. That would include repealing “step-up in basis” at death, meaning the owner’s estate would have to pay capital-gains taxes that today are not levied.
Broadening the tax base would be beneficial, too. One way would be to reduce the tax break for very generous health insurance, either by building on the Affordable Care Act’s “Cadillac tax” or replacing it. Creating a value-added tax is another option. Many other countries have used VATs to cut corporate tax rates without blowing up their budget deficits. Finally, a carbon tax could be an efficient revenue raiser, especially if combined with a reduction in carbon-related environmental regulations.
On simplification, the Trump tax law was mixed. An estimated 25 million households will stop itemizing and take the standard deduction, a modest step in the right direction. But many millions of small businesses and contractors will struggle with the complicated new rules describing the varying tax rates on differently labeled business income.
The next tax bill should set a much more ambitious goal: to end tax filing entirely. Countries ranging from the United Kingdom to Kenya have already done this by giving people the option to have the government do their taxes. That means there’s no need to file a return and, ideally, exact withholding from the worker’s paycheck. With this approach April 15 would become just another day.
The next bill should also make the tax code more pro-work, pro-family and pro-middle-class. Expanding the earned-income tax credit for workers without qualifying children is a bipartisan idea that was inexplicably omitted from the Trump law. Taxing spouses separately rather than jointly would both encourage work and make it easier to end mandatory tax filing. Replacing the child tax credit’s complicated rules with a flat $2,000 allowance per child, fully refundable regardless of income, would help millions of families while truly simplifying taxes.
Last year’s tax law, which passed the Senate with a single vote to spare, shows how difficult tax reform is even when it loses revenue. The political hurdles facing a tax bill that raises revenue will be even higher. The key is not merely to coalesce around repealing or extending individual parts of the Trump tax law but to set higher-level goals for what could be the first fundamental tax reform and simplification since 1986.
Mr. Furman, a professor of practice at the Harvard Kennedy School, was chairman of the White House Council of Economic Advisers, 2013-17.
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"Is he right though about projected deficits?!?"
Umm, No.
For one thing, he must be using CBO's 0.1% GDP growth increase projection.
Furman is a professor at Harvard and former chairman of the White House Council of Economic Advisers. Another professor at Harvard and former chairman of the White House Council of Economic Advisers, Greg Mankiw, posted this:
"the total tax package will create extra GDP growth of 1.1% a year through 2019"
https://gregmankiw.blogspot.com/
This package adds $1.5 T over 10 years to the deficit assuming it brings no new growth. According to the CBO, every 0.1 percent increase in the gross domestic product adds over $250 billion in revenue over 10 years.
0.6 growth increase in GDP pays for the tax package. If we continue Obama's rates of growth, the deficit skyrockets either way.
Furman is a thought leader for the side that sees no new growth coming out of making America's tax system competitive. They presided over the history's slowest growth, zero wage growth, lost 4700 companies to our tax code and lost workforce participation. They see that as the new normal, not a failure of theirs.
Now Furman says the corporate rate could be 25 - 28%. Yes it could and he could have done that, but he didn't because he doesn't think incentives affect outcomes.
Now we will find out. As Wesbury (and Crafty) just published, the growth rate for the 4th quarter was 2.6%. That's already higher than the number Furman is using, but now it is the benchmark for the tax cuts. Convert 2.6 to 3.2% growth and the deficit has no increase from tax cuts.
The pro-growth side sees GDP growth consistently above 3% and closer to 4%. It would be better than that if had been deeper cuts on the highest individual rates. Democrats say no; it's a "scam". Now we watch and see.
Scott Grannis put it similarly: "This year will prove whether the "new normal" view will prevail, or whether significant tax and regulatory reform will unleash a new wave of growth. My money is on faster growth".
http://scottgrannis.blogspot.com/
Me too.
If this succeeds, we need to cut individual rates further and make them permanent.
If this fails, we get the Furman docrtrine: 'This country needs higher tax rates!'
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(https://www.investors.com/wp-content/uploads/2018/01/tax-cuts.jpg)
https://www.investors.com/politics/editorials/tax-cuts-bonus-raises-democrats-oppose/
Eighty-four percent back the lower income tax brackets, for example, 82% doubling the child tax credit, 77% the cut in the tax rate for "pass-through" companies. Even the limits on mortgage and state tax deductions get majority support. "Given this information about what is in the new tax code, do you favor or oppose it?" — fully 57% said they supported it.
57% Approvl is good enough to win most elections.
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Latest forecast: 4.2 percent — January 29, 2018
The initial GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 4.2 percent on January 29. The advance estimate of fourth-quarter real GDP growth released by the U.S. Bureau of Economic Analysis on January 26 was 2.6 percent,
https://www.frbatlanta.org/cqer/research/gdpnow.aspx
2.6% to 4.2% Growth with one change in policy, that is a 42% increase in the growth rate.
I'm getting a little tired of saying, Who saw THIS coming?
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https://www.seattletimes.com/seattle-news/politics/seattleites-making-a-run-to-the-border-for-coke/
Somewhere in here is a lesson or two we should have already learned.
Gentle versus coercive paternalism, if soda is so bad, why don't they ban it and assign big penalties for possession and consumption.
Instead we get to study how far rich, medium income and poor people will drive to save a dollar or two:
"...what’s interesting about his story is that it shows how incredibly price sensitive people appear to be."
"It’s near impossible for me to sell this now. They go over there, one block away, and there’s no tax.”
I don’t have strong views one way or another about Seattle’s new soda tax. I’m reserving the full force of my ire for when they jack up the tax on beer."
Seattle times and their readers have subjected themselves to reality coverage. Tax something and people will cross a border to avoid paying the tax. So it goes for soda but the highest tax rates are on work and investment.
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https://www.dailywire.com/news/27064/trumponomics-feds-just-made-history-tax-collection-james-barrett
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https://www.dailywire.com/news/27064/trumponomics-feds-just-made-history-tax-collection-james-barrett
Crafty already had this story while I was out. I don't want to celebrate to early and eat crow but I am already on record predicting good growth out of tax rate cuts and that growth deniers will be proven wrong.
Feds Just Made History In Tax Collection. Here Are The Numbers.
https://www.dailywire.com/news/27064/trumponomics-feds-just-made-history-tax-collection-james-barrett#
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See NY Times yesterday, 'survey monkey': https://www.nytimes.com/2018/02/19/business/economy/tax-overhaul-survey.html
51% now support tax cut, up from 37% in December when it passed.
This is a phenomenal move in political terms. What else has ever been that fluid? Not even gay marriage! That is a 14% move, from unpopular to popular, before it kicks in, before people even know they are getting one and before anyone has even developed a clear message of why that is good. Same survey says 2/3rds don't know they are getting a cut.
If they don't think or know they will personally get a cut, 51% of the country is now supply side; they know instinctively that easing the burden on the productive sector benefits everyone!
How is this popularity shift possible? Trump gets 95% negative coverage, yet won. Liberal media moves the political pointer about 10 points. But now, the scare tactic rhetoric has aged and the positive news of the economy is starting to leak out and be felt. Under all the negativity and unspoken, counter-intuitive conservative principles, people seem to figure some things out for themselves, without help.
A stubbornly stagnant economy is the problem (not the rich getting richer or transgender bathrooms). Unshackling the private sector from government strangulation is the solution. People seem to know that even though bumbling Republicans including Trump can't barely form a coherent sentence to explain how or why it works, and Democrats and media have done nothing but cry wolf!
Growing the economy is what makes possible the solutions to almost all that ails us. From defense and security to taking care of the elderly, healthcare and housing affordability, solving the debt and unfunded liability crises, keeping a clean environment, larger and wider prosperity is what makes improvements and solutions possible on all fronts.
All the loudest messages say otherwise, from media and politicians, newspapers, internet and television. People must just know intuitively: real growth doesn't come from bigger government and over-taxation. Supply side, who knew?
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If a company doesn't have a good use for the money, shouldn't they give it to the shareholders?
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https://www.wsj.com/articles/boom-in-share-buybacks-renews-question-of-who-wins-from-tax-cuts-1519900200
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Remember when I said as soon as Christy is out of office the crats will raises taxes
I refuse to be suffocated to pay for state employee benefits / pensions .
Even the big lib Franklin Roosevelt knew that allowing government employees to unionize was a bad idea.
What a racket unions government employees the Dem Party revolving mafia power sticking it to the rest of us.
I am moving as soon as possible.
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Remember when I said as soon as Christy is out of office the crats will raises taxes
I refuse to be suffocated to pay for state employee benefits / pensions .
Even the big lib Franklin Roosevelt knew that allowing government employees to unionize was a bad idea.
What a racket unions government employees the Dem Party revolving mafia power sticking it to the rest of us.
I am moving as soon as possible.
That's what they said with Calif too, you will have to lock the exits if you want everybody to pay at those rates.
A union or collective bargaining is justified when one employer controls nearly all the employment in the town which happened once in a while in our history. In the case of the government, the force playing the role of the evil capitalist is the taxpayer and the will of the people. Public sector employment competes within the private market, can never by definition be the only employer, or who would fund it? Whether it is city hall or the Pentagon, they must pay enough in salary, benefits and so on to lure good, qualified people to work there, just like every other employer has to do. The rest is cronyism, power and corruption. See AFSME. Teachers unions are the biggest political money force in our state and all their money originates with the taxpayer. They are in bed with one political party and take their politics into the classroom and demand for government goes up and up. But we are already past the point in tax policy where we can raise rates to collect more money. See the corporate tax rate. The new Dem plan is to only raise it to 25%, not the 35% plus state taxes that caused 4600 companies to pack up and leave.
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The public unions negotiate with elected officials who know that if they negotiate badly the union will provide campaign workers at election time. Conflict of interest!
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Remember when I said as soon as Christy is out of office the crats will raises taxes
I refuse to be suffocated to pay for state employee benefits / pensions .
Even the big lib Franklin Roosevelt knew that allowing government employees to unionize was a bad idea.
What a racket unions government employees the Dem Party revolving mafia power sticking it to the rest of us.
I am moving as soon as possible.
Good idea.
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Calif forgot to lock the exits:
California lost 9,000 business HQs and expansions, mostly to Texas, 7-year, 378 page study says
https://www.bizjournals.com/dallas/blog/morning_call/2015/11/california-lost-9-000-business-hqs-and-expansions.html
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Please post in California thread as well.
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https://www.investors.com/politics/editorials/trump-tax-cuts-revenues-deficits-paying-for-themselves/
[CBO] "it goes on to say that higher rate of GDP growth will produce $1.1 trillion in new revenues. In other words, 65% of the tax cuts are paid for by extra economic growth.
Did I already say, who knew?
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Notice that Germany and the OECD rely heavily on the VAT tax, value added tax, which like a sales tax is added onto everything you buy.
https://pbs.twimg.com/media/DZD1GRAWsAARiqA.jpg
Why do they do that? The VAT tax is a flat tax. You can't manipulate things to get out of it. So why not do that for income taxes.
The consumption tax applies only to purchases, which tend to hit lower and middle income harder because they tend to consume all their income and then some, where the rich do not.
Belgium and Germany have the highest tax burdens in the OECD and the VAT tax is the largest contributor:
http://www.dw.com/en/germanys-tax-burden-second-highest-among-rich-countries-oecd/a-43553803
The US Social Security Tax nas an income cap on it because it is supposed to be insurance, not a tax. Liberals want to remove the cap. Funny that on this important item they want to make it a flat tax. Probably just as a stepping stone to making it progressive in rates and eventually just another welfare program.
Revenues from income taxes in the US were 17.8% of GDP when the top rate was 28% and 17.3% of GDP when the top rate was nearly 40% in 2017. When the top rates were 70% and 90%, the government also only collected about 18% of GDP in tax revenue. People adjust their earning behavior to work within the incentive and disincentive systems they face.
Why not make the tax rate 20% or less for all, maximize GDP and GDP growth, and do the safety net and redistribution programs on the spending side of the equation?
We just did that for corporations. Why not for individuals?
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https://patriotpost.us/articles/55908-tax-revenue-hits-record-high-dems-hardest-hit
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By Kimberley A. Strassel
July 12, 2018 7:02 p.m. ET
397 COMMENTS
What if President Trump had the authority—on his own—to enact a second powerful tax reform? He does. The momentum is building for him to use it.
In the halls of Congress, the corridors of the administration, and the nerve centers of activist groups, forces are aligning behind a plan: a White House order to index capital gains for inflation. It’s a long-overdue move—one that would further unleash the economy and boost GOP election prospects. And Mr. Trump could be the president bold enough to make it finally happen.
At President Reagan’s behest, Congress in the 1980s indexed much of the federal tax code for inflation. Oddly, capital gains weren’t similarly treated. The result is that businesses and individuals pay taxes on the full nominal amount they earn on investments, even though inflation eats up a good chunk of any gain. It’s not unheard of for taxes to exceed real gains after inflation. The result is significant capital distortion, as companies sit on buildings and property or investors sit on stock—rather than selling and thereby putting both assets and gains to more productive use.
Conservatives have understood this problem for decades, yet for decades they have been held hostage to a 1992 government brief. The paper by the Justice Department’s Office of Legal Counsel offered a few faulty arguments as to why the Treasury lacked the authority to make this regulatory change. Neither President Bush questioned it, but others have.
Americans for Tax Reform President Grover Norquist —chief troop-rallier in this effort—has been circulating a 2012 paper by lawyers Chuck Cooper and Vincent Colatriano that details that 1992 opinion’s flaws. It points out that the Internal Revenue Code does not require that the “cost” of an asset be measured only as its original price—meaning there is no reason Treasury could not construe it in today’s dollars. More important, it noted that since the Supreme Court decision in Verizon Communications v. Federal Communications Commission (2002), regulators have leeway in how they define “cost.”
“Every Republican I’ve talked to says it is powerful public policy,” says Mr. Norquist. “Some had this vestigial memory of a negative memo. But once they actually read the memo, they understood there is no legal obstacle, and the support for this within the Congress, within the White House, within the Treasury, has just exploded.” Mr. Norquist notes that part of the attraction is that all Treasury has to do is issue a definitional regulation—no lengthy rulemaking required.
What’s new of late is the growing, and powerful, backing. Senate heavyweights Ted Cruz and Pat Toomey had already this year introduced a capital-gains indexing bill, and House Republican Devin Nunes tells me that he is next week introducing his own, though he believes “the administration could implement [the change] under its own authority.” House Freedom Caucus Chairman Mark Meadows on Thursday sent a letter to President Trump encouraging Treasury to put the change in place by Oct. 1. Mr. Trump’s top economic adviser, Larry Kudlow, wrote a column last year calling on the president to “spark a wave of prosperity” with an indexing order. Vice President Mike Pence pushed this issue in 2006 when he was still in Congress. And dozens of outside groups, from ATR to Club for Growth to the National Federation of Independent Business, are pushing to end the “inflation tax.”
Treasury Secretary Steve Mnuchin recently told this newspaper that he’d like Congress to move on indexing, but that if it was a no-go, his department would “decide whether we want to consider this on a nonlegislative basis.” That’s notable, because Republicans can’t get 60 votes for this in the Senate. Democrats on the Senate Finance Committee, led by Oregon’s Ron Wyden, have already sent a letter to Mr. Mnuchin warning against regulatory indexing, previewing that they’d oppose it as a giveaway to the “wealthy” and a hit to the deficit.
So, nothing new—though the left’s deficit argument here is flimsier than usual. Indexing is a de facto cut in the capital gains tax, and every capital gains tax cut in modern history has resulted in a rise in capital gains revenue. The move would set off an explosion of buying and selling—of which the government would get its cut. The lower tax on capital would also help asset prices grow. All of this would be excellent news for the economy, but also for those workers who were stung by the recent tax reform’s limit on state and local deductions but might now see some alternate tax relief. All in time for the midterms.
All it takes is a simple order. A President Trump who has so confidently wielded his authority to cut down regulation should have no issue wielding it to cut down an outdated, decades-old legal memo that is holding back the economy and unfairly burdening investors—small and big alike.
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This would be life changing for me, give the economy another needed boost, and perhaps give Trump the economic strength he needs to win the trade war, take tariffs to zero and make America great again.
It's also the right thing to do.
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Who knew?
Who even knows this now? Headline News? Not so much. It's reported on the opinion page of a publication read only by conservatives.
The latest monthly budget report from the nonpartisan Congressional Budget Office finds that revenues from federal income taxes were $76 billion higher in the first half of this year, compared with the first half of 2017. That's a 9% jump, even though the lower income tax withholding schedules went into effect in February.
https://www.investors.com/politics/editorials/income-tax-revenues-trump-tax-cuts-economic-growth/
Some of this comes from tax payments for last year's growth, when the deregulation tax was slashed.
Imagine the size of this story if the facts were the other way around, revenues down by the size of the rate cut or more. Front page for sure!
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Who knew?
Who even knows this now? Headline News? Not so much. It's reported on the opinion page of a publication read only by conservatives.
The latest monthly budget report from the nonpartisan Congressional Budget Office finds that revenues from federal income taxes were $76 billion higher in the first half of this year, compared with the first half of 2017. That's a 9% jump, even though the lower income tax withholding schedules went into effect in February.
https://www.investors.com/politics/editorials/income-tax-revenues-trump-tax-cuts-economic-growth/
Some of this comes from tax payments for last year's growth, when the deregulation tax was slashed.
Imagine the size of this story if the facts were the other way around, revenues down by the size of the rate cut or more. Front page for sure!
But, these are professional journalists! With credentials!
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I sent this idea and this article to my 'friend', my congressman , a Republican on the House Ways and Means Committee, and asked him in most urgent terms to have the House persuade the president to do this.
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Trump may understand the benefit of this too well, being that he is in the same business as me. ) The Left and the media, I repeat myself, will go berserk with the idea this change will benefit Trump personally. Sadly, that means more to them than increasing US tax revenues growing the economy or closing the deficit.
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Simply making the temporary provisions permanent would cause the economy to be 2.8% larger than it would have been without tax reform.
Step two simplifies how businesses are taxed on their investments. Expanding expensing to all investments, with permanent tax cuts, would increase U.S. GDP by 4.3%.
https://www.heritage.org/taxes/commentary/two-steps-double-tax-reforms-economic-benefits
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http://taxprof.typepad.com/taxprof_blog/2018/08/wsj-personal-income-tax-revenues-are-up-79-despite-trump-tax-cuts.html
Did anyone see this coming?
Deficits up is a spending problem. Too many Democrats and too many in Congress with an R who vote like Dems.
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"Did any one see this coming?"
We did! :-D :-D :-D
PS: Notice my subject line :wink:
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"Did any one see this coming?"
We did! :-D :-D :-D
PS: Notice my subject line :wink:
Yes, I like the subject line!
That we got this right proves it was possible to get it right. But how did the opponents, the media, the CBO all get it SO wrong? How many Washington Post 'fact check' columns does this prove false?? " it adds $1.3 trillion to the debt"? No. It is the failure to keep your economy vibrant and competitive that buries you in debt. Ask Venezuela.
The Laffer Curve says that some tax rate decreases will yield more revenue, not all. Which ones? The ones where the rates are already so high that they are horribly stifling growth and lowering them unleashes it.
Even Chuck Schumer's top priority for Senate Democrats, assuming Hillary had won, was to lower the corporate tax rates. Yet in partisan divide, not one Democrat voted for these rate cuts that grew wages, income and employment. Tax rates so high that even Democrats wanted to lower them is a sign of tax rates too high!
In this case, the corporate rates were holding down revenue from other taxes such as employment taxes. The average American pays 97 different taxes in a year. When 5,000 employers leave the country it isn't just the corporate tax revenue we lose.
You can't have sustained revenue growth without vigorous economic growth. It is about time that the Big Spenders get on board with growing the private sector to fund spending. Either grow the economy or shrink the programs ( better yet, both). If the "Progressive" Party is against progress, then let's rightly rename them the regressive or the depressive party.
It's also about time that are schools and colleges start teaching honest, incentive-based economics.
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Christina Romer: Tax increases on investment have a huge, contractionary effect.
http://boards.fool.com/taxes-and-economic-growth-29535250.aspx
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Not exactly new research, this is from 2007. The experts, even on the left, knew better all along. Why don't we all just agree on a tax system that maximizes growth? The rest of the BS is just pandering for uninformed votes.
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https://www.westernjournal.com/newest-study-debunks-myth-rich-benefit-trump-tax-cuts/
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https://www.westernjournal.com/newest-study-debunks-myth-rich-benefit-trump-tax-cuts/
Great post ccp. Too bad these truths aren't the headlines on every National and local newspaper.
From the article:
"According to the study, the lifetime benefits of the tax cuts would be worth more than $20,000 for an average-age household earning the national average income even if there were no economic growth. That rises to between $60,000 and $70,000 given Kotlikoff’s and colleagues’ forecast for economic growth."
I should add that the authors include professors from Boston University and University of California Berkeley, not exactly fringe right institutions or Trump staff writings.
Ponder for a moment the truth and significance of that point. The CBO and the MSM would have us believe that the economy is a fixed pie, stagnant, and incentives make no difference in income and outcomes, yet we all know that is complete denial of all the best known science. It makes them wrong by a factor of three to three and a half fold and it changes the outcome of their argument. Scariest is that they are comfortable being wrong by such a wide margin, just cite the data that fits your argument, as they do with the active doctoring of climate 'science'.
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Too good to be true? I have given this suggestion multiple times to my Congressman on the House Ways and means Committee.
https://www.bloomberg.com/news/articles/2018-08-30/trump-says-thinking-about-indexing-capital-gains-to-inflation?srnd=premium
Treasury Dept. is studying if it can bypass Congress and issue the rule. (Yes they can. Inflationary 'gain is not income!)
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The Growing Deficit To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/17/2018
The U.S. federal government reported last week that it ran a deficit of $214 billion in August, the fifth largest deficit for any single month in US history.
The Congressional Budget Office thinks these numbers are consistent with a budget deficit of about $800 billion for Fiscal Year 2018, which ends September 30. If so, that would be the largest annual deficit in raw dollar terms since FY 2012. This deficit is roughly 4.0% of GDP, which would be the highest since FY 2013.
For many, this growing deficit is a dagger to the heart of the tax cut enacted in late 2017. They say the tax cut was irresponsible. However, economic growth has picked up because of the tax cut, and growth is the key to higher fiscal receipts down the road – in fact tax receipts are still hitting record highs.
Between 2010 and 2017, the U.S. passed two large tax hikes, yet the deficit was still $665 billion in FY 2017, which was not exactly a model of fiscal purity. As a result, we call "politics" on all those now fretting about deficit spending only when a tax cut is involved.
It's important to recognize that the tax cut has, so far, reduced revenue compared to how much the federal government would have collected in the absence of the tax cut. But, total federal receipts are likely to end the current Fiscal Year up slightly from last year and at a record high. Next year, according to the CBO, revenue should be up 4.6% and at another record high.
In other words, the tax cut didn't lead to an outright reduction in revenue, it just slowed the growth of revenue.
Spending is the problem. Total federal spending will rise about 4% this year and is scheduled to rise about 8% next year. In spite of an acceleration in economic growth, government spending is rising faster than GDP.
While this is a long-term problem, it will not turn the U.S. into Greece overnight. No fiscal crisis for the nation is at hand. Last year, net interest on the federal debt amounted to 1.4% of GDP. The Congressional Budget Office projects that net interest will hit 2.9% of GDP before some of the tax cuts theoretically expire in the middle of the next decade.
That is a large increase, but net interest relative to GDP hovered between 2.5% and 3.2% from 1982 through 1998. The U.S. paid this price and the economy still grew more rapidly than it has in the past decade. The U.S. didn't become Greece.
Compare two economies of equal size. One spends $500 billion, but with zero taxes, the other spends $2 trillion, but taxes $1.5 trillion. Both have $500 billion deficits, but the first economy would be more vibrant and could finance the debt more easily. It's not that deficits don't matter, but deficits alone are not a reason for investors to run for the hills.
And when deficits are partly caused by more federal spending on interest payments you know who will hate it the most? The politicians.
Here's why. Politicians like to deliver things their constituents are grateful for, things that make voters more likely to vote for them rather than someone else. Tax cuts help politicians get more votes, at least from those who actually pay taxes. Government programs can also help incumbents corral votes. Pass out government checks and you can get more votes, too. But bondholders have no gratitude for politicians when they receive the interest they're owed on Treasury securities.
Higher net interest payments will eventually "crowd out" future tax cuts and government programs, making it tougher for incumbents to get re-elected. As net interest payments rise, more politicians will start obsessing about the deficit again, just like in the 1980s and 1990s.
The true threat to long-term fiscal health is spending. If left unreformed, entitlement programs like Social Security, Medicare, and Medicaid will take a ceaselessly higher share of GDP, leading to a larger and larger share of American production being allocated according to political gamesmanship rather than individual initiative, in turn eroding the character of the American people.
Unless we change the path of spending, last year's tax cuts - and the boost to economic growth they've already provided - risk getting overwhelmed in the long run. But, for investors, this isn't an immediate problem. After all, deficit fears have been around for decades and equities still rose. Stay bullish, for now.
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Record tax revenues while government spending continues to outpace the growth of the private economy. It IS the spending, stupid.
By stupid, of course we mean economically ignorant as anyone is if they follow only the Left and the mainstream media.
Here is how spending works. In the natural course of (government-caused) business cycles, as the unemployment rate goes up, more and more people need help from government programs, and spending goes up. Then when the economy recovers and workers return to work, fewer people need less and less help from the government and so spending goes ... up exen faster. Spending more is all they know. They do it to get reelected, not to help people. And you are cruel if you don't keep spending more - especially when the economy is doing well.
"Baseline spending" is more important to our elected leaders than the deficit, the debt or the national savings rate.
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and with the debt soaring it has not chance:
https://pjmedia.com/trending/trump-to-unveil-major-tax-cut-for-middle-income-people-before-election/
We will not see a another major tax cut in my life time. Anyone care to wager a dollar ?
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There are two ways to look at tax rate cuts and tax policy:
Paul Ryan on Face the Nation tries to explain one way:
"We, as leaders, we have got to figure out how do we make inclusive aspirational politics strategically valuable again? "
https://www.cbsnews.com/news/transcript-speaker-paul-ryan-rep-elise-stefanik-on-face-the-nation-october-28-2018/
In other words, the purpose of the tax rate cuts is to grow the economy. [Deregulation is also a 'tax' cut.] If you grow the economy, you open up opportunities to those who need it most.
Another leader who was called a Democrat in his day, JFK, said, A rising tide lifts all boats.
We need a rising tide and we aspire to lift all boats. Everything else either contributes to that or is noise in the room distracting from the mission.
As a result of a relatively minor amount of deregulation and tax rate cutting, the unemployment rate of blacks, Hispanics and women has dropped to historic lows.
Tunnel vision opponents say "tax cuts" went "mostly to the rich".
Nothing serves to pull lost youth out of drug and gang activities like making legal money earning opportunities abundant. Nothing makes housing, food, transportation and healthcare affordable like rising prosperity.
Paul Ryan continued:
SPEAKER RYAN: "Look, take the tax bill for example, what is that going to do? That's going to create economic growth and opportunity. It's creating more investment-- this-this company right here-- 30 more jobs and higher wages, more investment in their factory to hire even more people. So what does that do? That helps reduce economic anxiety. So to me the best way to combat tribalism is to starve it of its oxygen, which is anxiety-- economic anxiety, security anxiety. And if we can pass policies that help improve people's lives, make them more confident about the future, then they'll be less prone to be- to be swayed by the kind of tribalism identity politics we see these days."
Now see the other view in a political commercial. The Republican candidate or PAC warns the viewer that if you elect his or her opponent, "you will lose your tax cut".
This is the wrong approach in so many ways. If you see the tax cut as only the $20 or $50 you saved in your static economy pay check because you happen to work full time, you have totally missed the point economically and paved the way to lose the point politically. Accepting the static economy view wrongly concedes the political and economic argument to the Left. If tax rate cuts have no incentive and multiplier effect and go only to increase the deficit, I would oppose them too.
If you believe in supply side economics, and you do unless you are a denier of social science of economics that studies how individuals and groups responds to differing incentives and disincentives to produce, removing hindrances to growth allows prosperity to expand and spread more widely. More people have more income and in general, people will be keeping more and paying in more money in taxes.
Take the other approach as so many people so often do. If you ignore the incentives and disincentives of tax rates and tax rate cutting do not affect economic behavior and growth, you will always demand more services and want tax rates raised to no limit - on someone else who we code name "the rich".
But tax rate hiking aimed rhetorically at the rich never apply only to the rich because taxing them more aggressively does not effectively bring in more money. The rich, by definition, have the most options. They can keep the old yacht, they can move their business elsewhere, they can raise prices on their customers and they can watch their competitors get squeezed out of business and their own market share increase. They can hire lawyers and accountants and lobbyists and pass on their income to their heirs around the laws like Fred Trump did.
When you stop aiming to grow the economy, you put it in a death spiral. We are already a trillion in deficit and 20 trillion in debt. Without growth that reaches to the personal, family and neighborhood, more and more people will always demand more goods and services and demand that someone else pay for it. And the more we demand of the taking from so-called rich, the more they will run, hide or go idle and nothing but economic ruin can result.
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good points.
but wasn't Ryan originally against the tax cut? because of concern for the debt - or that is what he said I thought.
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good points.
but wasn't Ryan originally against the tax cut? because of concern for the debt - or that is what he said I thought.
Ryan is a protege of Jack Kemp; I think he has always been for pro-growth tax rate cuts. He may have been against certain aspects like the child tax credit Rubio stuck in.
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On our road the average property tax alone is 20k. Mine is the lowest at 8k with a house worth zero, the rest is land/lot value. In order to pay property tax of ____, you would need to make income of ____ in the same high tax state and thus would have state income tax of ___. Then cap the deduction at 10k and your taxable income surges.
20-40% of filers itemize their SALT, depending on the state.
Thinking of the midterms tomorrow and if Republicans lose power in the House because of blue state House seats in Calif, NY, NJ, etc.
Eliminating the state and local tax deduction completely makes perfect theoretical sense. But people make living choices based on some sort of continuity and this is a drastic change for some.
Drastic changes in taxes need to be phased in like they were when they eliminated the deduction for credit card interest. By phasing in the credit card interest deduction elimination people could eliminate their cfredit card interest. Not true for S.A.L.T. The first suggestion for getting around this issue is to move; moving is not an option for everyone.
They did not reduce the top marginal tax rates significantly when this major deduction was severely capped. I get it that they don't deserve that deduction, they vote for the high taxes (lots of us don't!), screw the rich and screw the blue states or whatever, but if power is lost because of this, tax policies in the future will be made by liberal Democrats and YOU won't be better off.
Average SALT deduction among people who itemize in 50 states in 2014, add 5 years inflation for next year's numbers:
Chart too large to post. FL 7k, Colo 8,600, MN 11,600, Calif, NJ 17k, NY 21k. That is average. Half the itemizers are above that and not thrilled with tax reform.
https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs-images.forbes.com%2Fchuckdevore%2Ffiles%2F2018%2F07%2FSALT-Deductions-by-state-e1532640257393.jpg
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https://outline.com/2gtC8b
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1990 Bush “Tax Increase” Reduced Tax Revenues, Alan Reynolds
CATO AT LIBERTY
DECEMBER 10, 2018
The 1990 Bush “Tax Increase” Reduced Taxes
By ALAN REYNOLDS
https://www.cato.org/blog/1990-bush-tax-increase-reduced-taxes
The late President G.H.W. Bush famously reneged on his “no new taxes” pledge and signed the “Bush tax increase” on November 5, 1990, to take effect the following January. The new law was intended to raise more revenue from high-income households and unincorporated businesses. It was supposed to raise revenue partly by raising the top tax rate from 28% to 31% but more importantly by phasing-out deductions and personal exemptions as income on a joint return climbed above $150,00 (the phase-outs were called the PEP and Pease provisions).
Treasury estimates expected revenues after the 1990 budget deal to be higher by a half-percent of GDP. What happened instead is that revenues fell from 17.8% of GDP in 1989 to 17.3% in 1991, and then to 17% in 1992 and 1993. Instead of rising from 17.8% of GDP to 18.3% as initial estimates assumed, revenues fell to 17%. In fact, revenues did not climb back to the 1989 level of 17.8% of GDP until 1995, despite much higher excise taxes since 1991.
Another way to gauge the 1990 and 1993 tax increase is to measure the revenue gains in real 2009 dollars, adjusted for inflation. According to Table 1.3 of the Historical Statistics in the U.S. Budget, real revenues (in 2009 dollars) soared from $1,308.8 billion in 1980 to $1,654.6 billion in 1990 (26.4%), as the top tax rate fell from 70% to 28%. After the Bush tax increases in 1991 and retroactive Clinton tax increases in 1993, by contrast, revenues were virtually no higher in 1993 than they had been before – $1,655.7 billion. GDP in 1993 was a bit larger than in 1990 but revenues fell as a percent of GDP despite higher excise taxes.
A recession began in October 1990, just as the intended tax increase was being enacted. To blame the weak revenues of 1991-93 entirely on that brief recession begs the obvious question: To what extent was a recession that began with a tax increase caused or at least worsened by that tax increase?
Some describe the Bush tax increase of 1990 act of great political courage and bipartisan cooperation which supposedly helped shrink the budget deficit “by $492 billion … over just five years.” But that figure too was (1) just an estimate, (2) only 30% of it was ostensibly to come from higher taxes, and (3) most of the hoped-for added revenue was not from higher income tax on couples earning over $150,000 but from higher excise taxes on gasoline, alcohol, tobacco, telephones, etc. The gas tax went up a nickel; the beer tax was doubled. Nearly 10% of the revenue windfall was expected from a new luxury tax on cars, yachts, airplanes, furs, and jewelry which devastated those businesses (contributing to the recession) before being repealed in less than a year.
Journalists who look back at what happened to tax revenues after tax rates were raised or lowered, such as Washington Post fact checker Glenn Kessler, commonly rely on an updated version of a 1998 working paper by Treasury economist Jerry Tempalski. However, Tempalski only presented estimated effects on revenues, not actual effects. “Treasury estimates a bill when it is enacted… and sometimes reestimates a bill for several subsequent January budgets,” Tempalski explained, but some of “the first post-enactment estimates proved not very accurate.” Tax changes were often phased-in or phased-out, yet “the estimates… include no adjustment to capture the long-run, fully-phased-in effect of the tax bills.” Early estimates looked ahead only two years, later ones covered four.
These antiquated revenue estimates tell us nothing about what actually happened after tax laws were changed. They only tell us what notoriously erroneous revenue estimators expected. Yet the Tempalski estimates have been repeatedly cited as evidence that lower tax rates never even come close to “paying for themselves” by such leading journalists as Washington Post fact-checker Glenn Kessler and Lori Robertson of FactCheck.org, and even by the chief economist for Tax Analysts, Martin A. Sullivan.
In the same vein, estimated revenue effects of the 1990 “tax increase” are still being cited as if they are facts rather than discredited old estimates. When discussing tax increases (or tax cuts), journalists and economists must take care to distinguish between intended effects on revenue and actual effects. Fact checkers can’t fact check the old estimates because they’re not facts. Estimates are just estimates.
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https://www.cnsnews.com/news/article/terence-p-jeffrey/feds-collect-record-taxes-through-november-still-run-3054b-deficit
Now when do we reform spending?
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Continued from Ocasio thread. No, 70% isn't the optimal tax rate. Who expected major flaws in Leftists' studies?
https://www.commentarymagazine.com/politics-ideas/paul-krugman-political-groundhog-day/
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For one thing as I mentioned in my rebuttal there, it's not 1955 anymore! The math shouldn't be short term optimization, deductions are ignored and not everyone's goal is maximum redistribution. Piketty, Saez (and Krugman) are debunked all over these threads for leftist results-based analysis.
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"If we were philosophically opposed to redistribution altogether, the optimal rate tumbles to 3 percent. What counts as optimal varies tremendously based on the philosophical assumptions the economist starts with."
...
The idea that the value of rich people to the rest of society solely rests on their tax contributions, as Krugman implies, is bizarre. In fact, the risk that higher tax rates might deter entrepreneurial activity by reducing the future payoff to innovation should worry us greatly. The economist Charles Jones thinks that incorporating this effect into the model might lower the optimal tax rate to 28 percent, simply because innovations—think Uber, Amazon—deliver huge gains to everyone.
https://reason.com/archives/2019/01/09/do-economists-agree-a-70-percent-top-mar
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"it's not 1955 anymore! "
True . And apparently what could be deducted then cannot now.
I forgot who was just talking about how the wealthy who were reportedly taxed at those high rates never pain anything close to that after all said and done with the write off s they were able to take back then .
Did anyone else see that ? I don't recall now who it was or what cable show it was.
Just within the past few days ....
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This person who has a degree in economics has no idea what she is talking about:
https://taxfoundation.org/taxes-rich-1950-not-high/
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This person who has a degree in economics has no idea what she is talking about:
https://taxfoundation.org/taxes-rich-1950-not-high/
America's new best friend, economics denier Ocasio, has her marginal and effective tax rate importance exactly backwards, more on that below.
The biggest reason we can't go back to 1955 tax rates is because we compete in a 2019 world. Recently, Communist China had lower business tax rates than the US under Obama. Rich people can move or invest elsewhere like businesses do. Even worse, great potential businesses can choose to just not start up in the first place when taxes and governmental conditions are just too burdensome.
Back to the personal rates: In the 1950s, as ccp said, no one sane and above room temperature paid the top marginal rate because at 90% because it was prohibitive and because there were myriads of ways around it. The more you made, the more you could pay to have investment people and accountants work your way around it. You could have a zero income tax rate on a million dollar salary if your pockets were deep enough and your strategy was aggressive enough. The people paying the highest percentages were probably the working folks who didn't have access to those ways around the tax system.
If the top tax rate is 90% and the richest are only paying 41%, what percent of your efforts go into avoiding taxes and what percent goes into producing what you produce? Avoiding taxes is about equal in value to making your product or performing your service. Today we have far fewer deductions available, for better or worse.
We had major tax rate cuts in the 1960s under JFK, in the 1980s under Reagan, capital gains rates reductions in the 1990s under Clinton, and rate cuts again in 2003 under W. Bush. In all those cases the economy and the revenues to the Treasury SURGED. The same happened under President Coolidge and Treasury Secretary Andrew Mellon in the 1920s. Tax rate cuts worked very time they was tried. It is very telling about the agenda of people like Krugman that they can't admit they know that. Do I really read more about economics than they do? They find ways around it, presenting the real numbers as a percentage of something else, for example.
Let's go back to Ocasio having her marginal and effective tax rate importance exactly backwards. The effective or the average rate is figured by dividing your total tax paid by your total income. She cannot make a rich person pay 90% of their first dollar of income without making everyone else also pay 90% on all income because of the rarely followed constitutional principle of equal protection under the law. And you can only put punitive rates on so many voters before you find yourself voted out.
The marginal tax rate, most people don't know what we man by that, is the tax rate you pay on your highest or NEXT dollar of income. That by definition is the disincentive to produce, the negative economic force in the economy that we want to minimize. Ocasio who is thinking backwards wants to maximize it.
If you are a spender in government, dollars paid in is what you want to maximize, not the percentage of anything. The marginal tax rate is what you want to minimize. Furthermore, assuming a truly progressive tax rate system where the more you make the higher the percentage you pay, the marginal tax rate on the rich is what we want to minimize. By minimizing that you are minimizing the marginal tax rate on everyone, minimizing the disincentive to produce - as low as possible that will raise the necessary revenues.
Next of course you have the double taxation and quadruple taxation and worse that you get when you tax income at both the state and federal levels and at both the business and personal levels, also at the city level, the property tax, school tax, energy tax, consumption and sales tax levels. Leftists cleverly talk about only one of these at a time and wonder why that tax rate can't be higher to pay for more free stuff for people not paying in. And then they talk about adding more layers like a value added tax or carbon tax like without removing any of the others like we are all sitting on a pile of untaxed money wondering where to send it.
I pay more in property taxes than I keep in take-home income. Also I have paid more in property taxes on my home than I paid for my home and all its improvements over the years I have been here. That is just one layer of taxation, a layer not even mentioned by the economist Ocasio who most likely has never owned a home or a business.
George McGovern was the most liberal Presidential candidate ever - in his day. After losing 49 states to Richard Nixon he tried his hand at business and later lamented that he wished he had the business perspective of government fighting you at every turn with taxes and regulations before he set out to write those laws. Ocasio's wisdom will come later as well, best case.
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IBD caught reading the forum? The growth rate dropped by 40% when Democrats passed the 90% tax rate and we had 3 recessions in the 1950s ever while we essentially no international competitors. Did Nobel Laureate Paul Krugman ever tell you that?? If not, why not?
https://www.investors.com/politics/editorials/70-tax-rate-socialists-class-warfare/
70% Tax Rate? Another Awful Idea From Congress' Socialist Caucus
70% Tax Rate: A new poll shows that most Americans support the idea of raising the marginal tax rate to 70% or higher on the very highest incomes. It shouldn't be surprising that most people support higher taxes on others. It's called envy. What's surprising is how many people don't.
The Hill-HarrisX survey taken earlier this month found that 59% of registered voters support newly elected Rep. Alexandria Ocasio-Cortez's call for a 70% tax rate on high earners, starting at $10 million.
"That doesn't mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder you should be contributing more," Ocasio-Cortez helpfully told CBS' "60 Minutes."
[As you rise up the ladder, you ARE contributing more!]
And, as The Hill notes, "Ocasio-Cortez has not introduced any legislation to enact the concept but the (Hill-HarrisX) survey shows a broad cross-section of Americans supports it, at least presently."
True enough. Even Republicans in the survey gave it 45% support, versus 55% saying they wouldn't support it. Independents approved of the idea by 60% to 40%, while a whopping 71% of Democrats favored it.
70% Tax Rate: Opposed By 41%
But a number of things strike us about this poll, not least of which is this: 41% of Americans reject the idea out of hand, even on those earning $10 million, who make up far less than 0.01% of all tax returns. Americans' common sense tells them that raising tax rates on success isn't wise. Especially if it goes to finance the utterly useless and money-wasting "Green New Deal" the Democrats plan to push now that they control the House.
It's truly amazing how little those who propose such taxes understand about the real economy. For instance, Ocasio-Cortez, socialist Sen. Bernie Sanders, New York Times columnist Paul Krugman, and others on the far left, like to cite the fact that high income Americans faced a 91% marginal tax rate during the 1950s and early 1960s.
Didn't we do OK back then? Yes, we did OK. But it had nothing to do with high tax rates on the rich. Because — and this is important — the rich didn't pay them.
Start with this: the number of those earning the equivalent of $10 million or more back in the 1950s or even today is actually quite small. So calling for a marginal 70% tax rate on them today is simply class warfare and envy.
It's About Envy
Indeed, if you look at the level of income taxes paid as a share of GDP, it barely budges from year to year, bouncing from around 7% to just above 8.3% since 1970. No matter what the top marginal rate. It's the same for federal taxes overall: we pay about 18% of GDP in total taxes, not much more, not much less, no matter what rates we impose.
How can that be? Shouldn't higher taxes on the rich bring in much more tax revenue?
A widely circulated paper from 2017 by economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman estimated that while the tax rate on the highest earners hit 90% on the top 1% during the 1950s, the effective tax rate — that is, what they really paid — was just 42%, or less than half.
These economists, by the way, believe that a combined rate of 70% (that is, all taxes combined, not just federal taxes) or higher on top incomes would be "optimal."
But their own research suggests that their "optimal" rate is wrong, since no one really pays it.
Well, no rich people, that is. Other Americans pay because when tax rates rise on the wealthy, the wealthy change their behavior.
Changed Behavior
They send money overseas. And they put it in tax-advantaged investments, like government bonds. They find loopholes in the law that let them profit on investments that actually lose money but gain them tax writeoffs. (The solar and wind industries come to mind.) Some just don't report all their income. Still others defer taxes into the future.
They do all this instead of investing in profit-maximizing businesses or working longer hours, things that make everyone better off and create more tax revenue. That means less overall investment, fewer jobs, lower incomes, and less government revenue.
Showing they don't understand fundamental human psychology, the left imagine that smart, accomplished people with high incomes will simply bend over for big tax hikes, like the dorky fraternity initiates in "Animal House," and say, "Thank you, sir, may I have another?"
Of course, by the time the left is through raising taxes, the middle-class inevitably discover that magically the left includes them among "the rich." It's an old trick, but people fall for it every time.
What's 'Optimal'?
Even the very idea of an "optimal" tax rate on high incomes, whether it's $500,000 or $10 million, is questionable. As Ryan Bourne recently noted at Reason.com, depending on your "philosophical assumptions" about what constitutes "optimal" tax rates, the rich could pay anywhere from 73% to as little as 3%.
So, no, economists don't "agree" higher taxes on the rich are good. Quite the contrary.
Worse, the comments made by various far-left proponents of ultra-high tax rates show they don't understand economic history at all.
Take their insistence on picking the 1950s and early 1960s as some sort of economic golden age due to high tax rates on the rich.
Contrary to the Democrats' rhetoric, the 1950s was no golden age for the economy. In fact, we suffered three recessions during that decade, despite being the only fully-functioning industrial power on earth after World War II.
About The '50s...
And just look at what happened before and after Democrats imposed the 90% top marginal tax rate in 1951. In the four years before the tax hike went into effect, the economy grew on average 5.1% a year. For the next 10 years, before the rate was cut, GDP growth averaged just 3.1%.
President Kennedy, a Democrat supply-sider, came into office in 1961 vowing to slash the top 90% tax rate by a third. His tax cuts set off one of the longest economic booms in our nation's history, known as the "Go-Go 60s." (For a quick history of tax cuts, view the video link above).
A fluke? Hardly. Go back all the way to the 1920s, when Warren G. Harding and Calvin Coolidge cut tax rates broadly and deregulated the economy after it looked as if the U.S. might go into a depression following World War I. The "Roaring '20s" were the result.
The same thing happened with President Reagan, who likewise slashed top marginal rates early during his two terms, after the "stagflation" of the 1970s. Reagan's across-the-board cuts set off a nine-year jobs and growth boom.
And it's happening again today, under Trumponomics.
Tax Code: It's Unfair
The point is, despite fawning media coverage of Ocasio-Cortez and other neo-socialists, many Americans don't buy into the class warfare argument for taxing the rich. They know that the top 1% are pulling more than their weight.
The data support this. As the nonpartisan Tax Foundation reports, in 2016 the bottom 50% of all taxpayers earned just 11.6% of total income. But they paid only 3% of all income taxes.
The top 1%, by contrast, earned 19.7% of all income. But they paid 37.3% of all federal income taxes. The U.S., contrary to what the left says, has one of the most progressive tax codes in the industrial world. The top 1% pay more taxes than the bottom 90%. It can't get any fairer than that.
U.S. prosperity has come not when we raise tax rates on the rich, but when we lower them. Americans would be wise not to follow the Pied Pipers of U.S. socialism, who seek to destroy success in America in the name of income equality. But if they do follow them, the success they destroy will be their own.
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https://taxfoundation.org/taxes-rich-1950-not-high/
"effective tax rates " were not same as paper tax rates
the rich were taxed at 90% in 50s and 70% in 60s waw only true on paper
but this is truly "fake news"
the real or effective tax rates were no higher than today
https://taxfoundation.org/taxes-rich-1950-not-high/
The rich were not paying anywhere even close to those rates due to far more liberal deductions
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IIRC there is also the matter at the level at which those rates kick in.
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https://nypost.com/2019/02/04/cuomo-announces-income-tax-revenues-have-dropped-by-2-3b/
Capital flight from the blue hive.
I was told this wouldn't happen.
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https://www.huffingtonpost.com/entry/tax-refunds-down-84-percent-twitter-complaints_us_5c5e4576e4b0eec79b2379e4
Just remarkable how this Democrat propaganda outlet complains about Trump when some people's tax refunds are down some.
From the *tax everyone we can every way we can party* . All of a sudden they are complaining about taxes.
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In fairness, the complaint would be not that taxes went down, but to assert that taxes were not cut as promised, yes?
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" In fairness, the complaint would be not that taxes went down, but to assert that taxes were not cut as promised, yes? "
Agree. I was certainly posting how annoyed I was that may taxes would not go down. Though somehow I got the largest refund in some yrs even living here is Jersey having to pay Democrat Party tribute [taxes] .
I am still waiting for some sort of tax relief (I know it will never come - what we had was, I suspect the last we will ever see.).
It certainly is hard to deny that the tax cuts directly benefited the rich and connected .
Yes I know about all boats rising with the tide but still this is NOT morally fair.
That all said ->
It is clearly ironic how the LEFT decides to suddenly use this now to bash Trump when in fact it is them all along how have tried to steal as much as possible from those that pay so they can keep bribing their constituents.
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" In fairness, the complaint would be not that taxes went down, but to assert that taxes were not cut as promised, yes? "
Agree. I was certainly posting how annoyed I was that may taxes would not go down. Though somehow I got the largest refund in some yrs even living here is Jersey having to pay Democrat Party tribute [taxes] .
I am still waiting for some sort of tax relief (I know it will never come - what we had was, I suspect the last we will ever see.).
It certainly is hard to deny that the tax cuts directly benefited the rich and connected .
Yes I know about all boats rising with the tide but still this is NOT morally fair.
That all said ->
It is clearly ironic how the LEFT decides to suddenly use this now to bash Trump when in fact it is them all along how have tried to steal as much as possible from those that pay so they can keep bribing their constituents.
Vote with your feet.
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Alan Reynolds: "Larry Elder radio show does something unusual - he cites facts rather than opinions to show that revenues from the individual income tax were higher when the top tax was 28% than when it was 70%, and much higher than when it was 91%."
https://cdn.cato.org/archive-2019/reynolds-larryelder-1-25-19.mp3
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A friend asked me how Amazon can pay zero federal tax and I tried to answer.
https://finance.yahoo.com/news/amazon-taxes-zero-180337770.html?soc_src=community&soc_trk=ma
A link no doubt circulating on facebook.
First, some observations. The Yahoo article refers to the tax rate cuts as a reason but the Amazon tax was also zero the year before the new tax law. Then they close with a false statement: "Declining tax revenue has only widened deficits, as national debt has ballooned up and over $22 trillion". But tax revenues increased since the rate cuts passed. Spending increased more.
https://www.investors.com/politics/editorials/trump-tax-cuts-federal-revenues-deficits/
Amazon's total stock value is $800 billion. They have 72 times more value than income, so they only needed a tax deferral in "stock buybacks" of about 1% of value to get to a zero federal income tax. Stock buybacks cause capital gains to be deferred:
https://www.investopedia.com/articles/investing/123115/4-reasons-why-investors-buybacks.asp
Marco Rubio is trying to close this supposed loophole:
https://www.cnn.com/2019/02/12/investing/rubio-stock-buybacks-tax/index.html
Others think that is a bad idea, causing triple taxation etc:
https://www.fool.com/taxes/2019/02/19/why-marco-rubios-buyback-tax-makes-no-sense.aspx
https://www.nationalreview.com/2019/02/marco-rubio-stock-buyback-plan-misguided/
Amazon pays property taxes, employment taxes and collects sales taxes in large amounts. The owners of Amazon stock pay state and federal taxes so it is only the double and triple taxation that is avoided.
Trump called out Amazon for aggressive tax avoidance:
https://www.nytimes.com/2018/03/29/us/politics/trump-amazon-taxes.html
https://www.usatoday.com/story/money/business/2018/04/09/trump-is-right-amazon-is-a-master-of-tax-avoidance/33653439/
Politifact called him a pants on fire liar:
https://www.politifact.com/truth-o-meter/statements/2017/jul/26/donald-trump/amazon-no-tax-monopoly-donald-trump-said/
Go figure.
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Excellent post, very helpful!
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yes good post Doug
This really needs to go viral
Can we get you on Laura Ingraham ?
How about we send this to her! Maybe she would air it.
Or Tucker.
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yes good post Doug
This really needs to go viral
Can we get you on Laura Ingraham ?
How about we send this to her! Maybe she would air it.
Or Tucker.
Thanks ccp. I took your advice and sent it to John Hinderaker at Powerline and American Experiment. He appears as a guest and guest hosts on her show.
A little more:
The 1982 law enabling stock buybacks was passed with a Democratic 50 seat majority House and signed by a Republican President.
Since then the Democrats have held the White House for 16 years, controlled the House for 16 years, held the Senate majority for 16 years, during all these periods never tried to repeal or reform this. They offered no help, no amendments and no votes to the most recent tax reform. The offending party is a Democratic leaning entity. And now this is all somehow Trump's fault.
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I don't know why Tucker got so upset about this twirl
but here is the Wikipedia on this guy Bregman:
https://en.wikipedia.org/wiki/Rutger_Bregman
Love this part from something he wrote:
"Utopia for Realists: How We Can Build the Ideal World[10] promotes a more productive and equitable life based an three core ideas which include a universal and unconditional basic income paid to everybody, a short workweek of fifteen hours, and open borders worldwide with the free exchange of citizens between all nations.[11] It was originally written as articles in Dutch for the online journal De Correspondent.[12]
In an interview with the Montreal newspaper Le Devoir in September 2017, Bregman said that "[t]o move forward, a society needs dreams, not nightmares. Yet people are caught in the logic of fear. Whether it is Trump, Brexit or the last elections in Germany, they vote against the future and instead for solutions to replace it, believing the past was better based on a thoroughly mistaken view of the world: the world was worse before … Humanity is improving, conditions of life, work and health too. And it's time to open the windows of our minds to see it."[13]"
GOTTA LOVE BASIC INCOME FOR ALL AND 15 HR WORK WEEK!
he is sooooooooo right . We got to where we are for such reasons as these.
I guess when you cannot make any logical sense you become smug arrogant and get personal like he did with Tucker.
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* Somehow I think we have two tax policy threads:
https://dogbrothers.com/phpBB2/index.php?topic=1477.msg115956#msg115956
Tax Policy, whoops, tax revenues up 10% in a year
A February Revenue Surprise
Federal tax receipts rose 10% from a year ago, in case you haven’t heard.
By The Editorial Board
March 10, 2019 6:22 p.m. ET
A funny thing happened in February that you haven’t read about: Federal government tax receipts rose 10% to $171 billion, according to the Congressional Budget Office.
How could that be? Isn’t the GOP tax reform supposed to be robbing the government of tax revenue and causing deficits to explode? Well, that spin appears to be based on single-entry political bookkeeping.
CBO says in its latest monthly budget review that individual income-tax withholding and payroll tax receipts rose 5% in February from a year earlier, while income-tax refunds fell 13%. The year-over-year increase is important because we are now getting the comparative results for the time period in which tax reform has been fully implemented. Tax receipts from rising incomes appear to have offset lower receipts from the cut in tax rates and 100% business expensing. The February revenue rise outstripped even a 7.3% spending increase from a year earlier, so the deficit declined by $12 billion in the month. - wsj today
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https://dogbrothers.com/phpBB2/index.php?topic=1791.msg107524#msg107524
...
[GDP Growth] According to the CBO, every 0.1 percent increase in the gross domestic product adds over $250 billion in revenue over 10 years.
http://www.foxnews.com/opinion/2017/11/30/tax-reform-is-on-track-and-democrats-want-to-derail-it-dont-believe-these-myths-about-senate-s-bill.html
https://www.wsj.com/articles/tax-reform-growth-and-the-deficit-1511730170?mod=wsj_review_&_outlook
...
0.6 growth increase in GDP pays for the entire tax package.
...
Nine prominent economists write to support the package writing that the corporate reform alone will grow the economy by at least 2% annually, economics professors from Harvard, Stanford and former chairs of the council of economic advisers:
https://www.wsj.com/articles/how-tax-reform-will-lift-the-economy-1511729894
...
If we had reformed the corporate tax code sooner we could have prevented 4600 companies and hundreds of billions of dollars from leaving the US.
https://www.bloomberg.com/news/articles/2017-09-19/tax-code-hurts-u-s-firms-in-m-a-market-roundtable-study-finds
https://dogbrothers.com/phpBB2/index.php?topic=1791.msg107767#msg107767
WSJ: Tax cuts are going to grow the economy by much more than expected
https://www.wsj.com/articles/get-ready-for-next-years-big-tax-stimulus-1513593000
https://dogbrothers.com/phpBB2/index.php?topic=1791.msg108018#msg108018
tax reform bill, which cut the corporate rate from 35% to 21% will create jobs, boost incomes and spur competition in America."
"You're going to see more people coming back into the workforce, you're going to see wage increases like we want."
"I'm kind of surprised to see people saying an uncompetitive tax system would be good for America."
"...over time that retained capital will be used to grow businesses, R&D, hire people, wages, competition and over time that will be very good for America."
"The number one thing for jobs is a healthy and vibrant economy, which drives jobs and wages. The competitive tax system, proper smart regulation, cutting some of the bureaucracy, those will help jobs."
https://dogbrothers.com/phpBB2/index.php?topic=1791.msg108120#msg108120
More than 90% of economists said the tax cuts would increase GDP growth over the next two years.
https://dogbrothers.com/phpBB2/index.php?topic=1791.msg108150#msg108150
Doug Jan 11, 2018: "Maybe Apple will come to the US someday too!"
CNBC Jan 17, 2018: "It looks like Apple is bringing back home nearly all of its $250 billion in foreign cash"
https://dogbrothers.com/phpBB2/index.php?topic=1791.msg108393#msg108393
"the total tax package will create extra GDP growth of 1.1% a year through 2019"
One side was right. One side was wrong. Are there electoral consequences? Not if the media can brush it all away.
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Great work there Doug!
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Buybacks Aren't the Problem! To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/18/2019
The environment on Capitol Hill has made populism a bipartisan affair, with Republican Senator Marco Rubio now joining the fray with a call to tax corporate stock buybacks.
His argument? Corporations are buying back stock instead of making productive investments. He's not alone in arguing that weak investment is the reason the economy isn't growing faster. Meanwhile others argue the corporate tax cut of 2017 fell flat as tax savings went towards a surge in buybacks, not investment.
Rubio also bemoans that stock buybacks face a lower tax rate than dividends. But qualified dividends (which are the vast majority of dividends paid by public companies) are taxed at the same rate as capital gains, so we're not quite sure how he comes to this conclusion.
Let's break down the issues with his argument. To start, companies have been investing. Think about it. If companies were under-investing, there would be shortages, and that is simply not the case.
Another reason his argument fails scrutiny – and probably the most common misperception when it comes to corporate investments – is that people mistake nominal investment for real investment.
The price of technology has fallen dramatically while its capabilities have surged. You can buy a smartphone or tablet today for hundreds of dollars, while just a decade ago those embedded technologies would have cost millions of dollars (and required a suitcase to lug around). Airlines can now book passengers using an App instead of a ticket office. Brick and mortar stores are being replaced by logistics software and delivery vehicles. A decade ago it took more than two months to frack a well, now it takes two weeks.
In other words, the price of production is falling while profit margins have improved. The declining costs for improved performance make it appear that companies aren't investing, when in reality they are. In fact, productivity at the corporate level is booming, and that's exactly why corporations can return so much capital to shareholders. On a nominal basis, business investment was 13.7% of GDP in the last quarter of 2018, exactly where it was in 2001 and 2008. But on a real basis (where inflation – or in the case of technology, deflation -is accounted for), business investment was 14.7% of GDP, the highest on record.
It's this lack of perspective that has people pining for the past. And it makes no sense. If it took longer to frack a well, companies needed office space to sell airline tickets, or we had no online retail, then yes, investment would be higher, but then profits would be lower. But we guess Rubio's "problem" would be fixed, as companies wouldn't have the profits for stock buybacks or dividends.
Now to address the second misperception. Both buybacks and dividends reduce cash on corporate balance sheets. As economist John Cochrane has explained, a buyback does not necessarily leave a remaining shareholder in a better position. Let's say a company has two shares in circulation, $100 in cash, and assets capable of producing future profits worth $100 today. Each of the two shares should be worth $100. If the cash is used to buy back one share, there would only be one share remaining and $100 in future profits, so the share should still be worth $100. If the company paid a dividend of $100 ($50 per share), the price of each share would fall from $100 to $50, creating a capital loss of $50. If the shareholder took the loss it would offset the tax on the dividend. Either way, the government captures zero dollars.
Simple math says that, either way, profits for shareholders and tax receipts should not be different as long as capital gains and dividends are taxed equally. And if a politician believes one is taxed less than the other, we think that politician should find a way to reduce the higher tax rate, not raise the lower one. Cutting tax rates is the best way to boost incentives for work, savings and investment.
Finally, the government has proven itself a terrible fiduciary. In 2017, after eight years of economic recovery, and before the Trump corporate tax cut went into effect, the budget deficit was $680 billion. Even John Maynard Keynes must have been rolling over in his grave. So, why would anyone trust government to start telling private citizens what to do with their own money?
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If congress would stop trying to pick winners and losers by screwing with the tax laws, we would all be better off. But, that would mean less opportunities for graft.
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https://www.forbes.com/sites/jonhartley/2015/02/02/frances-75-supertax-failure-a-blow-to-pikettys-economics/#83b36d85df26
[Article is from Feb 2015.]
Hollande's 75% 'Supertax' Failure A Blow To Piketty's Economics
France has said goodbye to its infamous 75% income tax on individuals earning more than 1 million euros this past weekend, returning to a top marginal income tax rate of 45%. The change, effective February 1, is a blow to the French Socialist party’s signature redistribution measure, the same remedy supported by popular French economist Thomas Piketty who predicted that “lots of other countries will inevitably follow this route.” To be precise, Piketty and his frequent co-author Emmanuel Saez recently argued for an even higher 80% levy on high earner income in an op-ed for The Guardian.
France’s 75% ‘supertax’ reduced government tax revenues through hindered economic growth and capital flight.
Most memorably, the French supertax famously compelled French actor Gerard Depardieu to become a Russian citizen and relocate to Moscow for tax reasons. Notwithstanding, this trend of emigration persisted at the macro level as an estimated 2.5 million French citizens now live abroad in the U.K., Belgium and other countries sporting more competitive income tax rates.
As a result of a reduced labor supply and discouraged investment in France following the 75% top marginal income tax rate announced in September 2012, French revenues for 2013 came in at only 16 billion euros, a 14 billion euro shortfall below the French government’s expected 30 billion in tax collections.
Compared to initial estimates from the French government using models which ignore the Laffer Curve’s “slippery slope,” tax revenues from corporate taxes, individual income tax, and value-added tax (VAT) were down by 6.4 billion, 4.9 billion, and 5 billion euros respectively.
In 2014, the French economy continued its stagnation as the economy has failed to post a single quarter of annualized GDP growth above 0.8% since Hollande took office in 2012 and implemented his 75% supertax shortly after. France’s unemployment rate still sits around 10%. The French government also conceded that the country will most likely fail to meet its deficit target of 3.8% of GDP in 2014 and may not do so until 2017 with tax revenues projected to continue their decline.
France’s 75% ‘supertax’ illustrates the effects of the Laffer curve
The French 'supertax' perfectly illustrates the Laffer curve’s depiction of diminishing government revenues at high tax rates. Piketty and his co-authors have forgotten the power of an old idea, which recently turned 40 as Heritage Foundation chief economist Stephen Moore observed in The Washington Post.
France’s experience with its 75% supertax and declining tax revenues also confirms recent research on the Laffer curve by Federal Reserve Bank of St. Louis and Georgetown economists that estimates the tipping point where higher tax rates cause declining tax revenues begins at a 52% marginal tax rate. Another recent paper by University of Chicago professor Harald Uhlig and Federal Reserve Board of Governors economist Mathias Trabandt estimate this critical tax rate lies somewhere in the 50-65% range for European countries including France.
With the 75% supertax scrapped, the top marginal income tax rate in France will now be 45%. Indeed, France will now return to the tax rates of former French President Nicolas Sarkozy, Holland’s predecessor, who had established a tax ceiling of 50% of earnings.
The French wealth tax endorsed by Piketty has spurred tax evasion and capital flight
France also enforces a Piketty supported wealth tax on French residents and non-residents who have assets in France. French economist Eric Pichet in a recent academic paper has found evidence of capital flight as a consequence of the French wealth tax, namely, that it has cut French GDP growth by 0.2% per year. The paper suggests that when an individual country implements a wealth tax, it incentivizes people to stash their wealth in tax havens and invest abroad.
Similarly, University of Toronto economist David Seim in a recent paper finds that Sweden’s wealth tax, which was abolished in 2007, spurred significant tax evasion and capital flight as well.
More constructive policies that reduce inequality and promote economic growth
This past week, Berkeley Professor Emmanuel Saez updated his famous income inequality graph showing top 1% pre-tax incomes surging since 1970, which has drawn a number of headlines, including an in-depth article from The Upshot at The New York Times by Justin Wolfers.
A growing number of conservatives, in addition to liberals, have begun to address inequality in a serious tone taking an approach to resolve the issue by building up the poor and middle-class rather than an approach focused on thwarting the wealthy embodied in France's 75% 'supertax'. Constructive “bottom-up” policies that can improve outcomes for the bottom 99% include expanding the Earned Income Tax Credit (EITC) and encouraging stock ownership.
Improvements streamlining auto-enrollment in retirement plans, increased use of incentive pay plans enabling employees to share in company profits, and reduced taxes for employee stock ownership plans are all examples that would increase capital income for the bottom 99%.
Bill Gates has even weighed in on Piketty's thesis, suggesting that policymakers instead move away from income, wealth, and capital gains taxes in favor of progressive consumption taxes to avoid penalizing wealthy individuals who are focused on philanthropy and investment in the economy.
The U.S. and other advanced economies should take note that trying to thwart the wealthy like France did with its top-down 75% supertax has failed and that the real path to reducing inequality lies in creating bottom-up pro-growth strategies.
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Got screwed this yr on taxes
not surprised though
I know people who pay nothing in taxes who get money back in child credits
Thanks Wall Street fuckers and Trump
you people made out like bandits
I am not rich but continue to be assessed every yr more and more for being a mid level professional.
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Speaking of Mick coming to US for healthcare, here is Keith on tax policy:
"The whole business thing is predicated a lot on the tax laws…It’s why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we’d be paying 98 cents on the dollar. We left, and they lost out. No taxes at all."
- Keith Richards, Rolling Stones
http://www.you.com.au/news/1253.htm
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:-D :-D :-D :evil: :evil: :evil: 8-) 8-) 8-)
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:-D :-D :-D :evil: :evil: :evil: 8-) 8-) 8-)
I am involved in a discussion with a younger generation member who believes tax rates can be higher because at least some rich people don't need the money. No amount of evidence seems to persuade that rich actually respond even more sensitively to tax rates than regular working people.
In tax policy, people point to the exception and think it is the rule, or want to make the rule to address the exception. We know of a rich person who we believe could be taxed way more and would still be fine, second generation wealth for example and a lot of them agree and support higher tax rates and liberal policies. I contend that doesn't work on the macro scale. You can't target a higher tax on idle rich people and not hit the productive class, the entrepreneurs, the innovators, the investors, the risk takers, the employers and the future employers, and therefore harm the employees, the young, minorities and the economy as a whole.
The Rolling Stones make a good example. Do they need to work, do they have to work, do they need more money, do they even do it for the money? I don't know, but mostly no. They do it because that is what they do. Like the rest of us they are aging and want to keep doing what the do at the highest level they can for as long as they can. Like others at the top of their profession, whether you like their music or not, they are driven in their pursuit of being the best.
When bands like the Stones, the Beatles, the Dead, Prince, etc get screwed by a ticket company or a record company, they start their own. When an agent takes 10% and does nothing, they fire him, not because they need the money but because of the money and the principle of not getting value for what you are paying for. When their country of origin for a global enterprise screws or penalizes the successful on the taxation on their revenues, they organize differently and move operations elsewhere, just like Pillsbury, Medtronic and 3M did in moving operations out of our area. The Founder of Ikea fled the high tax rates of Sweden, as did all the top tennis players during the highest tax rate years, Bjorn Borg, Stefan Edberg, Mats Wilander. Did they need the money? Probably not, but they can and do respond to incentives and disincentives in the same way we might respond to prices buying groceries or gas or making a job change.
There is a point in taxation where charging a higher rate doesn't bring in higher revenues and it has been proven over and over and over, around the world and throughout history.
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"The Rolling Stones make a good example. Do they need to work, do they have to work, do they need more money, do they even do it for the money? I don't know, but mostly no. They do it because that is what they do. Like the rest of us they are aging and want to keep doing what the do at the highest level they can for as long as they can. Like others at the top of their profession, whether you like their music or not, they are driven in their pursuit of being the best."
colleague of mine in the early 90s i Florida saw Mick Jagger walk in office with a sore throat prior to local concert
doctor offered to see jagger for free but he responded he has more money than he knows how to spend in several lifetimes
so the doctor took free backstage tickets as payment
I may have told this story , if a repeat myself my apologies in my old age.
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as for my taxes my accountant says my rates went up 2 % though my effective tax rate is down.
the change in policy stopping people from deducting state income tax was the difference. My state tax is not huge but enough to be annoying.
overall I am glad the tax laws did this because it is clear that red blue states should not dump on the red states because they rob their populations.
OTOH I don't know why my bracket is the ONLY one that did not get a tax break or even just stay even
My group always gets screwed.
Not rich but well to do and ALWAYS taken for granted by crats and cans alike
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as for my taxes my accountant says my rates went up 2 % though my effective tax rate is down.
the change in policy stopping people from deducting state income tax was the difference. My state tax is not huge but enough to be annoying.
overall I am glad the tax laws did this because it is clear that red blue states should not dump on the red states because they rob their populations.
OTOH I don't know why my bracket is the ONLY one that did not get a tax break or even just stay even
My group always gets screwed.
Not rich but well to do and ALWAYS taken for granted by crats and cans alike
ccp, Thanks for following up on this. I'm glad to hear your overall tax (effective tax rate) went down slightly. If your bracket (marginal rate) went up 2%, that is bad for incentives. I wanted to ask a few questions and try to study it. The situation you are in, or at least the perception of it, I think is what cost Republicans the House, along with the healthcare mess. The 10k limit (SALT) in swing districts in prosperous suburbs in blue states where the combination of state income taxes and high property taxes are more than that made a lot of people angry. That is partly good but was poorly executed, poorly messaged and cost R's the House and all legislative momentum.
30 communities in NJ have median property taxes of 15-30k. Median!
https://www.nj.com/politics/2018/08/nj_towns_with_the_highest_tax_rates.html
Trust me, all these people are pissed about tax reform even if a few voted R anyway.
Keeping personal info out of it, we should study what happened at some different income levels in high tax states. Time permitting I would like to come back to this with some math.
In the first analysis I think we can safely say that in 2020 these same people will have a choice between keeping the lousy Trump/Republican plan or electing something far worse.
Here is the trap for Democrats: To fix the Republican plan they need to cut taxes on the rich! What say Bernie and the gang on that? I say watch for the House to flip back and for the Trump boom to expand.
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...
colleague of mine in the early 90s i Florida saw Mick Jagger walk in office with a sore throat prior to local concert
doctor offered to see jagger for free but he responded he has more money than he knows how to spend in several lifetimes
so the doctor took free backstage tickets as payment
My neighbor had the warm up band for the Stones play at his house when they were in town. He bartered dental work and they played free on the lakeshore for his wife's 50 B'Day party. Band members always need dental work.
The IRS missed out on taxable events in both stories.
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Why give different tax reductions to different brackets?
seem plain stupid and unnecessarily confusing .
Why could the cans (who never fail to botch it up) simply give a 15 % cut across the board for anyone that pays?
In any event I still am of the opinion we will never see another tax cut in our life times
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"Why could the cans (who never fail to botch it up) simply give a 15 % cut across the board for anyone that pays?"
Because opponents call that a"giveaway" to the rich.
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"Why could the cans (who never fail to botch it up) simply give a 15 % cut across the board for anyone that pays?"
Because opponents call that a"giveaway" to the rich."
But those who make 1/2 million per yr get 6.5 % break. Those in lowest got 0:
https://www.kdpllp.com/2017-vs-2018-federal-income-tax-brackets/
The only real fair way is everyone gets same % change. But fair is not the legislative way. Picking and choosing how to wield power selectively is .
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"Why could the cans (who never fail to botch it up) simply give a 15 % cut across the board for anyone that pays?"
Because opponents call that a"giveaway" to the rich."
But those who make 1/2 million per yr get 6.5 % break. Those in lowest got 0:
https://www.kdpllp.com/2017-vs-2018-federal-income-tax-brackets/
The only real fair way is everyone gets same % change. But fair is not the legislative way. Picking and choosing how to wield power selectively is .
1. "But fair is not the legislative way." And you won't like their definition of fair.
2. "The only real fair way is everyone gets same % change." That was the strategy employed by Reagan. "Across the board" rate cuts overcame their cries of giveaway. Leftists have deepened their fight since then. They know same percentage cut for the wealthier is a MUCH bigger cut in dollars and they own the messaging.
3. The deficit. You are at the level where the real money is paid and collected. A big rate cut where the taxes are really paid is partly recovered by growth elsewhere and growth gradually over a longer term. Doctors salaries don't just go up instantly and automatically to recover the revenue. There is a point in tax cutting where we actually need to spend less in order to truly pay less. Because rate cuts did increase growth and employment, and unemployment shrunk and millions got off of food stamps since Obama, you would think federal spending would also shrink. Unfortunately not so.
4. There is one group in American that is not paying their fair share of the taxes - the poor. Besides spending less or taxing the rich more, the other way you get more revenues is to collect more from the two hundred million or so who currently pay nothing in federal individual income taxes. Because of the political success of 'progressive' taxation, anything that addresses this directly is dead on arrival, for example the flat tax. Tax every dollar earned at the same rate up and down the income economy;make up the 'fairness' only on the spending side. But the argument for redistribution in the tax code already won. The only way conservatives can cut rates for all is to cut more at the lower levels. Even when they do that they get accused of the opposite, see 2018. The way around this conundrum is prosperity. Make the poor no longer poor, no longer dependent and no longer riding for free.
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Also to keep in mind: Debt is a tax on future generations a.k.a. taxation without representation.
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Making sure this quote is accessible in the tax thread, the only good question the msm ever asked Barack Obama, and his debate gaffe answer that should have ended his candidacy. Luckily for Obama, McCain was no brighter than him on taxation.
https://taxfoundation.org/obama-and-gibson-capital-gains-tax-exchange/
https://www.youtube.com/watch?v=gJimLZRC9N8
CHARLIE GIBSON, ABC, April 16, 2008: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.
But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
OBAMA: Right.
GIBSON: And George Bush has taken it down to 15 percent.
OBAMA: Right.
GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.
RAISE TAX RATES FOR WHAT??!! After 4 years as US Senator and 8 years as President he still doesn't know that punishing capital hurts labor. We live in an interconnected economy and those two parts, capital and labor, are directly connected.
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To be precise the way I remember it he openly stated he was for the higher rate even if it produced lower revenues.
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Not quite as planned:
https://www.bloomberg.com/news/articles/2019-04-12/the-tax-law-s-big-winner-is-the-millionaire-ceo?srnd=businessweek-v2
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FY 2020 - $3.64 trillion, budgeted.
FY 2019 - $3.44 trillion, estimated.
FY 2018 - $3.33 trillion.
FY 2017 - $3.32 trillion.
FY 2016 - $3.27 trillion.
FY 2015 - $3.25 trillion
https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762
With the doubling of the child tax credit and the largest percentage tax rate cuts going to the working poor and middle class, do these numbers that go up at a faster rate after tax reform than before look like the rich are paying in $200,000 less each in taxes? (Brookings, Bloomberg allegation) Utter nonsense.
Like under Reagan, it is a BIG deal for the economy to take in more revenue at lower rates. It means income increased more than rates decreased. Who f*cking knew. Did ANYONE predict this?
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https://www.bloomberg.com/news/articles/2019-04-12/the-tax-law-s-big-winner-is-the-millionaire-ceo?srnd=businessweek-v2
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They use static analysis to get their desired negative result. The truth is the opposite IMHO. Lowest jobless claims in a half century and millions off of food stamps is helping the poor more than tax savings is helping the rich. Going from no job to job, or on food stamps to off food stamps is a much bigger gain than a dollar savings to the rich,being able to buy the latest Tesla versus driving another year on last year's luxury car or whatever gain they think the rich obtain with tax savings.
Note the irony, rates were lowered the least for the rich. Then with predictable certainty Brooking and Bloomberg formulate the results in a way to say they were cut the most.
Take a look at this misleading statement:
"The top 0.1 percent, who make more than $3.4 million a year (half the top 0.1% make less), saved the same amount in percentage terms as the average Joe (no they didn't), but in dollar terms made out with $193,380." (No they didn't)
- False in so many ways. They are converting percentage to dollars by assuming the changes to incentives had no effect on people's behaviors and we already know that is false. That is denial of science. The change in behavior because of the reduced disincentives is the purpose of the tax rate reductions and it worked. If these incomes mostly went up because of making our business taxation competitive with the rest of the world, then these top earners most likely paid more in dollars in taxes, not less. Bringing in more dollars to the Treasury is a BFD when you are running deficits in the hundred of billions, carrying debt in the tens of trillions and have unlimited demand for new programs and greater spending.
They go right on to refute their own premise:
"As Republicans floated their proposal for a massive cut to the corporate tax rate, from 35 percent to 21 percent, investors began buying corporate shares in anticipation of its passing, says Todd Castagno, an analyst for Morgan Stanley. “Ultimately, investing in stocks is buying future earnings,” he says, and lower taxes mean better quarterly numbers."
- In other words, investors invest more in a more conducive climate. And employers employ more in a more conducive climate. And that is somehow bad? In what universe? Should we have government steer those prescient investments to poor people?
" “Corporate shareholders made out like bandits,” says Steven Rosenthal, senior fellow at the Tax Policy Center. "
- Corporate share holders are taxed 4 times on that income, at the corporate federal, corporate state, individual federal and individual state levels, not counting all the taxes we pay with our after tax income. A news agency owned by a New York multi-billionaire doesn't know that??!
"If our rich person invests in property in a “qualified opportunity zone,” a designation created by the new tax law to encourage investment in low-income areas, he’ll be able to avoid some capital-gains taxes and defer the rest for years. "
- I oppose these laws but who benefits most, a rich person gains some government intended dollar gain of a poor community that previously had no jobs in the community gaining a major employer?
"Many opportunity zones are indeed in low-income areas, but others include fast-gentrifying neighborhoods such as Long Island City in Queens, N.Y., where the developer stands to make a much larger return."
- If opportunity zones are a bad idea or poorly placed, reform the law, repeal the law, redraw the map. Good grief, what does that have to do with analysis of this tax reform? These "loopholes" come from the same people trying to micromanage the economy with the tax code, and lowering tax rates makes loopholes less desirable, not more.
"As Trump’s signature legislative achievement made its way through Congress, Mnuchin asked his staff to run the numbers over and over, reacting with disappointment every time they showed a huge benefit for the wealthy, says Trier, who left the government in February 2018. “I personally don’t think he was the most competent tax policy leader in the world,” he says of Mnuchin. “But the one thing for sure is he was not out to benefit the rich.” "
- Don't they know they are exposing their own fallacy. There is no pro-growth reform in a system where the rich already pay most of the taxes that doesn't involve the rich getting a break, if their failed static analysis is the criteria.
Back to the point of this, the nation gets more income, more jobs, and more tax revenue in a high growth economy and we were most certainly stuck before tax reform in a stagnant / low growth economy. The poor, the minorities and the most difficult to employ benefit the most from the reforms. They oppose this. Why?
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Article from Feb 2015, but the Left forgets its lessons rather quickly:
https://www.forbes.com/sites/jonhartley/2015/02/02/frances-75-supertax-failure-a-blow-to-pikettys-economics/#15a5a7665df2
Feb 2, 2015
Hollande's 75% 'Supertax' Failure A Blow To Piketty's Economics
France has said goodbye to its infamous 75% income tax on individuals earning more than 1 million euros this past weekend, returning to a top marginal income tax rate of 45%. The change, effective February 1, is a blow to the French Socialist party’s signature redistribution measure, the same remedy supported by popular French economist Thomas Piketty who predicted that “lots of other countries will inevitably follow this route.” To be precise, Piketty and his frequent co-author Emmanuel Saez recently argued for an even higher 80% levy on high earner income in an op-ed for The Guardian.
France’s 75% ‘supertax’ reduced government tax revenues through hindered economic growth and capital flight
Most memorably, the French supertax famously compelled French actor Gerard Depardieu to become a Russian citizen and relocate to Moscow for tax reasons. Notwithstanding, this trend of emigration persisted at the macro level as an estimated 2.5 million French citizens now live abroad in the U.K., Belgium and other countries sporting more competitive income tax rates.
As a result of a reduced labor supply and discouraged investment in France following the 75% top marginal income tax rate announced in September 2012, French revenues for 2013 came in at only 16 billion euros, a 14 billion euro shortfall below the French government’s expected 30 billion in tax collections.
Compared to initial estimates from the French government using models which ignore the Laffer Curve’s “slippery slope,” tax revenues from corporate taxes, individual income tax, and value-added tax (VAT) were down by 6.4 billion, 4.9 billion, and 5 billion euros respectively.
In 2014, the French economy continued its stagnation as the economy has failed to post a single quarter of annualized GDP growth above 0.8% since Hollande took office in 2012 and implemented his 75% supertax shortly after. France’s unemployment rate still sits around 10%. The French government also conceded that the country will most likely fail to meet its deficit target of 3.8% of GDP in 2014 and may not do so until 2017 with tax revenues projected to continue their decline.
The French 'supertax' perfectly illustrates the Laffer curve’s depiction of diminishing government revenues at high tax rates. Piketty and his co-authors have forgotten the power of an old idea, which recently turned 40 as Heritage Foundation chief economist Stephen Moore observed in The Washington Post.
France’s experience with its 75% supertax and declining tax revenues also confirms recent research on the Laffer curve by Federal Reserve Bank of St. Louis and Georgetown economists that estimates the tipping point where higher tax rates cause declining tax revenues begins at a 52% marginal tax rate. Another recent paper by University of Chicago professor Harald Uhlig and Federal Reserve Board of Governors economist Mathias Trabandt estimate this critical tax rate lies somewhere in the 50-65% range for European countries including France.
With the 75% supertax scrapped, the top marginal income tax rate in France will now be 45%. Indeed, France will now return to the tax rates of former French President Nicolas Sarkozy, Holland’s predecessor, who had established a tax ceiling of 50% of earnings.
The French wealth tax endorsed by Piketty has spurred tax evasion and capital flight
France also enforces a Piketty supported wealth tax on French residents and non-residents who have assets in France. French economist Eric Pichet in a recent academic paper has found evidence of capital flight as a consequence of the French wealth tax, namely, that it has cut French GDP growth by 0.2% per year. The paper suggests that when an individual country implements a wealth tax, it incentivizes people to stash their wealth in tax havens and invest abroad.
Similarly, University of Toronto economist David Seim in a recent paper finds that Sweden’s wealth tax, which was abolished in 2007, spurred significant tax evasion and capital flight as well.
More constructive policies that reduce inequality and promote economic growth
This past week, Berkeley Professor Emmanuel Saez updated his famous income inequality graph showing top 1% pre-tax incomes surging since 1970, which has drawn a number of headlines, including an in-depth article from The Upshot at The New York Times by Justin Wolfers.
A growing number of conservatives, in addition to liberals, have begun to address inequality in a serious tone taking an approach to resolve the issue by building up the poor and middle-class rather than an approach focused on thwarting the wealthy embodied in France's 75% 'supertax'. Constructive “bottom-up” policies that can improve outcomes for the bottom 99% include expanding the Earned Income Tax Credit (EITC) and encouraging stock ownership.
Improvements streamlining auto-enrollment in retirement plans, increased use of incentive pay plans enabling employees to share in company profits, and reduced taxes for employee stock ownership plans are all examples that would increase capital income for the bottom 99%.
Bill Gates has even weighed in on Piketty's thesis, suggesting that policymakers instead move away from income, wealth, and capital gains taxes in favor of progressive consumption taxes to avoid penalizing wealthy individuals who are focused on philanthropy and investment in the economy.
The U.S. and other advanced economies should take note that trying to thwart the wealthy like France did with its top-down 75% supertax has failed and that the real path to reducing inequality lies in creating bottom-up pro-growth strategies.
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https://www.nytimes.com/2019/04/14/business/economy/income-tax-cut.html
If you’re an American taxpayer, you probably got a tax cut last year. And there’s a good chance you don’t believe it. Ever since President Trump signed the Republican-sponsored tax bill in December 2017, independent analyses have consistently found that a large majority of Americans would owe less because of the law. Preliminary data based on tax filings has shown the same. Yet as the first tax filing season under the new law wraps up on Monday, taxpayers are skeptical. A survey conducted in early April for The New York Times by the online research platform SurveyMonkey found that just 40 percent of Americans believed they had received a tax cut under the law. Just 20 percent were certain they had done so. That’s consistent with previous polls finding that most Americans felt they hadn’t gotten a tax cut, and that a large minority thought their taxes had risen — though not even one in 10 households actually got a tax increase.
(more at link)
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If your taxes went up, you are in a less than one in ten unique tax situation.
All of this misses the point. Your static scoreboard does not answer who benefits from a growing US economy? (all of us, especially the disadvantaged) Policies of Trump roughly doubled the growth rate.
(https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-gdp-growth-annual.png?s=gdp+cyoy&v=201903281312a1)
https://tradingeconomics.com/united-states/gdp-growth-annual
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I certainly payed much less. It was very nice.
https://www.nytimes.com/2019/04/14/business/economy/income-tax-cut.html
If you’re an American taxpayer, you probably got a tax cut last year. And there’s a good chance you don’t believe it. Ever since President Trump signed the Republican-sponsored tax bill in December 2017, independent analyses have consistently found that a large majority of Americans would owe less because of the law. Preliminary data based on tax filings has shown the same. Yet as the first tax filing season under the new law wraps up on Monday, taxpayers are skeptical. A survey conducted in early April for The New York Times by the online research platform SurveyMonkey found that just 40 percent of Americans believed they had received a tax cut under the law. Just 20 percent were certain they had done so. That’s consistent with previous polls finding that most Americans felt they hadn’t gotten a tax cut, and that a large minority thought their taxes had risen — though not even one in 10 households actually got a tax increase.
(more at link)
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If your taxes went up, you are in a less than one in ten unique tax situation.
All of this misses the point. Your static scoreboard does not answer who benefits from a growing US economy? (all of us, especially the disadvantaged) Policies of Trump roughly doubled the growth rate.
(https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-gdp-growth-annual.png?s=gdp+cyoy&v=201903281312a1)
https://tradingeconomics.com/united-states/gdp-growth-annual
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"If your taxes went up, you are in a less than one in ten unique tax situation."
Thank you very much. :-(
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GTFO Noo Joisey! ASAP!
"If your taxes went up, you are in a less than one in ten unique tax situation."
Thank you very much. :-(
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"GTFO Noo Joisey! ASAP!"
planning on it.
not just staying because Florida has lousy bagels.
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"If your taxes went up, you are in a less than one in ten unique tax situation."
Thank you very much. :-(
:-( I just meant that statistically, not personally. Sorry about that.
The blue state penalty should not apply to people who voted against it.
While I defend the rich and capitalistic free enterprise on these pages I have been quite lucky to be of consistently low income. :-(
Instead of a civil war we should just accept a two systems policy. Red or blue until we come up with better names. You opt in to one or the other no matter where you live and then be governed by those rules. Seat belt laws, pot laws, healthcare laws, social security retirement age, tax rate, welfare rules? It all depends on which system you chose. How many of the elite liberal rich would opt into the penalize the rich system out of principle if given a Stephen Moore, Art Laffer designed alternative?
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The left doesn't want there to be any place for their tax cattle to flee to.
"If your taxes went up, you are in a less than one in ten unique tax situation."
Thank you very much. :-(
:-( I just meant that statistically, not personally. Sorry about that.
The blue state penalty should not apply to people who voted against it.
While I defend the rich and capitalistic free enterprise on these pages I have been quite lucky to be of consistently low income. :-(
Instead of a civil war we should just accept a two systems policy. Red or blue until we come up with better names. You opt in to one or the other no matter where you live and then be governed by those rules. Seat belt laws, pot laws, healthcare laws, social security retirement age, tax rate, welfare rules? It all depends on which system you chose. How many of the elite liberal rich would opt into the penalize the rich system out of principle if given a Stephen Moore, Art Laffer designed alternative?
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"The left doesn't want there to be any place for their tax cattle to flee to."
That's what went wrong with California tax rates and with the former high federal corporate tax rates. They couldn't lock the exits. Capital is more mobile than people, but both move if given enough reason.
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" I just meant that statistically, not personally. Sorry about that."
no offense taken
actually I thought it was an a separate author that you posted who wrote that.
everyone should pay less taxes
even a doctor like me . :-D
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" I just meant that statistically, not personally. Sorry about that."
no offense taken
actually I thought it was an a separate author that you posted who wrote that.
everyone should pay less taxes
even a doctor like me . :-D
Sorry, the power structure needs your money to buy votes.
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I thought I was properly informed that US tax revenues had slightly increased. Apparently, and politically quite inconveniently, such is not the case , , ,
https://www.wsj.com/articles/u-s-tax-revenue-declined-0-4-in-2018-11550084426
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"I thought I was properly informed that US tax revenues had slightly increased."
- Yes that was true. The federal government operates on a fiscal year, Oct - Sept, and the revenue increase last year was small. Note that the article says calendar year. I've never seen revenue and deficit numbers reported on a calendar year. Opponents were determined to find a measure where revenues didn't increase.
4th Qtr 2018 economic optimism was hurt by what? Democrat takeover of the House, I would argue.. Look what happened to the market when Dems took the House. Add to that, what was the biggest news story facing the country and the economy in 2018 and Q4 2018?: The American President is a Russian spy facing impeachment. To any observer we had the political stability of a third world banana republic. Hard to stay on a message of optimism with all that going on.
"politically quite inconveniently, "
I agree, understatement!
Put this measure in perspective:
How much would revenues have increased without growth from tax reform? Maybe we would be in recession by now with seriously shrinking revenues. The trajectory before tax reform was roughly zero income growth and zero revenue growth. Scott Grannis had the "GDP Gap" accumulating more lost economic activity than the national debt. We were better off on that path??
What was the projected downfall in revenues by our opponents with their static analysis? These numbers prove the gaping hole in the budget theory wrong. Economic growth made up nearly all the revenue lost to rate cuts.
To me it is amazing to take in roughly the same revenues at significantly lower rates. It proves the growth argument; incomes increased significantly. The "recapture" rate was nearly 100%. You won't find admission of that in a Paul Krugman column. The implication is that we were better off without these tax rate reductions and that is patently false.
The calendar year stat started with a month where businesses had zero notice of a tax rate cut and ends with the weakest quarter brought down by fake news and a bad election. By election time 2020 we will have more meaningful data. I doubt revenues will be down for this fiscal year which is how these things are scored.
How long does it take for 4600 companies that left under punitive business tax rates to return? Not instantly and some never return but there is a major inflow of new employment.
The 64k budget question is this: Why isn't spending going down as employment and wages are going up? The majority of the budget is transfer payments and fewer are needed. Paraphrasing James Carville to explain our budget issues, It's the Spending Stupid. There isn't a tax code that balances infinite spending.
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All well and good, but OTOH we predicted revenue increase, but even with the economy running full steam , , ,
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All well and good, but OTOH we predicted revenue increase, but even with the economy running full steam , , ,
Fair point.
OTOH:
Look who did get the money with the income surge:
https://www.urban.org/sites/default/files/publication/99267/state_tax_revenues_soar_in_the_first_quarter_of_2018.pdf
State Tax Revenue Makes Biggest Gains in Seven Years
https://www.pewtrusts.org/en/research-and-analysis/articles/2019/01/22/state-tax-revenue-makes-biggest-gains-in-seven-years
Why did this happen? Why don't these revenues count? Total tax revenues did increase. Build the infrastructure in the states.
Federal revenues increase only if you stay the course and complete the work. I hope that is what we predicted. It is not supply side economics to cut some tax rates and leave industries like healthcare and housing nationalized, spend like a drunken sailor and elect a House that wants full blown socialism instead of making the individual rates permanent - which was an essential part of the plan. In that sense, the individual tax cuts ended Nov. 6. Two more trillion in spending today, code name infrastructure. Said of George W Bush, he gave supply side economics a bad name - without ever trying it. Here we go again. OTOH, if the economy surges in Q2 and Q3 as it seems poised, this calendar year story is moot. Was Tom Brady behind at halftime? )
What we hoped for was enough good news from tax reform to win more elections and make more reforms. We got the good economic news and everything else fell the other way.
Full steam economy? 105 million people work full time private sector in an economy of 255 million adults. Of those who are employed full time private sector, a good portion of the best and the brightest aren't on the productive side as they still work to comply with red tape and taxation issues.
I hope we didn't post that one partial reform would solve everything instantly. If so, that is of course wrong. Major parts of the bill were anti-growth, anti-revenue, cf. child tax credit. The individual rates that would spur the most growth were cut the least, and made temporary. The capital gains indexing I called for never happened.
The revenue projections were for ten years and neither side nor the electorate is staying the course so those are meaningless now on both sides.
The George Bush expansion ended the day that investors saw the rate reductions were temporary. Live and [not] learn.
It's a choice not a promise as I see it. Do we want try for growth including revenue growth by passing pro-growth policies or look for growth using anti-growth policies? Better chance with the former.
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Actually, the weakness in revenues started in early 2016, a year before Trump took office. Since then, most of the weakness can be attributed to corporate revenues, which is not surprising considering the huge reduction in corporate tax rate. But total revenues on a rolling 12-month basis are higher now than they were at the end of 2016.
One mitigating factor, however: in exchange for a lower corporate income tax rate, companies are now forced to deem the repatriation of offshore cash. The deemed repatriation tax on corporations with significant offshore revenues will generate about $250 billion in accrued tax liabilities in Q4/17 which can be paid in installments over a period of 8 years.
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Thank you for getting Scott G in on this.
As posted elsewhere, the long term difference in debt burden (using a constant spending assumption) between 1.9% growth and 3% growth is massive.
I noted the calendar year point already but add this: The "first year" results of the tax reform reported that way miss the the April 15th for that year by 4 months. Also, many taxpayers with more complex returns take the 6 month extension to October 15th. So to me, it is a disappointing marker, especially for the 'political inconvenience', but not any kind of a complete data point.
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Copying this point over, as growth rate depends on the tax code:
Debt, CBO says, will be 150% of GDP in 30 years.
https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52480-ltbo.pdf
Change the growth rate from Obama levels, the CBO projection of 1.9% to 3% growth, the average over the 50 years before the latest collapse and malaise, and the deficit to GDP ratio in 30 years drops from 150% to 50%.
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And this comment of mine to tax thread:
On the tax question, I thought lowering corporate taxes to OECD average, 24-25%, was good enough but they lowered them to 20%, losing some revenue. As mentioned, provisions like the child tax credit are spending programs in the tax code, costing revenue. It wasn't all about growth and revenue. Now people look to see if they are actually paying less and 80% are. Then they are shocked to see we aren't collecting way more in aggregate. Kind of an unfair expectation. If people care truly about deficits, pay more or spend less. But we tried taxing more under Obama and it didn't bring in more revenue. That leaves spending and LONG TERM growth as the only deficit tools.
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Email me at craftydog@dogbrothers.comn and I will forward the charts Scott sent me along with his comments.
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https://issuesinsights.com/2019/05/16/revenues-are-up-6-after-trump-tax-cuts-so-why-is-the-deficit-surging/g
(https://issuesandinsights.files.wordpress.com/2019/05/screen-shot-2019-05-15-at-7.48.07-pm.png?w=474&h=370)
https://www.investors.com/politics/editorials/trump-tax-cuts-federal-revenues-deficits/
I don't think critics realize what big deal it is for revenues to even break even after tax rates are lowered. It means incomes are surging and it means we are already at peak taxation, raising rates further would basically net us nothing.
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Now if only we had entitlement adjustments and see a bar graph of national debt boing in the opposite direction ............
dream on .......... not in my lifetime............ :-o
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Tax something and get less of it, like a sin tax only this one is for the sin of trying to contribute and pay your own way.
The Tax Wedge is the all important difference between what an employer pays and what an employee receives.
(https://i1.wp.com/freedomandprosperity.org/wp-content/uploads/2019/05/May-28-19-Fig-1.jpg?zoom=2)
(https://i0.wp.com/freedomandprosperity.org/wp-content/uploads/2019/05/May-28-19-Fig-71.jpg?zoom=2)
(https://i2.wp.com/freedomandprosperity.org/wp-content/uploads/2019/05/May-29-19-Fig-5.jpg?zoom=2)
https://danieljmitchell.wordpress.com/2019/05/28/where-in-the-developed-world-are-average-workers-most-over-taxed/
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Spain proves "taxpayers are very responsive to a change in tax rates".
https://danieljmitchell.wordpress.com/2019/08/08/spain-and-lessons-on-supply-side-tax-policy/
[Who knew.]
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New York judge dismisses blue state suit over SALT tax deductions
https://www.cnbc.com/2019/09/30/new-york-judge-dismisses-blue-state-suit-over-salt-tax-deductions.html
New York, along with New Jersey, Connecticut and Maryland, filed suit against Treasury Secretary Steven Mnuchin and the IRS back in July 2018.
The states fought a new $10,000 cap on the state and local tax deduction filers can claim on their federal income taxes.
A federal judge in New York dismissed the states’ suit on Monday.
GP: Steven Mnuchin 190715 1
U.S. Treasury Secretary Steven Mnuchin talks to reporters about cryptocurrency in the Brady Press Briefing Room at the White House July 15, 2019 in Washington, DC. Mnuchin said the Treasury is very concerned about Facebook’s Libra cryptocurrency and that he wants the government to “make sure that the U.S. financial system is protected from fraud.”
Chip Somodevilla | Getty Images
On Monday, a federal judge dismissed a lawsuit filed by four states against the IRS, thwarting four blue states’ challenge against a new $10,000 cap on the deduction for state and local taxes, also known as SALT.
Those states — New York, New Jersey, Connecticut and Maryland — sued the Treasury Department, Treasury Secretary Steven Mnuchin and the IRS, among others, in July 2018.
They alleged that the new limit on the SALT deduction, part of the Tax Cuts and Jobs Act of 2017, was “an unconstitutional assault on states’ sovereign choices.”
In the dismissal, U.S. District Judge J. Paul Oetken in Manhattan said the plaintiff states ultimately failed to show that the SALT cap was unconstitutionally coercive or that it imposed on their own sovereign rights.
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https://patriotpost.us/opinion/65835-americans-spend-more-on-taxes-than-on-food-clothing-and-healthcare-combined-2019-10-02
I recently spoke to someone I know and we broached the issue of taxes
I complained how they are too high
his response was , "I don't mind paying taxes"
and if the Democrats win they are talking about increases on the rich , over "one million per yr income"
So of course it is obvious this guy is a fervent Democrat.
He then proceeds to tell me how he owes 500,000 $ due to paying for his two children's college
and how that is outrageous
I didn't think of it right away but should have said , wouldn't it be nice to pay less taxes so you can pay off your debt?
I just don't understand libs . They make no sense. it is just "tax the rich" and support their beloved party.
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https://www.cato.org/publications/cato-journal/optimal-top-tax-rates-review-critique
Long serious study, I hesitate to excerpt any small part of it and miss the larger picture.
"bustling economies that halved their top tax rates in Asia, Latin America, Africa, and Eastern Europe (Reynolds 2004). Since 1979, the highest income tax rate was cut from 55 percent to 22 percent in Singapore, from 89 percent to 40 percent in South Korea, from 60 percent to 30 percent in India, from 60 percent to 28 percent in Malaysia, and from 50 percent to 30 percent in Indonesia. Chile cut the top tax rate from 60 percent to 35 percent, Brazil from 55 percent to 27.5 percent, Colombia from 56 percent to 33 percent, and Bolivia from 48 percent to 13 percent. Mauritius cut the top tax rate from 50 percent in 1979 to 15 percent and Botswana from 75 percent to 25 percent. Economic growth has been famously vigorous in all of these cases, among others."
...
"Any tax penalty on adding to personal income is also a penalty on adding to national income. Income that is not created is also not taxed. Higher marginal tax penalties on the rewards from added education and innovation erode the dynamic long-term growth of the economy and therefore cannot be revenue-maximizing over time, because growth of real government revenues ultimately depends on growth of taxable income and wealth."
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"efficiency costs rise with the square of the tax rate"
- Austan Goolsbee, Professor of Economics, University of Chicago.
Former Chairman of the Council of Economic Advisers under President Obama.
https://faculty.chicagobooth.edu/austan.goolsbee/research/laf.pdf.
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Goolsbee is actually on to something here.
You guys may remember my relating the tale of my step-father selling real estate tax shelters in the 70s and how they rapidly withered away with the Reagan tax rates cuts-- perfect example of the dynamic that Goolsbee describes.
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Goolsbee is actually on to something here.
You guys may remember my relating the tale of my step-father selling real estate tax shelters in the 70s and how they rapidly withered away with the Reagan tax rates cuts-- perfect example of the dynamic that Goolsbee describes.
Great example. Goolsbee, 1999, was on to something. His work in the Obama administration did not show any learning from this prior work.
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"efficiency costs rise with the square of the tax rate"
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https://www.youtube.com/watch?time_continue=70&v=dEI9z_hSGIQ
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https://www.newsmax.com/finance/streettalk/kudlow-tax-cuts-election/2019/11/01/id/939758/
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https://www.newsmax.com/finance/streettalk/kudlow-tax-cuts-election/2019/11/01/id/939758/
Winning - or at least the possibility of winning. Last election there was no Republican agenda on the table. With 8 million of food stamps and when 70% of U.S. spending is writing checks To individuals, maybe it is time for some spending cuts too.
https://www.investors.com/politics/policy-analysis/us-government-payments-to-individuals-70-of-budget/
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Generic Keynesianism says that deficits are for goosing a weak economy. Putting aside the deep flaws of Keynesian economics, with a powerful economy such as we have now that is also running a $1T (!!! deficit) proposing tax rate cuts could easily play as highly irresponsible AND undercut our attacks on the irresponsibility of the various Dem proposals.
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The Left has always attacked any and all tax cuts as irresponsible
and then bring up deficits (the only time they ever mention them )
but the tax cuts proposed are "middle class"
not just the corporations, or the upper class , business tax cuts we have seen.
so that would mitigate the Leftist attacks
And since when did we decide tax cuts are bad for the deficit. I though we have argued revenues go up
and that it is the spending side that is far out of control . - see Doug's post - 70 % of spending is for payments to individuals.
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IMHO far too nuanced for the street brawl to come.
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"And since when did we decide tax cuts are bad for the deficit. I though we have argued revenues go up"
Revenues only go up in situations where the rate cuts encourage new production and unleash new growth beyond what is otherwise lost applying the lower tax rate to the same static income.
One example, "In the four years after the 2003 tax cuts become law, tax receipts exploded by $785 billion." https://dogbrothers.com/phpBB2/index.php?topic=1467.msg20877#msg20877 Unlike Clinton Gingrich capital gains cuts of 1997 that closed the deficit at the time, Bush did not end welfare as we know it. Instead he increased spending and the tax rate cuts never got credit for deficit reduction or anything else.
On the other side of it, Democrats like to point to is what happened recently in Kansas. https://dogbrothers.com/phpBB2/index.php?topic=1791.msg98322#msg98322
They lowered tax rates but no one moved there for the lowered rate because several other states have no income tax at all. The limiting factor in their [agricultural] economy was not the state tax rate. At the time of the state cut, Obama raised federal tax rates, so there was no new, net incentive to produce. Revenues tanked and there were no corresponding spending cuts.
Tax rate cutting needs to be economically strategic and the most strategic ones are not necessarily the middle class cuts. Trump wants to run on a more aggressive agenda. In 2018, Republicans had none. I hope he comes up with a great one - and great messaging to go with it.
Trump is constrained this coming year by the Dem House. There are some things he can do without passage in Congress. The one I have been pushing is to index long term capital gains to inflation. This would be a windfall to the government revenues and to the economy because people would sell assets they wouldn't otherwise sell. Opponents will argue it's not the middle class that has capital gains, but partly it is.
He can propose a 10% middle class tax cut for the campaign and impose spending cuts if the Republicans take the house and hold the Senate. As Crafty suggests, that will be a battle in the election, especially the spending cuts and entitlement reforms going up against free everything that someone else will pay for.
Trump needs to boost the economy but not the deficit in his reelection year, especially if he doesn't get a trade breakthrough with China.
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Previous Trump Individual Tax Rate Cuts. These did not increase revenues, the business cuts are what stimulated the growth IMO.
Congress needs to make these cuts permanent, if not improve them. Biden proposes to undo them. Warren and Sander want to triple them.
Income Tax Rate Income for Those Filing As:
2017 2018-2025 Single Married-Joint
10% 10% $0-$9,525 $0-$19,050
15% 12% $9,525-$38,700 $19,050-$77,400
25% 22% $38,700-$82,500 $77,400-$165,000
28% 24% $82,500-$157,500 $165,000-$315,000
33% 32% $157,500-$200,000 $315,000-$400,000
33%-35% 35% $200,000-$500,000 $400,000-$600,000
39.6% 37% $500,000+ $600,000+
https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968
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"In the four years after the 2003 tax cuts become law, tax receipts exploded by $785 billion."
Wait wasn't that a dividend cut?
Your saying boosting middle class rate cuts doesn't boost buying activity and thus the overall economy?
I don't know I "buy into this".
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ccp:
"In the four years after the 2003 tax cuts become law, tax receipts exploded by $785 billion."
Wait wasn't that a dividend cut?"
- It was more than that. The biggest reductions were with capital gains.
https://en.wikipedia.org/wiki/Jobs_and_Growth_Tax_Relief_Reconciliation_Act_of_2003#Accelerated_credits_and_rate_reductions
Your saying boosting middle class rate cuts doesn't boost buying activity and thus the overall economy?
- There is less boost in the middle than at the higher incomes. Let's stereotype a middle class earner. He or she goes to work 40 hours per week, makes a little over 30k and paying about 12% federal income tax at the margin, maybe 16% with state tax and 22% with employee FICA withholding. Cut taxes by 10% and this earner is still paying 21% and still probably working 40 hours per week, but saving or spending a hair more. That outs a little more money into consumption, or savings or personal debt reduction but doesn't start a new business, create a new job or keep a company from moving. The rich have a higher rate to start and have more choices with their money, more opportunities to increase their production, accelerate their promotions, hire more, build more, sell more, etc. Politically, a tax cut cannot target the rich, but excluding them takes away much of the economic gain.
Look at the Trump rate changes a couple of posts back. The middle class gets the biggest percentage break but the bigger economic boost comes more from the incentives for businesses, investors and employers. For example the tax rate cuts of the 1920s Andrew Mellon under Harding and Coolidge, the 1960s under JFK, the 1980s under Reagan, and 2000s under Bush were all considered supply side cuts. Also the business side of the Trump cuts.
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I meant "capital gains" ;
Yes I get the rich man's logic.
but don't agree with the bottom line.
not even politically.
and $30 is not middle class. that was a good salary - in 1968.
not 2019.
suddenly we are saying tax cuts are really only meaningful if we give it to the most wealthy.
yes I get they pay the most in taxes to start with but all of us are being strangled with more and more taxes.
not buying it.
we will have to agree to disagree on this one which is ok.
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Current Spending = Current Revenue + a portion of Future Tax Revenue
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Current Spending = Current Revenue + a portion of Future Tax Revenue
George Gilder posed an interesting hypothetical back in the days of the Gilder forum. What if we taxed nothing and all spending was deficit? Government would be 'free', sort of like the Democrats health plan.
The burden of government would still be there, taking up its share of scarce resources. Presumably we would pay the cost of it in inflation / devaluation of our currency and wealth.
What would happen in that scenario is partly happening now as we run trillion dollar deficits and don't even pretend to balance the budget.
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ccp: "we will have to agree to disagree on this one"
- I think because I cannot put my thoughts to words very well.
I definitely want everyone to have a tax cut, especially including the middle class, but the only way you actually make the burden smaller for everyone is to shrink the size, scope and cost of government.
The question I was trying to address was: Which tax rate cuts grow the economy and grow revenues to the treasury?
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"George Gilder posed an interesting hypothetical back in the days of the Gilder forum. What if we taxed nothing and all spending was deficit? Government would be 'free', sort of like the Democrats health plan.
"The burden of government would still be there, taking up its share of scarce resources. Presumably we would pay the cost of it in inflation / devaluation of our currency and wealth."
What a fascinating thought exercise!
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The U.S Bureau of the Census has the annual median personal income at $31,099 in 2016.
https://fred.stlouisfed.org/series/MEPAINUSA672N
Median household income was $63,179 for Americans in 2018.
https://fred.stlouisfed.org/series/MEHOINUSA672N
On the example I gave, the tax rate jumps to 22% at $38,700 (individual).
[I assume that is taxable income.]
Adjust the numbers to that tax rate for a higher earner but the analysis comes out in a similar manner.
When you cut just the 12 or 22% bracket, everyone above that pays less in that range of their income but their marginal rate, what they pay on their next dollar of income is unchanged. Their incentive / disincentive to invest or earn one more dollar is unchanged.
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Capital gains were a big part of the 2003 tax rate cuts. Capital gains taxes limit the flow of scarce resources in the economy to their most valuable use. The capital gain tax rate affects ALL income.
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"George Gilder posed an interesting hypothetical back in the days of the Gilder forum. What if we taxed nothing and all spending was deficit? Government would be 'free', sort of like the Democrats health plan.
"The burden of government would still be there, taking up its share of scarce resources. Presumably we would pay the cost of it in inflation / devaluation of our currency and wealth."
What a fascinating thought exercise!
Maybe we run it by Scott Grannis...
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https://www.cnbc.com/2018/09/26/how-many-americans-qualify-as-middle-class.html
If you’re single, a salary of around $26,000 to $78,000 qualifies you as middle-income.
very weird imHO
so 2 thousand dollars a month and you are middle class. Poverty is ~ . 12,500. so one makes twice poverty you fall into the middle class
and 80 per yr you are rich... ("upper income")
who makes these definitions . - wall street people ???
census ? Krugman? IRS ? the Fed?
harvard profs?
wow.
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https://www.cnbc.com/2018/09/26/how-many-americans-qualify-as-middle-class.html
If you’re single, a salary of around $26,000 to $78,000 qualifies you as middle-income.
very weird imHO
so 2 thousand dollars a month and you are middle class. Poverty is ~ . 12,500. so one makes twice poverty you fall into the middle class
and 80 per yr you are rich... ("upper income")
who makes these definitions . - wall street people ???
census ? Krugman? IRS ? the Fed?
harvard profs?
wow.
Yes, all economic measures have flaws. I picked median income instead of someone else's definition of middle class, but median personal income probably includes people who don't work full time.
Another flaw is that the employment market is not national. Incomes and taxes and expenses are higher where you live then in say Casper Wyoming, Bozeman is different than Billings. Why put all those in one class? Plus, we don't live in a class society. There is an income spectrum or ladder. I hang out with people who make 10 times and a hundred times what I make and with people who own nothing. The main flaw in class thinking is mobility, people move through different income quintiles throughout their lifetime. When we talk about the rich and the poor we are sometimes talking about the same person at a different point in their life, not an us-versus-them fight that politicians are trying to fire up.
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Where Wealth Taxes Failed
Here’s a lesson from Europe that Warren and Sanders ignore.
By The Editorial Board
Nov. 4, 2019 6:40 pm ET
Opinion: Warren and Sanders Overlook Europe's Mistakes on Wealth Taxes
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Opinion: Warren and Sanders Overlook Europe's Mistakes on Wealth Taxes
Opinion: Warren and Sanders Overlook Europe's Mistakes on Wealth Taxes
The failure of wealth taxes in European countries over the past few decades undercuts Elizabeth Warren and Bernie Sanders' argument on how to pay for expensive social programs. Image: Ashlee Rezin Garcia/Associated Press
Bernie Sanders often points to Europe as his economic model, but there’s one lesson from the Continent that he and Elizabeth Warren want to ignore. Europe has tried and mostly rejected the wealth taxes that the two presidential candidates are now promising for America.
Senator Warren’s plan sets an annual 2% tax on assets above $50 million, and the rate rises to 6% for billionaires. Bernie Sanders wants to tax joint filers’ wealth between $32 million and $10 billion at rates of 1% to 8%. His advisers brag that this could wipe out half a billionaire’s wealth in 15 years. The candidates say these taxes will deliver “justice” and revenue to finance their vast new spending plans. That’s also what Europe’s socialists said only to find it didn’t work:
• Sweden. The Nordic country had a wealth tax for most of the 20th century, though its revenue never accounted for more than 0.4% of gross domestic product in the postwar era. One reason is that the levy treated different assets differently. This distorted investment as the wealthy took on debt to buy tax-free assets. If the U.S. farm lobby convinced President Warren to remove farmland as a taxable asset, say, prepare for a property bubble.
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The relatively small Swedish tax still was enough of a burden to drive out some of the country’s brightest citizens. IKEA founder Ingvar Kamprad famously left Sweden for Switzerland in the 1970s over onerous taxation. In 2007 the government repealed its 1.5% tax on personal wealth over $200,000.
• Germany. Berlin imposed levies of 0.5% and 0.7% on personal and corporate wealth in 1978. The rate rose to 1% in 1995, but the Federal Constitutional Court struck down the wealth tax that year, and it was effectively abolished by 1997. America’s Founders banned “direct taxes” not apportioned by state population. Ms. Warren argues her law isn’t a direct tax, but courts would get their say.
The German left occasionally proposes resurrecting the old system, and in 2018 the Ifo Institute for Economic Research analyzed how that would affect the German economy. The authors’ baseline scenario suggests that long-run GDP would be 5% lower with a wealth tax, while employment would shrink 2%. Business investment could see more dramatic declines. The report concluded that the wealth tax’s “burden is carried by virtually everyone, as indicated by the decline in GDP, investment, and employment.”
• France. In 1982 Socialist President François Mitterrand imposed a wealth tax with a top rate of 1.5% on assets above $1.5 million at the time. The tax was eliminated then reimposed several years later. In 2013 another Socialist President, François Hollande, tried to hit the wealthy even harder.
The results? Some 70,000 millionaires have left France since 2000, according to the South African research group New World Wealth. In 2017 French President Emmanuel Macron, a former economic adviser to Mr. Hollande, scrapped the scheme in favor of a property tax.
Ms. Warren expects her wealth tax to raise some $3.6 trillion in the first decade, while Mr. Sanders promises $4.35 trillion. France’s experience suggests this is fanciful. In 2016 French economist Eric Pichet noted that the wealth tax caused a net revenue loss. Paris collected €5.4 billion from the wealth tax in 2015. Yet total tax receipts were at least €7.5 billion lower than they otherwise would have been, since investment declined and hundreds of billions of euros moved offshore.
Mr. Sanders and Ms. Warren have proposed a minimum 40% exit tax on anyone renouncing U.S. citizenship—a sort of financial Berlin Wall to block this inevitable capital flight.
• Austria. One difficulty of imposing a wealth tax is figuring out how much someone is worth. Valuing securities, homes or private jets is at least relatively objective. What about modern art, race horses or closely held companies? When Austria abolished its decades-old wealth tax in 1994, officials cited the administrative burden of calculating the exact levy.
***
While a dozen European states had wealth taxes in 1990, the number has fallen to three today. Nationally Spain taxes fortunes above €700,000 at 0.2%, rising to 2.5% at roughly €10.7 million. Rates can vary among Spain’s regions, but does anyone think of Madrid as an economic model? Switzerland’s wealth tax hits the middle class, starting in the low six figures inside most of the country’s 26 cantons. Norway taxes wealth starting at about $170,000 at 0.85%, but the country’s oil reserves have let it get away with bad economic decisions for decades.
Despite the obvious flaws, the wealth tax stays alive in the socialist mind because it is the ultimate populist envy tax. Donald Trump popped off in support of a wealth tax when weighing a 2000 presidential bid, no doubt without much thought.
The best argument against a wealth tax is moral. It is a confiscatory tax on the assets from work, thrift and investment that have already been taxed at least once as individual or corporate income, and perhaps again as a capital gain or death tax. The European experience shows that it also fails in practice. The question is how much economic damage comes first.
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When you tax something you get less of it. If you tax “wealth” you get less wealth, which means slower growth and an environment that makes it harder for people to accumulate wealth. What sense does it make to remove parts of a cow, instead of taxing the milk that it produces? - Brian Wesbury
This is a good analogy. - Doug
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Let's see if POTH accepts FedEx's challenge to debate on its article criticizing FedEx for having no taxes.
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He does not have my cut (indexing capital gains to inflation) in his list. Much better idea than his no. 3), capital gains rollover.
This is an opinion column, not an administration document, posted for discussion. No. 1) I think will not happen. People who can afford to save get a break that people who can't afford don't. No. 2) gives up too much revenue, per previous discussion. Maybe Trump does it anyway in an election year where his competitors all want to blow up the deficit anyway. A 'middle class tax cut' should be tied to a federal government spending cut - a simple concept. Smaller burden of government = smaller government. No. 3) does not bring in more revenue or stimulate much. No. 4) is to tamper with social security in an election year. Let's go after entitlements in a comprehensive manner. Otherwise, I like Stephen Moore. ) Designing a tax cut for an entity already in a huge deficit is a formidable task.
https://www.realclearpolitics.com/articles/2019/11/19/trump_needs_tax_cut_20_141767.html
...
1) Tax-free savings accounts. My Heritage colleague Adam Michel has been pitching an idea that would allow Americans with incomes below about $150,000 to deduct up $10,000 each year from their taxable income if they put the money into savings. By raising national saving, this would provide a bigger pool of money available for investment and allow millions of Americans to own more stock.
Given that most middle-class families have very low savings, this would also acculturate Americans to squirreling away more money every year and watching the power of compound interest raise their lifetime wealth.
2) Reduce tax rates on the middle class to 15%. This is an idea that National Economic Council Director Larry Kudlow has floated. It reduces rates from 22% to 15% for those in the middle income range, which will modestly offer greater work incentives for millions of families while allowing people to keep more of their earnings.
3) Capital gains rollover. This would change the way we tax capital gains income. Currently, if you own a stock like IBM and want to sell it at a gain of, say, $50,000 and use those gains to buy stock in Uber, you have to pay a nearly 24% tax on the $50,000. But all you've done is rearrange your portfolio of stocks; you haven't really realized a gain in your income that you can spend.
This perversely locks in investment because people stay in old stocks and steer away from investing in new start-ups in order to avoid the capital gains tax. Under this "rollover" proposal, capital gains would be paid only when the money is withdrawn from the stock market entirely.
4) Private accounts for Social Security. Allow workers to put a small amount -- perhaps 2% -- of their payroll taxes into a private, personal retirement account. These accounts would be invested in the index funds of all stocks. This would allow for much higher lifetime returns from this money than conventional Social Security would offer. It would allow every participating American -- including tens of millions of minimum-wage workers -- to become shareholders and own a piece of the rock.
...
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https://www.heritage.org/taxes/commentary/the-new-york-times-wrong-the-rich-pay-more-taxes-you-do
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https://video.foxnews.com/v/6118576945001#sp=show-clips
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https://scottgrannis.blogspot.com/2020/01/the-tax-code-is-still-highly-progressive.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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https://scottgrannis.blogspot.com/2020/01/the-tax-code-is-still-highly-progressive.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
Yes, and he proves the case with the data.
Every time we 'reform' taxes, by the rules of trying to appease the Left, we cannot make tax rates less progressive, therefore rates just keeps getting steep and steeper over time, even when Republicans are in charge.
I accept the compromise of having some progressivity in tax rates, but the other side should accept the math and science of the fact that the high rates on the richest are the most damaging to the economy. Those are the people who are most able to change their economic activity based on the disincentives to produce put upon them.
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Best data I can find. Revenues are going up faster with lower tax rates than they were with higher rates. This means incomes are going up even faster. Proves fixed-pie economics false.
FY 2020 - $3.64 trillion, budgeted.
FY 2019 - $3.44 trillion, estimated.
FY 2018 - $3.33 trillion.
FY 2017 - $3.32 trillion.
FY 2016 - $3.27 trillion.
FY 2015 - $3.25 trillion.
https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762
https://www.usgovernmentrevenue.com/federal_revenue_chart
Meanwhile, US GDP growth is highest of the G7.
https://www.wsj.com/articles/tax-reform-has-delivered-for-workers-11577045463
Real disposable personal income per household has increased $6,000 since the tax cuts were passed.
Over the past year, nominal wages for the lowest 10% of American workers jumped 7%.
in January 2017, the Congressional Budget Office forecast the creation of only two million jobs by this point. The economy has in fact created seven million jobs since January 2017.
[Wrong by 350%]
Federal Reserve’s median forecast had the unemployment rate inching up toward 5%, almost 1.5 percentage points higher than the current 50-year low, 3.5%.
[Wrong in direction and magnitude.]
-----------------------------------------
Higher incomes and lower unemployment means that federal welfare spending and transfer payments can be cut, closing the deficit. Whether or not lawmakers will do that is another matter. If voters demanded that, it would happen.
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I posted Doug's post on a FB conversation I am in with an econ prof. Herewith his response:
Firstly, I’m reasonably sure the tax revenue historical and forecasted numbers aren’t adjusted for inflation. If you reduce them by about 2% per year they're not growing. A quick google found this article that lays that out:
http://www.crfb.org/.../no-tax-revenue-has-not-risen-not...
Interestingly enough from that TheBalance link you used:
“The revenue collected equals 16.3% of gross domestic product. That's the nation's measurement of economic output. That's like saying the average tax rate for the United States itself is 16.3%.
If that much production is going to the federal government, then you want to make sure it's reinvested into the economy to support future growth.
It's also much lower than the historical 19% target. But that's because President Donald Trump cut taxes. The OMB estimates GDP will increase by 3.1% in FY 2020. That's higher than the ideal growth rate.
Revenues would be much higher without the Trump tax plan. It was also lowered by the extension of the Bush tax cuts and the Obama tax cuts.”
https://www.thebalance.com/current-u-s-federal-government...
As to the rest, you may have noticed the 26% increase in the US deficit last year, including the 5% increase in discretionary spending. Since 2015, the deficit has more than doubled. The government borrows and spends more, GDP ends up higher, and unemployment decreases. Sure, tax cuts may have done a bit to boost the economy, but given it was already healthy, it seems unlikely that a tax cut mostly on high income people will change their spending habits sufficiently to make more of a difference than it will mostly just reduce their tax payments.
Again, here’s TheBalance to lay It out
https://www.thebalance.com/current-u-s-federal-government...
Higher incomes and lower unemployment due to a ballooning deficit doesn’t jump out as a situation where the deficit is going to close any time soon.
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I posted Doug's post on a FB conversation I am in with an econ prof. Herewith his response:
Firstly, I’m reasonably sure the tax revenue historical and forecasted numbers aren’t adjusted for inflation. If you reduce them by about 2% per year they're not growing. A quick google found this article that lays that out:
http://www.crfb.org/.../no-tax-revenue-has-not-risen-not...
Interestingly enough from that TheBalance link you used:
“The revenue collected equals 16.3% of gross domestic product. That's the nation's measurement of economic output. That's like saying the average tax rate for the United States itself is 16.3%.
If that much production is going to the federal government, then you want to make sure it's reinvested into the economy to support future growth.
It's also much lower than the historical 19% target. But that's because President Donald Trump cut taxes. The OMB estimates GDP will increase by 3.1% in FY 2020. That's higher than the ideal growth rate.
Revenues would be much higher without the Trump tax plan. It was also lowered by the extension of the Bush tax cuts and the Obama tax cuts.”
https://www.thebalance.com/current-u-s-federal-government...
As to the rest, you may have noticed the 26% increase in the US deficit last year, including the 5% increase in discretionary spending. Since 2015, the deficit has more than doubled. The government borrows and spends more, GDP ends up higher, and unemployment decreases. Sure, tax cuts may have done a bit to boost the economy, but given it was already healthy, it seems unlikely that a tax cut mostly on high income people will change their spending habits sufficiently to make more of a difference than it will mostly just reduce their tax payments.
Again, here’s TheBalance to lay It out
https://www.thebalance.com/current-u-s-federal-government...
Higher incomes and lower unemployment due to a ballooning deficit doesn’t jump out as a situation where the deficit is going to close any time soon.
1) A few of his statements boggle my mind, starting with this:
"Sure, tax cuts may have done a bit to boost the economy, but given it was already healthy..."
- No, (IMHO). We were in stagnation prior to this, risking recession. One evidentiary point on that would be that the voters threw out the party in power and changed course. A second piece of evidence is that 4600 companies left the United States or moved operations out during the time that the US had the highest corporate business tax rates in the developed world. [Links to that in this thread on the forum.] Third, GDP growth was 1.5% in the last year of the prior administration.
2) "I’m reasonably sure the tax revenue historical and forecasted numbers aren’t adjusted for inflation. If you reduce them by about 2% per year they're not growing."
- I agree they are likely not inflation adjusted dollars. I also believe inflation was below the Fed target of 2% during that period. But take that inflation as a constant over this period, then federal revenues were shrinking faster BEFORE Trump and before tax rates were cut. That is a very dangerous situation IMHO if we accept the idea that large deficits are bad and that spending on everything is going up every year under both parties. An economy with high tax rates and declining revenues is not "already healthy". See Ibn Khaldun, 'The Muqaddimah'. That combination leads to collapse, sooner or later.
3) “The revenue collected equals 16.3% of gross domestic product. That's the nation's measurement of economic output. That's like saying the average tax rate for the United States itself is 16.3%. ... It's also much lower than the historical 19% target."
- I disagree with the premise that taxes at a higher percentage of GDP is preferable or even that it necessarily brings in more money. It doesn't necessarily mean that.
4) "But that's because President Donald Trump cut taxes."
- False. Trump cut tax rates. Taxes measured in dollars, what we use to pay our expenses, went up.
5) "The OMB estimates GDP will increase by 3.1% in FY 2020. That's higher than the ideal growth rate."
- Oh boy, this is where we really part ways. For one thing, 3.1% is the historical average rate of growth before anti-growth policies took power. For another thing, it's not higher than the ideal growth rate. Switch to micro-economics for a moment, which is better for you and your family, a 3% raise or a 4-5% raise?
6) "If that much production is going to the federal government, then you want to make sure it's reinvested into the economy to support future growth."
- I don't agree that government sector 'investment' is the driver of economic growth.
7) Revenues would be much higher without the Trump tax plan.
- Everyone is entitled to an opinion, but I don't agree with this and it is most certainly an unprovable assertion. We were losing companies, losing revenues, losing our competitive advantage and due for a recession according to historical cycles. The consequence of doing nothing to address the malaise we were in is something we will never know because voters took us in a different direction.
8 ) "It was also lowered by ... the Obama tax cuts.”
- I don't think there was a net tax cut or tax rate cut over the Obama years. PolitiFact: "We rated his campaign promise that no family making less than $250,000 will see "any form of tax increase" as Promise Broken."
9) "As to the rest, you may have noticed the 26% increase in the US deficit last year, including the 5% increase in discretionary spending. Since 2015, the deficit has more than doubled."
- Paraphrasing James Carville, It's the Spending Stupid. If revenues are constant or rising, all of the increase in deficit is coming from the spending. If 6 million people are off of food stamps, if black and Hispanic unemployment levels are at historic lows, if the number of people on federal disability assistance is declining, if we are coming home from two foreign wars... then maybe the deficit could be narrowed by cutting spending instead of raising tax rates when we already know that higher tax rates don't bring in more revenues.
10) "it seems unlikely that a tax cut mostly on high income people will change their spending habits sufficiently to make more of a difference than it will mostly just reduce their tax payments."
- The tax rate cut was not mostly on high income people. Changing investment habits is as important to the economy as changing spending habits.
11) "Higher incomes and lower unemployment due to a ballooning deficit doesn’t jump out as a situation where the deficit is going to close any time soon."
- The deficit will close only when strong GDP growth is coupled with spending restraint, including entitlement reform (IMHO).
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Any further words from the econ prof who thinks 3.1% is "higher than the ideal growth rate"?
Here are some lower growth rates (Venezuela):
(https://d3fy651gv2fhd3.cloudfront.net/charts/venezuela-gdp-growth-annual@2x.png?s=vnggyoy&v=201911201325V20191105)
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Quality work on those two posts Doug 8-)
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Does anyone remember when the NYT and Democrats favored a flat tax?
https://www.nytimes.com/1982/06/06/opinion/yes-there-is-a-better-income-tax.html
Opinion
Yes, There Is a Better Income Tax
June 6, 1982, Section 4, Page 20
As many Americans keep saying, it's a poison in the body politic. Who can respect an income tax system that allows many wealthy citizens to pay little or no tax yet claims close to half the marginal earnings of the middle class? Who can defend a tax code so complicated that even the most educated family needs a professional to decide how much it owes?
Unpopular as it is, however, the income tax system has been remarkably resistant to improvement. President Reagan's tax package will eventually roll back rates to the level of the late 1970's, but it will not simplify the code or rid it of provisions that penalize hard work and reward unproductive investment. No wonder that skeptical politicians rank serious tax reform with gun control and free world trade - as worthy causes unworthy of the time of realists.
The skeptics may yet be proved wrong. The obstacles to reform are no less daunting than they were a decade ago. But Congress is beginning to see that the public's tolerance is not unlimited; disaffection is great, cheating has increased. If any reform has a chance, it is the fresh start proposed by Senator Bradley of New Jersey and Representative Gephardt of Missouri.
Federal income taxes now claim only 12 percent of all personal income. But the income base that is taxed has been so eroded by exceptions and preferences that the rates on what is left to tax must be kept high. Thus, the tax on an extra dollar of income for a typical family earning $20,000 is 28 percent and progressively higher for the more affluent. The urge for reform, therefore, usually attacks the most egregious exemptions in the code, to exploit popular resentments and to enlarge the tax base.
But a diffused public outrage has been no match for well-funded special interests. So a new generation of reformers aims to rebuild the income tax base from scratch. It hopes to simplify the tax code and sharply lower the marginal tax rates for all.
The most dramatic fresh start, without changing the total amount collected, would be a flat-rate tax levied on a greatly broadened income base. Senator Helms of North Carolina would rid the law of virtually every tax preference and tax all income at about 12 percent. Representative Panetta of Cali-fornia would retain a few preferences and tax at a flat 19 percent. Either approach would greatly improve the efficiency of the system, simplifying calculations and increasing the incentive to earn. But the price of simplicity in such a flat-rate tax is an enormous redistribution of income.
According to the Congressional Budget Office, Mr. Helms's plan would raise the burden on those earning $5,000 to $10,000 by 147 percent - while decreasing the total paid by families in the $100,000 to $200,000 range by 47 percent. Mr. Panetta would fully protect the poor but would still be increasing the burden on middle-income families.
Lacking this radical simplicity, but preserving the present balance of pain, is the Bradley-Gephardt plan. It would continue to permit a few politically sensitive deductions, like home mortgage interest and contributions to charity. But more affluent families would pay a surcharge on these preference items. Also, the marginal tax rate would increase with income, topping out at 28 percent for those earning more than $37,000.
Unlike a flat tax, Bradley-Gephardt would thus not mix tax reform with redistribution: no income class would benefit at the expense of any other. But dozens of tax exemptions would be eliminated; most would pay tax on almost all types of income. The average citizen could thus figure his own taxes and figure that his neighbor was also paying a fair share.
Neither a flat tax, nor a sophisticated hybrid like Bradley-Gephardt, would be easy to enact. Hardly anyone objects to the idea of simplification; but almost every voter aims to protect a favorite piece of tax-exempt turf. Investors want preferences for capital gains; working parents want deductions for child care; Americans abroad want foreign income exclusions, and so on. All exclusions can find their justification. But by cumulatively narrowing the tax base, all contribute to making the income tax code a disaster.
The issue, then, is whether Congress can muster the vision to look to the common interest. The hurdles are formidable, but so are the potential benefits: a return to fairness and faith in a system that lies at the heart of responsible government.
A version of this article appears in print on June 6, 1982, Section 4, Page 20 of the National edition with the headline: Yes, There Is a Better Income Tax.
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Nice find!
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Nice find!
Hat tip: Dan Mitchell, economist who has worked at Heritage and Cato.
https://danieljmitchell.wordpress.com/page/1/
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"Most Democrat presidential candidates want to at least double the capital gains tax. The #top1percent would then stop selling assets and thus APPEAR poorer the income tax data Piketty & Saez habitually abuse. Not selling assets doesn't make the rich poorer - only the Treasury." - Economist Alan Reynolds
Lawrence Hamtil
@lhamtil
· Feb 15
The top 1% realize more capital gains (remember, it's a voluntary tax) when rates have been lower
(https://pbs.twimg.com/media/EQ3Nv5WUUAAmuH7?format=jpg&name=900x900)
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Tax something more when you want less of it is a lesson we have learned over and over and over.
Put Democrats in charge of everything, Presidency, House and Senate with 60 votes, and what do you get? More taxes of course.
Hidden in plain sight inside Obamacare was the Medical Device Tax!
It was finally repealed by Republicans. The repeal date did not go into effect until 2020 when the CV spread had already begun.
Who paid the brunt of that tax? The dead in NYC, to name a few.
--------------------------------------------------------------------------------
Medtronic
Medtronic medical device manufacturer head office 20 Lower Hatch Street, Dublin 2, DUBLIN, Ireland
Founded in Minneapolis in 1949, this Fortune 500 company grew to be a worldwide medical device maker. But in 2014 it shifted its global headquarters address to Ireland
https://www.cnbc.com/2016/04/21/10-iconic-us-companies-that-have-moved-headquarters-abroad.html
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Our main finding is that taxation negatively affect per capita GDP growth rates, both directly and indirectly, via physical and human capital saving rates. …Our cross-country analysis makes a clear point on this, at least for our sample of OECD countries: on average, tax cuts produce a beneficial impact on GDP dynamics... In our baseline specification, a cut by 10% in personal income tax rate generates an change in the real per capita GDP growth rate of +1% while a cut by 10% in corporate income tax rate increases the rate of growth of real per capita GDP by 0.9%. …The main message of our empirical exercise is that, across various samples and specifications, taxes are harmful for growth.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3596116
https://danieljmitchell.wordpress.com/2020/05/12/taxes-and-growth/
Adding 1% to the real per capita GDP growth rate is a BFD, the difference between stagnation and prosperity, if you care about that kind of thing. Combine with spending restraint, monetary restraint, regulatory restraint and greater individual and economic freedoms and you might have the secret recipe for success.
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https://www.youtube.com/watch?v=8k7-hfOAMA4
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(https://i2.wp.com/freedomandprosperity.org/wp-content/uploads/2020/05/Supply-Side-Velociraptor.jpg?zoom=2)
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Outstanding!
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Does Federal tax on earnings deter working ?
Funny I was listening to the Curtis Sliwa show on way home from physical therapy and they asked does paying people more money during layoffs from work then they actually made when they were working (68%)
deter from wanting to return to work?
scratching my head.
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...does paying people more money during layoffs from work then they actually made when they were working (68%)
deter from wanting to return to work?
Domestic social spending programs, beyond safety net levels, discourage work too.
Paying people who are laid off more than they were making while they worked, when others get nothing, is stupid, counterproductive, unfair, budget-busting, unwise, asinine.
On the positive side, the stupidity creates a teachable moment.
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Between lower taxes and higher adjusted gross incomes, Americans were significantly better off after the Trump tax cuts.
And federal revenue has consistently increased in the years after the Trump tax cuts. Despite the enormous tax cut, federal revenue increased by $10 billion in 2018, by $130 billion in 2019, and was projected to grow by even more in 2020 before the Covid-19 pandemic and its economic effects.
It’s true that the federal budget deficit has also increased, but that is because federal spending has increased faster than revenue has. That’s the fault of Congress, not the tax cut
https://us2.campaign-archive.com/?u=236713c0eb5508a7a8a8c680e&id=72f82d0c95
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https://www.washingtonexaminer.com/washington-secrets/trumps-payroll-tax-cut-boosts-blacks-most-adds-2-3-million-jobs-analysis
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https://www.yahoo.com/finance/news/joe-bidens-tax-plan-may-wallop-the-stock-market-heres-one-disturbing-estimate-173751982.html
we all know this is only for starters
just wait till he and his party get control what they will do to this country
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Nancy Pelosi’s Democrats demand increased deductions for state and local taxes, which would mainly favor those with income of more than $650,000.
Trump orders a payroll-tax suspension, with dollars benefits flowing mostly to modest earners.
- Michael Barone, WSJ
[The electorate has flipped some policies and demographics.]
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here it comes:
https://www.aier.org/article/new-jerseys-transaction-tax-grab/
more tribute for the Democrat mob
to buy voters
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https://www.nationalreview.com/2020/09/joe-biden-tax-plans-broader-reach-than-advertised/
it is always the same lame argument from the LEFT
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https://committeetounleashprosperity.com/wp-content/uploads/2020/10/2020.10.12-Arizona-Study-Antoni-edits.pdf
If you're not in AZ, don't worry. This kind of confiscation will soon come to you.
Note: States tax long term capital gains (inflation based gains) at full tax rates.
Arizona’s Proposition 208, which would raise the state income tax rate from 4.5% to 8% with the money slated for schools and teacher raises – and, of course, no education reforms. Most of the campaign money is pouring in from an out of state leftwing group, and it’s important because if it passes in AZ, it is coming to a state near you.
A study by Laffer, Moore, and Antoni just released by the Arizona Chamber of Commerce finds that if voters approve of this 75% increase in the AZ income tax, the state would go from one of the lowest tax states to having the 9th highest tax rate – even higher than Illinois and Connecticut. AZ would be hanging out with the likes of New York, Calif, and New Jersey. Why? This initiative would also erase in one fell swoop 25 years of progress in Arizona lowering income tax rates. Arizona is one of the three biggest destination states from disgruntled Midwesterners, northeasterners, and Californians. This in-migration has brought lots of wealth, jobs, and development to the Grand Canyon State.
Over the next decade, Prop 208 would cost the state of Arizona 200,000 jobs, reduce average household income by $6,000, and reduce population growth by some half million people. Half of the expected revenues would disappear because of less growth. “We can’t think of a worse time to be raising taxes on Arizona’s small businesses than now, coming out of a pandemic,” Arthur Laffer says.
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People fleeing blue state hellholes turn their new homes into...
https://committeetounleashprosperity.com/wp-content/uploads/2020/10/2020.10.12-Arizona-Study-Antoni-edits.pdf
If you're not in AZ, don't worry. This kind of confiscation will soon come to you.
Note: States tax long term capital gains (inflation based gains) at full tax rates.
Arizona’s Proposition 208, which would raise the state income tax rate from 4.5% to 8% with the money slated for schools and teacher raises – and, of course, no education reforms. Most of the campaign money is pouring in from an out of state leftwing group, and it’s important because if it passes in AZ, it is coming to a state near you.
A study by Laffer, Moore, and Antoni just released by the Arizona Chamber of Commerce finds that if voters approve of this 75% increase in the AZ income tax, the state would go from one of the lowest tax states to having the 9th highest tax rate – even higher than Illinois and Connecticut. AZ would be hanging out with the likes of New York, Calif, and New Jersey. Why? This initiative would also erase in one fell swoop 25 years of progress in Arizona lowering income tax rates. Arizona is one of the three biggest destination states from disgruntled Midwesterners, northeasterners, and Californians. This in-migration has brought lots of wealth, jobs, and development to the Grand Canyon State.
Over the next decade, Prop 208 would cost the state of Arizona 200,000 jobs, reduce average household income by $6,000, and reduce population growth by some half million people. Half of the expected revenues would disappear because of less growth. “We can’t think of a worse time to be raising taxes on Arizona’s small businesses than now, coming out of a pandemic,” Arthur Laffer says.
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does not affect me but I feel sorry for those it does:
https://www.newsmax.com/finance/streettalk/biden-tax-plan-top-rate/2020/10/19/id/992605/
why can't they keep their money?
more tribute to the Democrat Party mob machine
Where does this end?
And we know they WILL get their tribute from the rest of us - somehow. Just more subtly , back door etc.
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"why can't they keep their money?"
Because Republicans did not effectively fight back against the phony income inequality argument. Income inequality is a fact of freedom, not a political issue.
Everyone should should be able to keep most of what they make AND pay in their fair share for the common expenses.
Equal protection isn't a game you play trying to get around it with marginal rates that apply to some and not others, taxing different income differently.
Pro-growth economics, as one nominally Dem President put it, is a rising tide that lifts all boats. This economy needs a lot more prosperity, not a scaling back to sameness. You can't effectively target good wealth and bad wealth. When you target, confiscate and discourage wealth, you get less of it. That hurts only the people who don't already have it, all the rest of us. They call us science deniers but they can't connect the obvious fact that one big part of the economy greatly affects all the other parts of the economy. cf. Tax reform 2017 which Democrats thoughts was all corporate tax rate cuts doubled the growth rate of the economy leading to the lowest recorded unemployment ever for blacks and Hispanics. Democrats answer, reverse course, reverse the results.
Too bad no one can fill in the details and put it on a bumper sticker.
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If Biden wins and Dems sweep, my economic activities will change greatly. It will be all about defense, keeping what I can of what I have, and avoidance of taxable activities - like earning income.
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but as ALWAYS it is sold on a tax the "rich" (not you ) plan (to get everyone to nod yeah what a great idea)
https://taxfoundation.org/joe-biden-tax-plan-2020/#Details
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https://fee.org/articles/the-power-to-tax-is-the-power-to-destroy/
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https://fee.org/articles/the-power-to-tax-is-the-power-to-destroy/
”That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create”
There is so much more there in the article, it will take more than one reading for me to understand the constitutional side of it.
The power to tax is also a necessity, to pay for basic public goods, common defense, roads, judiciary, etc.
The thinking behind the Herman Cain 9-9-9 plan comes to mind. If you're going to tax everything, get the rates down to single digits where they aren't the main factor in every economic decision.
Raise the money without destroying that which creates it.
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"There is so much more there in the article, it will take more than one reading for me to understand the constitutional side of it."
Yes, a very good article IMHO.
The federalism issue presented by the facts plays a key role in the decision. The question I raise using this article in the gun rights thread, is that the general aphorisms must take account of the nature of fundamental constitutional rights.
Let's discuss that in that thread though.
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https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID3734445_code803290.pdf?abstractid=3734445&mirid=1
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This article is written about Minnesota state income tax but same principles apply to all states and nations.
https://www.americanexperiment.org/2021/01/if-you-want-the-rich-to-pay-their-fair-share-what-number-exactly-do-you-mean/
Conclusion paraphrased, they don't want tax rates fairer, they want them higher, even though that brings in no new revenue and hurts the economy.
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Already mentioned here...
https://redstate.com/nick-arama/2021/01/27/317626-n317626
Biden Commerce Secretary Nominee Suggests They Might Break a Pretty Important Campaign Promise
Remember how Joe Biden insisted that he wouldn’t be raising taxes on the middle class? That ultimately his ‘plan’ was only going to hit the people making over $400,000, who needed to “pay their fair share” and you ordinary Americans weren’t going to be hit?
You knew that was a lie, right? Anyone with any sense, anyone who has been watching Democrats for years should know that was a lie. It was only just a matter of time before they admit, woefully of course, that you shouldn’t have read their lips, that all you had to do was use your common sense to know they couldn’t fund all the programs they’re talking about without touching everyone.
So now let’s look at what Biden’s Commerce Secretary nominee just admitted to, because sure as shooting, we are definitely going to be revisiting this question more in the future.
We reported on the first lie/broken campaign promise here, promising a $2000 check to people if they voted for the Democrats for Senate in Georgia.
We’re already seeing the damage that Biden’s climate policies are doing to the energy industry and by extension to all of us when the raised prices hit.
But now there’s more we can chalk up to the Democrats’ climate approach, according to Townhall.
Sen. Rick Scott (R-FL) asks Gina Raimondo, the Commerce nominee who has also been the Governor of Rhode Island, what she thinks about raising gas taxes or other taxes on the poorest Americans in order to pay for Biden’s climate policies. So now if she’s really holding to Biden’s promises during the campaign, her response should be, “Well, we’re only going to touch the folks over $400,000,” right? But no, she goes on to say that they were going to have to “balance interests” in deciding what to do about it.
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No BidenBux?
The FSA isn't going to like that!
Already mentioned here...
https://redstate.com/nick-arama/2021/01/27/317626-n317626
Biden Commerce Secretary Nominee Suggests They Might Break a Pretty Important Campaign Promise
Remember how Joe Biden insisted that he wouldn’t be raising taxes on the middle class? That ultimately his ‘plan’ was only going to hit the people making over $400,000, who needed to “pay their fair share” and you ordinary Americans weren’t going to be hit?
You knew that was a lie, right? Anyone with any sense, anyone who has been watching Democrats for years should know that was a lie. It was only just a matter of time before they admit, woefully of course, that you shouldn’t have read their lips, that all you had to do was use your common sense to know they couldn’t fund all the programs they’re talking about without touching everyone.
So now let’s look at what Biden’s Commerce Secretary nominee just admitted to, because sure as shooting, we are definitely going to be revisiting this question more in the future.
We reported on the first lie/broken campaign promise here, promising a $2000 check to people if they voted for the Democrats for Senate in Georgia.
We’re already seeing the damage that Biden’s climate policies are doing to the energy industry and by extension to all of us when the raised prices hit.
But now there’s more we can chalk up to the Democrats’ climate approach, according to Townhall.
Sen. Rick Scott (R-FL) asks Gina Raimondo, the Commerce nominee who has also been the Governor of Rhode Island, what she thinks about raising gas taxes or other taxes on the poorest Americans in order to pay for Biden’s climate policies. So now if she’s really holding to Biden’s promises during the campaign, her response should be, “Well, we’re only going to touch the folks over $400,000,” right? But no, she goes on to say that they were going to have to “balance interests” in deciding what to do about it.
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[First was the energy tax.]
2. Stepped Up Basis
Note: It's hard to write about tax policy and make it clear or interesting. Bear with me...
Before Biden: A property is valued at market price when you inherit it and the IRS recognizes that value as the 'basis' or cost of the property when you later sell it.
Biden: Repealed by executive order? The repeal is in his economic plan. I heard he already ordered it, but haven't found a news link yet.
Cost of the Biden repeal to a typical, middle income taxpayer: You pay 33-35% tax * on the ENTIRE capital gain - all the way back to the deceased's date of original acquisition.
* Federal capital gains tax plus taxed as ordinary income for state taxes. Rates vary by state and by oincome.
The worst part: The vast majority of this "gain" is INFLATION. Inflation is a tax, not a gain.
Do the math, follow the money:
Median house 1960: $11,600 in 1960 dollars.
Median house 2021: $346,800 in 2021 dollars.
(United States Census Bureau data)
Houses got bigger, but does it not occur to ANYONE that 1960 dollars and 2021 dollars are not the same thing??!!
That makes no difference to the IRS. Under these rules, you or your heirs are taxed on all of the difference.
I would like to know who voted for this jerk and do any of you regret it yet?
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Biden plan attacks 1031 exchanges
https://www.expert1031.com/articles/2020/08/28/exchanger-beware-bidens-proposed-tax-plan-implodes-1031-exchanges-and-more
Like in a banana republic, (can I still say that?), you can't make long term plans because the rules are constantly changing.
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Fk. :-P
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Does anyone know that under the Trump tax (rate) cuts ("for the rich"), the share of income earned by the rich went down and the share of taxes paid by the rich went up? WHY IS THAT FACT ON THE OP0INION PAGE??
https://www.wsj.com/articles/how-trump-taxed-the-rich-11612556008?mod=opinion_minor_pos1
https://taxfoundation.org/publications/latest-federal-income-tax-data/
How Trump Taxed the Rich
A reality check regarding those infamous one-percenters.
President Donald Trump and First Lady Melania Trump arrive at a farewell ceremony at Joint Base Andrews, Maryland on Jan. 20.
By James Freeman
Feb. 5, 2021
As Democrats in Congress and the White House make the case for tax hikes this year, expect a lot of disinformation that will somehow escape the attention of Facebook and Twitter censors. In particular there will be voluminous and erroneous claims about the landmark 2017 Trump tax reform and its impact on wealthy filers. Therefore this is perhaps the perfect moment for a preemptive reality check.
And who better to provide it than the industrious Erica York at the Tax Foundation?
This week she reports:
The Internal Revenue Service (IRS) has released data on individual income taxes for tax year 2018, showing the number of taxpayers, adjusted gross income, and income tax shares by income percentiles. The new data shows how taxes changed in the first tax year after passage of the Tax Cuts and Jobs Act (TCJA) in December 2017.
The data shows that the U.S. individual income tax continued to be progressive, borne primarily by the highest income earners...
The share of reported income earned by the top 1 percent of taxpayers fell slightly, to 20.9 percent in 2018 from 21 percent in 2017. Their share of federal individual income taxes rose by 1.6 percentage points to 40.1 percent.
Since 2001, the share of federal income taxes paid by the top 1 percent increased from 33.2 percent to a new high of 40.1 percent in 2018.
In 2018, the top 50 percent of all taxpayers paid 97.1 percent of all individual income taxes, while the bottom 50 percent paid the remaining 2.9 percent.
The top 1 percent paid a greater share of individual income taxes (40.1 percent) than the bottom 90 percent combined (28.6 percent).
In sum, the richest Americans took on more of the tax burden. Meanwhile, “average tax rates fell for taxpayers across all income groups,” adds Ms. York
[Sorry I need subscription to get the rest of the story.]
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https://media.gab.com/system/media_attachments/files/065/017/510/original/265d58288d4e654c.png
(https://media.gab.com/system/media_attachments/files/065/017/510/original/265d58288d4e654c.png)
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Biden’s Stimulus and the ‘Financialization’ of Taxes
How to pay for all the new spending? The president proposes heavier reliance on capital-gains levies.
By Joseph C. Sternberg
Feb. 25, 2021 12:09 pm ET
A central Republican criticism of the $1.9 trillion Covid “stimulus” Democrats plan to ram through Capitol Hill is that taxes will have to rise eventually to pay back all the debt funding this spree. That’s more controversial than it ought to be—Democrats and their intellectual enablers seem certain money grows on trees—but it also elides an interesting question: Which taxes?
This is what no one bothered to talk about when Federal Reserve Chairman Jerome Powell testified to Congress this week about the current conduct of monetary policy—and yes, I mean taxation. Theorists and practitioners increasingly blur the lines between monetary and fiscal policy on the spending side of the government’s ledger. The next shoe to drop will be the entanglement between the Fed and Treasury on the revenue side.
Mr. Powell already does his part and then some by suppressing government borrowing costs for that large and growing portion of the federal budget Congress chooses to pluck out of thin air. This commitment was on display this week, although only obliquely since convention dictates no one admit the Fed cares about the government’s financing needs.
Mr. Powell talked up the Fed’s ability to stimulate economic growth as Covid-19 recedes, touted the stimulative potential of the kind of fiscal blowout Democrats are contemplating—and still predicted economic growth sluggish enough to justify low rates for a protracted period while also expressing a willingness to sustain exceptionally loose policy through any short bouts of inflation this nongrowth might produce. If this sounds contradictory, remember the only point that matters is the one lawmakers (and markets) actually heard: Low federal borrowing rates forever, no matter what happens.
Expect monetary policy to bleed slowly but surely into tax matters as well. The vector will be capital-gains taxation, which is booming in the current recession, contrary to all economic logic.
Surging capital-gains revenue helps explain why blue states such as California aren’t currently in the red. Politicians are taking notice. Minnesota’s and Washington’s governors are proposing higher capital-gains tax rates, the Journal reported this week, as are Democratic lawmakers in Connecticut. Some New York Democrats aim to leave no capital gain behind, even the unrealized sort—a plan is on the table to mark taxpayers’ assets to market and then tax paper gains every year.
Capital gains also figure prominently in most Democratic plans to tax the rich at the federal level. President Biden proposed on the campaign trail last year that wealthier filers pay a capital-gains rate equal to their ordinary income rate, which he would raise to 39.6%.
Note that if you’re of a tax-raising bent, this is a conversation worth having thanks only to Mr. Powell and his predecessors. Capital-gains tax revenue should be highly pro-cyclical, rising when the economy booms and sagging during downturns. Yet a perusal of data from the Organization for Economic Cooperation and Development suggests that, except for the panic of 2008, the revenue troughs of recessions in recent decades (measured as a percentage of overall revenue) have been successively shallower. There may not be a trough at all this time around.
It’s a fiscal consequence of the Fed’s growing skill at asset-price reflation. Treasury will benefit from Mr. Powell’s success in stoking stock and other asset markets to record highs over the past year even as the pandemic and attendant lockdowns throttled the Main Street economy. The growing disconnect between Wall Street prices and Main Street profits holds open the prospect that capital-gains taxation will grow ever more reliable as a revenue source. Expect lawmakers to take full advantage.
If it happens, this will mark a new and very different way of taxing Americans. The government traditionally relied for revenue on the economy’s underlying productivity. The overall dependence on personal-income and corporate-profits taxation ties fiscal health to wage growth and corporate success. This was a practical incentive, although not always a strong or effective one, for lawmakers to care about the Main Street economy.
To make the government proportionately more dependent on Fed-inflated capital gains, as Democrats are wont to do, would weaken an important tie between Congress’s fiscal role and the real economy. This is especially dangerous given mounting evidence in the economics literature that monetary and financial excess saps Main Street productivity rather than bolstering it.
Free-market critics of Mr. Powell and his predecessors argue that the “financialization” of economic activity that results from current monetary policies is profoundly dangerous to the economy and damaging to society. Now we may end up financializing revenue collection, too.
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Let's see. They cause inflation, then tax the inflationary increase. Impute gains and tax where no transaction even took place. Assess a tax payment with no source of cash except to sell assets against your will. What could better define fascism?
Also, we learned (again) in Obama 1.0 that higher capital gains tax rates do not yield more revenue.
When the feds raise their cap gains rate, the states will lose revenue as a result of fewer transactions. All states (that have an income tax) already tax capital gains as ordinary income. The combined tax is already more than a 100% tax on the real return in long term cases. How much higher do they want go?
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I am thinking this is how economists can
state like Scott Grannis
the debt by historical measures is low ~ 3% of GDP
because as GDP grows the government sucks out the growth as taxes and the revenues increase
thus reducing or keeping down the overall debt burden
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"the debt by historical measures is low ~ 3% of GDP"
I understood Scott to be saying that interest payments on the debt were 3% of GDP, which is something quite different.
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https://finance.yahoo.com/news/biden-eyes-first-major-tax-060001525.html
Coincidentally, that was (also) a year before Democrats lost their majorities in the House and Senate.
Repeal parts of the 2017 (Trump) tax rate cuts? Why don't they just call it repealing wage growth?
Hard to learn from the lessons of history when the media never reported it in the first place. Bill Clinton had two terms as President. The first two years serving with a Dem Congress raising tax rates, and the last six years with a Republican Congress when he lowered capital gains tax rates and 'ended welfare as we know it'. Reported on these pages from a Heritage study of IRS data, wages of ordinary Americans grew eight times faster under the pro growth policies.
Who knew?
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"While the White House has rejected an outright wealth tax, as proposed by progressive Democratic Senator Elizabeth Warren, the administration’s current thinking does target the wealthy."
What ????
“That is why the focus is on addressing the unequal treatment between work and wealth.”
Surely we all agree someone who works 40 hrs per week washing cars should get paid the same as a corporate executive
who works 40 hrs per week. :roll:
"Still, there could be some tax initiatives Republicans could get behind. One is a shift from a gasoline tax to a vehicle-miles-traveled fee to help fund highway projects."
on top of spiking gas prices thanks to Bidenomics that will go over well
"Democrats are also looking to revise tax laws that they say don’t do enough to stop U.S. companies from shifting jobs and profits offshore as another way to raise revenue, one aide said. Republicans could potentially support incentives, though it’s unclear whether they’d back penalties."
:roll: :wink:
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ccp: Surely we all agree someone who works 40 hrs per week washing cars should get paid the same as a corporate executive
who works 40 hrs per week. :roll:
---------------------------------------------
Counter-intuitively for most people, corporate tax rate cuts benefited the guy who washed cars 40 hours/wk proportionately more than it benefited the corporate exec. It's not trickle down, it's simply that capital employs labor.
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The Spending Bill Cometh
The free lunch is over as Treasury Secretary Yellen signals major tax increases ahead.
By The Editorial Board
Democrats are elated with the popularity of their $1.9 trillion spending bill, which they passed under the political cover of the Covid emergency. Handing out money is always popular, especially when there appear to be no costs.
Enjoy the moment because the costs will soon arrive in the form of tax increases. Treasury Secretary Janet Yellen put that looming prospect on the table on Sunday on ABC’s “This Week.” Here’s the exchange with George Stephanopoulos:
“What do you think of Senator [Elizabeth] Warren’s call for a wealth tax?”
Ms. Yellen: “Well, President Biden has put forward a number of proposals. He hasn’t proposed a wealth tax, but he has proposed that corporations and wealthy individuals should pay more in order to meet the needs of the economy, the spending we need to do, and over time I expect that we will be putting forth proposals to get deficits under control.”
Mr. Stephanopoulos: “But no wealth tax?”
Ms. Yellen: “Well, that’s something that we haven’t decided yet, and can look at, but . . . President Biden during the campaign proposed a higher tax rate on corporations, on individuals and on payments, capital gains and dividend payments that are received, and those are alternatives that address—that are similar in their impact to a wealth tax.”
So Ms. Yellen won’t even rule out Ms. Warren’s wealth tax that would hit all assets above $50 million each year and that Mr. Biden didn’t campaign on. The Treasury Secretary is also floating a global minimum tax on corporations, which would reduce the tax competition among countries that is a rare discipline on political tax appetites.
Expect more such taxing surprises, as Democrats debate which taxpayers to gore, but one sure bet is that this won’t be as popular as passing out money. Paying the bill never is.
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https://nypost.com/2021/03/17/biden-tax-hike-could-hit-people-earning-200k-white-house-says/
who would have thought
these honest brokers would do such a thing
they are going as fast as they can
will not take any chances they lose house in 2022
ram it all in now and force their will upon all of us
screw us if we don't like it.
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https://nypost.com/2021/03/17/biden-tax-hike-could-hit-people-earning-200k-white-house-says/
who would have thought
these honest brokers would do such a thing
they are going as fast as they can
will not take any chances they lose house in 2022
ram it all in now and force their will upon all of us
screw us if we don't like it.
We knew he was lying. He said no one under 400k/yr will see a tax increase. He also said energy tax, carbon tax etc. We knew [his handlers and writers] were lying to us. Same peopke wrote, you can keep your doctor and I haven't had the same doctor twice since then. It was all a lie, by design, before it was spoken.
But that was quick. He just cut the threshold in half with the twist of a word, the like forgetting the name of the guy that runs that outfit over there. Most of the people can still say 200k only affects the rich but the statement, no one making under 200k will have be affected, is still false.
Tax increases and other government burdens aimed at employers and investors are levied on the economy, not on corporations or the individual taxpayers. Why did wages surge for working people when corporate rates were cut?
If you raise the cost of running a workplace in America, the owners don't have to pay it. They can scale back, move, close, retire, sell, buy a place in Fiji, buy bitcoin or play more golf. And they will. Tell me how that helps so-called working people or funds programs for the truly needy. It doesn't.
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(https://i1.wp.com/www.powerlineblog.com/ed-assets/2021/03/Screen-Shot-2021-03-16-at-11.10.56-AM.png?resize=768%2C772&ssl=1)
https://i1.wp.com/www.powerlineblog.com/ed-assets/2021/03/Screen-Shot-2021-03-16-at-11.10.56-AM.png?resize=768%2C772&ssl=1
More than twice the tax rate of COMMUNIST China.
https://tradingeconomics.com/china/corporate-tax-rate
Tell me how we compete that way.
Biden, the anti-Trump, has a new slogan - you're going to get tired of losing.
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The rich will still be rich while YOU, the people who work, will be hit in the pocketbook losing wages and losing jobs.
What do the deniers of economic science say about THIS?
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Editors of Issues and Insights follow up on my post yesterday:
https://issuesinsights.com/2021/03/18/biden-tax-hikes-aim-at-the-rich-but-hit-the-poor-middle-class/
Guess Who’ll Pay Biden’s Tax Hikes On The ‘Rich’? Hint: It’s You
I & I Editorial Board
March 18, 2021
If you’re an American of average income, listen up. You’re about to become a lot poorer. President Joe Biden’s proposed soon-to-be-unveiled multi-trillion dollar tax hike, the first major increase in taxes since 1993, will ensure that.
With a massive wave of new spending on the way, it was only a matter of time before Biden and his far-left economic team came up with massive new tax increases to match. You might be happy with your $1,400 “stimulus check,” but you won’t be happy with the higher taxes you’ll be paying from now until you die.
That’s right, because no matter what the Democrats said during last year’s presidential campaign about “taxing the rich” and “big corporations” it’s the middle class and the poor who will really take a hit.
Though still in the discussion phase, the White House says only those earning more than $400,000 a year will feel the pain. They’ll face higher taxes on their estates and so-called pass-through businesses, including limited-liability companies and partnerships. Millionaires might get a double-whammy, with both higher income and capital gains taxes.
A tax-fairness win for the little guy? Don’t believe it. Biden also wants to raise the corporate tax rate from the current 21% to 28%, a one-third increase. And that tax on “pass-through” businesses? That’s a tax-code euphemism for “small businesses.”
Stick it to the man, right? Sorry, but the man is you.
“Tempting though it is to wish that faceless entities like corporations would shoulder the burden, sparing individuals the pain, in reality corporate taxes are always financed by people,” notes economist Michael Strain of the American Enterprise Institute. “The only question is which ones.”
The fact is, when corporate and small business taxes go up, workers’ wages and benefits go down. That’s not even controversial among economists. At least not the sane ones.
The Congressional Budget Office, for instance, automatically assumes when government raises taxes on corporations, roughly 25% of that comes right out of workers’ pockets. Private economists’ estimates are much higher: 50% and more.
Whatever’s left comes straight from consumers and investors, who are often the same people. They pay through higher prices (consumers) and lower returns on investments (investors). Remember: If you have a 401(k), you too are an investor.
The corporation pays nothing. People do.
Worse, as the Committee to Unleash Prosperity pointed out this week, “Treasury Secretary Janet Yellen is also exploring a carbon/energy tax and a 2% annual wealth tax.”
Add it all up, and American companies would once again have the highest overall tax rates in the developed world. We’d again be uncompetitive with other nations, meaning fewer jobs and less investment here. An energy tax would hamstring U.S. producers, and discourage those with wealth from investing more at home.
A slow-motion economic disaster in the making.
How is that good for anyone?
Whenever you tax something, you get less of the thing you tax. That’s a truism, not an opinion. Want fewer businesses and slumping sales? Less hiring? Lower wages? Fewer and lower benefits for employees? Just raise taxes on corporations.
And you’ll also get a much weaker economy over the long term.
The nonpartisan Tax Foundation forecasts that even raising just the corporate tax rate from 21% to 28% — one of many tax hikes the Biden administration is considering — would have serious negative impacts on the economy.
“After accounting for reduced economic output in the long run, after-tax incomes would fall by about 1.8% on average, ranging from a 1.3% reduction for households in the 20th to 40th income percentiles to a 3.2% reduction for households in the top 1%,” the forecast said. Meanwhile, long-run GDP will decline by 0.8%, capital stock by 2.1% and workers’ wages by 0.7%. Oh, and 159,000 jobs would be permanently destroyed.
Yes, the rich will take a hit. Their incomes will shrink by about 3.2%. But guess what? They’re rich, and 3.2% won’t hurt a bit. But income for those in the low- and middle-income brackets would decline 1.3% to 1.5%. And they will feel it.
Welcome to Bidenomics: Trillions of dollars more for an incompetent and wasteful federal government, and far less money for you and your family. If you voted last time around thinking it would be different, you’re in for a rude awakening.
Back in January, Biden said he would back a major increase in the deficit, but wanted a large tax hike as part of a so-called “recovery plan.”
Except the economy is already recovering. The most recent GDP Now forecast from the Atlanta Federal Reserve Bank, which takes into account the most recent data, sees 5.7% GDP growth in the first quarter.
Does Biden think that a huge tax increase to pay for unproductive government spending is the way to make the economy grow, now and in the future? No. But he and his far-left political party desperately want more power. What better way than to take money from you, then claim it’s all for your own good?
The size of the tax hikes for huge new spending programs, including a largest-ever infrastructure program and the wasteful New Green Deal, should produce concern. “The overall program has yet to be unveiled. Nevertheless, analysts are penciling in between $2 trillion to $4 trillion (in new spending and taxes),” writes the financial website ZeroHedge.
That will entirely undo President Donald Trump’s tax cuts, which boosted both economic and job growth sharply beyond almost everyone’s estimates. Those tax cuts and deregulation are the real reason for the economy’s sharp snap-back after last year’s record double-digit GDP declines during the early part of the COVID-19 outbreak.
Worse, Biden’s plan will do nothing to make taxes “more fair.” As we noted, poor and middle-class Americans will applaud tax hikes for “stickin’ it to the rich.” That is, until they find that Bidenomics will be “stickin’ it” to them, too.
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".Worse, Biden’s plan will do nothing to make taxes “more fair.” As we noted, poor and middle-class Americans will applaud tax hikes for “stickin’ it to the rich.” That is, until they find that Bidenomics will be “stickin’ it” to them, too."
most will never figure it out
all they can understand is the free shit.....
just too many people on the dole .....
A democrat is a democrat is a democrat
it is looking like even 2022 is too late
gotta keep up the fight though
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"most will never figure it out
all they can understand is the free shit.....
just too many people on the dole .....
A democrat is a democrat is a democrat"
it is looking like even 2022 is too late
gotta keep up the fight though"
- Right, but we don't need most of them. We need about net two percent of them to change their mind and a few more to cover the margin of cheating.
'Figuring it out' requires second-level thinking, or just having your eyes open. Let's say that 90% of them can't or won't do that, then we pick off as many as we can of the rest.
Look at the Trump phenomenon. A lot of them have come over including inroads into major demographic groups.
Radical Left overreach opens up amazing new possibilities IMHO.
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:roll:
Stop kidding yourself. You CAN'T outvote VOTE FRAUD.
"most will never figure it out
all they can understand is the free shit.....
just too many people on the dole .....
A democrat is a democrat is a democrat"
it is looking like even 2022 is too late
gotta keep up the fight though"
- Right, but we don't need most of them. We need about net two percent of them to change their mind and a few more to cover the margin of cheating.
'Figuring it out' requires second-level thinking, or just having your eyes open. Let's say that 90% of them can't or won't do that, then we pick off as many as we can of the rest.
Look at the Trump phenomenon. A lot of them have come over including inroads into major demographic groups.
Radical Left overreach opens up amazing new possibilities IMHO.
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https://townhall.com/columnists/veroniquederugy/2021/03/25/history-tells-us-that-wealth-taxes-dont-work-n2586851
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".https://townhall.com/columnists/veroniquederugy/2021/03/25/history-tells-us-that-wealth-taxes-dont-work-n2586851"
"Come on man , look at the data "
"science "
except when they are totally wrong about it
they ignore it
oh but it sounds so good to the "little people "
tax only the rich
pay their fair share
equality
oh how the little people love this shit
a check of a hundred dollars courtesy of tax payers is all they need to garner 30 million votes
Modern slaves - are the taxpayers
slaves to the DNC
most repubs will only give us trivial tax cuts too
I remember Rush talking about how both parties rip us off
his bottom line was that this is the source of their power
neither party will give it up.
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Deniers of economic science.
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here comes the mileage tax
butti gets right on it:
https://pjmedia.com/news-and-politics/rick-moran/2021/03/26/administration-mulls-mileage-tax-to-fund-3-trillion-infrastructure-bill-n1435290
I just thought of a new tax deduction -- if one drives to the polls to vote - one can deduct that mileage off the tax total.
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Better would be a gas tax, which would tap into market forces to drive with better fuel economy.
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not sure if you are not keeping up with the Democrat tax schemes
we already have a gas tax:
https://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States
Democrats with some Republicans are moving onto the next step.
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Well, duh :-D
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Yes. Who knew we already have a carbon tax?!
Biden just added a dollar per gallon "tax" to gas and the revenue all goes to Putin and Middle East radicals while we have the largest deficit ever. Smart government?
Try to think of a new gas, energy, mileage or carbon tax that isn't regressive and doesn't apply to anyone making less than 400k.
"If you like your doctor you can keep your doctor."
(Dem) Promises were made to be broken.
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Well, I am not favor of progressive tax rates. :evil:
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Well, I am not favor of progressive tax rates. :evil:
But if we eliminate progressive tax rates, and regressive taxes, we would be stuck with what?
Equal treatment under the law?
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Silly me, I know.
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https://www.washingtonexaminer.com/news/no-salt-no-deal-pelosi-democrats-demand-biden-tax-plan
It kind of blows their story every time they open their mouth. We only care about others. Sure. We care about the poor, tax the rich! But try taking away their own blue state, state and local tax deduction... NOW WE CARE.
From the article:
“Due to the GOP cap, our home states of New York and New Jersey have been crushed and residents have been leaving for other states,” the lawmakers said.
- FYI, like progressive tax rates, the law applies equally to all. MAYBE YOUR STATE TAXES ARE TOO HIGH.
P.S. Not all blue state residents vote for the high taxes, cf. ccp and me. I will benefit personally if a small compromise to raise the limit is passed.
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".“Due to the GOP cap, our home states of New York and New Jersey have been crushed and residents have been leaving for other states,” the lawmakers said.
- FYI, like progressive tax rates, the law applies equally to all. MAYBE YOUR STATE TAXES ARE TOO HIGH.
P.S. Not all blue state residents vote for the high taxes, cf. ccp and me. I will benefit personally if a small compromise to raise the limit is passed."
The new slave class
taxpayers
The new slave holders :
Democrats , liberals, elites
The new cotton :
Government, power, and control
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CORPORATIONS DON’T PAY TAXES; THEY COLLECT THEM
https://pjmedia.com/instapundit/442422/
Biden’s Economic Adviser Proposes Corporate Tax Rate That Exceeds China’s, and Will Land on You.
https://pjmedia.com/news-and-politics/bryan-preston/2021/04/05/bidens-economic-adviser-proposes-corporate-tax-rate-that-exceeds-chinas-and-will-land-on-you-n1437562
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".Biden’s Economic Adviser Proposes Corporate Tax Rate That Exceeds China’s, and Will Land on You."
But yellin to the rescue:
don't worry
we will get every other government to rip off their citizens as much as we do
so business might as well stay in US to get screwed
get rid of her
God the same assholes as before. Trump
now I read McAullife wants to run again in Virginia
he was prohibited from running consecutive terms
so he took a vacation to appear on BOD and do his inside business scams
and now wants to run again
We can never get rid of these parasites/snakes till they are dead AND buried.
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https://www.bloombergquint.com/onweb/eu-looks-for-global-tax-agreement-by-june-after-push-from-yellen
exactly what is meant by digital tax? :roll:
how does this help us?
Bloomberg is toasting champagne to the globalists
the elites in Europe and US have won - for now
but they are not done by any stretch of the imagination
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ccp: "exactly what is meant by digital tax?"
Used in a sentence:
"The EU will keep insisting that the digital tax and the global minimum corporate tax should be agreed in one package."
My guess: The digital tax is what assess on online transactions like the sales tax, tariff or duty. eBay used to be free of sales tax unless you were in the state of the seller. Then one day all transactions were charged full sales tax, a HUGE windfall for the states.
If EU puts a 30% VAT on our goods and we put zero or a 6% sales tax on their goods, something is out of balance there.
Funny that Yellen wants the US to what was and will be the highest business taxes in the world, and her answer to the US competitiveness problem that creates is to mandate all other countries to do at least the same.
A ray of hope in the article: "But the official also said a 21% in the U.S. would not necessarily be a reference point in the OECD talks, which have tended to be focused on a much lower rate around 12.5%."
- No. Yellen wants corporate rates at 28% plus 10% state = 38% !! 50% higher than 'Communist' China. 12% should be the cap on ALL tax rates, one step up from the Herman Cain 9 - 9 - 9 plan.
Countries need some cooperation with regulation and taxation of multinational corporations. That does not mean world government is the answer or that a country should give up sovereignty.
Corporations don't 'pay' taxes, they 'collect' taxes for the government. Customers pay.
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https://www.foxbusiness.com/economy/biden-administration-tax-plan-offshoring-crackdown
the logic is so freakin twisted it reminds me of this:
https://www.youtube.com/watch?v=ncTb6I6ZyII
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Source: FEE.org and Heritage
https://fee.org/articles/one-key-biden-policy-will-reduce-household-income-by-1-650-new-study-finds/
https://www.heritage.org/taxes/report/the-long-run-economic-effects-raising-the-corporate-tax-rate-28-percent
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https://www.washingtontimes.com/news/2021/apr/22/stocks-plummet-report-biden-wants-hike-capital-gai/?utm_source=Boomtrain&utm_medium=subscriber&utm_campaign=newsalert&utm_content=newsalert&utm_term=newsalert&bt_ee=Eg1gplOhwPiPUvK7jWENOkeShFRdyAkL%2BpdBEyUoCYjE5wf1zctvo1XQHNr0UPp8&bt_ts=1619114798181
===================================
The one consistent theme of the Biden Presidency so far is that he nearly always chooses to side with the Democratic left. So it was again on Thursday as Biden officials leaked that they will soon propose raising the federal tax on capital gains to 43.4% from a top rate of 23.8% today.
The midday leak to the Biden-sympathetic Bloomberg News managed to tank stocks, with the S&P 500 falling the most in more than a month. Treasury yields also fell on the news, as investors discounted the prospects for growth. Nothing like higher taxes to take some of the bloom off the “Biden boom,” as Democrats are now calling the post-Covid economic recovery.
The leakers told Bloomberg that Mr. Biden will tax capital gains for taxpayers who earn more than $1 million at the personal income tax rate, which he also wants to raise to 39.6% from 37%. Add the 3.8% ObamaCare tax on investment, and you get to 43.4%. And that’s merely the federal rate. Add 13.3% in California and 11.85% in New York (plus 3.88% in New York City), which also tax capital gains as regular income, and you are heading toward the 60% rate range.
Keep in mind this is on the sale of gains that are often inflated as assets are held for years without adjustment for inflation. Oh, and Mr. Biden also wants to eliminate the step-up in basis on capital gains that accrues at death. All of this would add up to the highest rate on capital income since before the Steiger capital-gains tax cut of 1978.
We’ll have more to say on the Biden tax proposals in the days ahead, and stocks may bounce back as corporate earnings soar. But the lesson that investors should have learned by now is that Bernie Sanders was right when he predicted that Joe Biden would be the most left-wing President since FDR. Moderate Joe was always a mirage.
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while I am for the most part always for tax cuts
it should be for everyone
I don't like this social engineering stuff
I don't know what is happening to Josh who seems to have gone off the rails:
https://www.conservativereview.com/hawley-plan-gives-marriage-bonus-to-married-parents-with-young-children-2652781265.html
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ccp, I agree.
Didn't we just do that?
https://www.vox.com/policy-and-politics/2017/12/15/16780714/republican-tax-bill-marco-rubio-child-tax-credit-cbpp
Doubled the Child Tax Credit from 1000 to 2000 per child. I see it as more about marketing and positioning than about economics. The overall tax burden is too high and this does nothing to reduce it or constrain it.
Hawley's bill makes that 6000 per parent, 12,000 for two parents, as I read it. Interesting that the focus is on the parent rather than the child. I think he is trying to position against more child care credits, no doubt coming.
Hawley, from the article: “American families should be supported, no matter how they choose to care for their kids,” Hawley said.
What I understand from that, current child care credits require child care costs be incurred. Should we really be giving more to people who send their pre-schoolers out to strangers than we give to families who take care of the kids themselves or with unpaid family members. They have costs too, including the opportunity cost of not working or working shorter hours.
What it looks to me like is a social spending program bidding war; Republicans are tired of being outspend by Biden's trillion after trillion, another trillion every week it seems. A real solution would be to reduce the size, scope and burden of government - on everybody.
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ccp and I may be affected by this. The editorial writers admit at the bottom, it affects them personally.
NY Times calls NY Democrats out on it, letting a big opportunity for hypocrisy go by. May wonders never cease.
Again, the rates should be lower, federal and state, not the deductions higher.
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https://www.nytimes.com/2021/04/25/opinion/salt-deduction-democrats.html
Why Are Democrats Pushing a Tax Cut for the Wealthy?
April 25, 2021
Democrats struck a chord with voters in the 2020 elections by campaigning on the need for the wealthiest Americans to pay higher taxes. Now the party is flirting with a major change in tax policy that would allow the wealthiest Americans to pay lower taxes.
A bloc of House Democrats, mostly from the New York area, are loudly withholding support for a broad package of tax increases to fund President Biden’s infrastructure plan unless it also includes a tax cut: an unlimited deduction for state and local tax payments, or SALT.
In the narrowly divided House, it takes only a handful of Democrats to derail the president’s agenda by making common cause with do-nothing Republicans. In an open letter last week addressed to the House speaker, Nancy Pelosi, 17 of the 19 Democrats who represent New York threatened to do exactly that, writing that they “reserve the right” to vote against any tax increase that does not include a “full repeal” of the $10,000 limit on the SALT deduction, enacted in 2017.
A number of Democrats from other states, including New Jersey and California, have taken a similar stand. Representative Josh Gottheimer of New Jersey held a news conference last week behind a lectern emblazoned with the logo “No SALT, no dice.”
Proponents of an unlimited SALT deduction say they are seeking to help middle-class taxpayers. If so, they should go back to the drawing board. The top 20 percent of American households, ranked by income, would receive 96 percent of the benefits of the change, according to a detailed analysis by the widely respected Urban-Brookings Tax Policy Center.
The primary beneficiaries would be an even smaller group of the very wealthiest Americans. The 1 percent of households with the highest incomes would receive 54 percent of the benefit, on average paying about $36,000 less per year in federal income taxes.
A tax cut with such a skewed distribution of benefits ought to be unacceptable to any politician genuinely concerned about the rise of economic inequality.
The federal government lets Americans reduce their taxable income either by a standard amount or by the amount spent on such categories as SALT, interest on mortgage loans and charitable contributions. The 2017 law imposed a $10,000 limit on the deductibility of SALT and a separate limit on mortgage interest deductions.
The SALT deduction cap is unfair. The deduction is often described as a federal subsidy for state and local governments because the federal government effectively is paying for a portion of each dollar in state and local taxes. Capping the deduction has the effect of providing a smaller subsidy, per dollar, to jurisdictions that collect more money in taxes.
New Yorkers, who pay higher taxes than most Americans, get more extensive and higher quality public services. Residents of other states choose lower taxes and less government. Federal tax policy should provide consistent support for either choice.
This board historically has opposed the elimination of the federal subsidy. But the rise of economic inequality has increased our focus on the distribution of taxation and led us to a different conclusion: Instead of eliminating the SALT deduction cap, Congress should eliminate the deduction.
The SALT deduction is an inefficient subsidy. The primary beneficiaries are the wealthy people who get a tax break. It would make more sense to collect those dollars from the wealthy and then to provide direct federal financial support to state and local governments.
Proponents of an unlimited SALT deduction have worked hard to portray the cap as a burden on a broad portion of the population. This is wrong in two important respects. First, the existence of the SALT deduction is the primary inequity. It shifts the distribution of taxation off the shoulders of the wealthy and onto the shoulders of the majority who do not make enough money to itemize tax deductions. The bigger the deduction, the greater the inequity.
Second, lifting the cap would primarily benefit the very wealthy. The Tax Policy Center estimates that 16 percent of households making between $100,000 and $200,000 annually would benefit from an unlimited SALT deduction, but that the average benefit would be just $130. Almost everyone making more than a million dollars a year would benefit — on average by more than $44,000.
The Biden administration has avoided taking a stand on the issue beyond indicating that proponents of a SALT deduction restoration would need to find a way to offset the lost revenue, estimated at almost $90 billion in 2021 alone. But it makes little sense to find another way of raising taxes on the rich so that the money can be returned to the same people.
Mr. Gottheimer, for example, proposed last week that the cost of the SALT plan could be offset by increased Internal Revenue Service enforcement to “collect what people owe already.” Is he seriously suggesting that his support for enforcement of the nation’s tax laws is contingent on a tax cut? The necessity of stronger tax enforcement is clear, but it ought to be pursued on the merits, and the government surely can find better uses for the money it collects.
Most members of this editorial board are paying more in federal taxes because of the SALT deduction cap. In a narrow financial sense, we would benefit from its repeal. But we believe in the broader benefits of progressive taxation, and in the necessity of concrete steps toward creating a more equal society. Members of Congress who have espoused those principles repeatedly now have an important opportunity to demonstrate their sincerity.
The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.
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https://en.wikipedia.org/wiki/9%E2%80%939%E2%80%939_Plan
The plan called for the replacement of all current taxes, such as the payroll tax, capital gains tax, and the estate tax, with a 9% personal income tax, 9% federal sales tax, and a 9% corporate tax.
I opposed this and creating any new federal sales tax because the income tax cannot be rescinded, nor could the politicians ever be trusted to keep it at 9%. But still what a great thought experiment. Tax rates should be capped at some percentage, maybe 19% and no new federal VAT sales tax. For a tax to work, there needs to be a significant take-home component. Also the Feds need to leave room for (most) states to also tax income, and still have the combined rate be competitive with OECD / other countries in the world.
Nothing raises revenues to the Treasury like economic growth. But we are on a downward slide right now where we don't even pretend to pay for our spending anymore. Keynes would roll in his grave over the mis-use of his already disproven theories.
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There is no way out but collapse. They know that.
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https://fee.org/articles/top-economists-warn-biden-capital-gains-tax-hike-would-have-one-huge-consequence-for-small-businesses/
Top Economists Just Warned Latest Biden Tax
Hike Would Have One Huge Consequence for Small Businesses
Top free-market economists warn that the entire economy, not just the wealthy, would suffer in one key way from such a significant capital gains tax increase.
Monday, April 26, 2021
President Biden has already proposed trillions in new spending alongside massive tax hikes. But the White House is reportedly considering another large tax increase.
“The White House is considering raising the capital gains tax rate to 39.6 percent on people earning $1 million and over,” Fox Business reports. For context, the capital gains tax is “a tax on the growth in value of investments incurred when individuals and corporations sell those investments,” according to Investopedia.
The current top capital gains rate is 20 percent, so this hike would amount to roughly a doubling of the tax. And in 13 states, such as New York and California, with their own levies on capital gains, Biden’s proposal would result in some residents facing rates of more than 50 percent.
How does the president justify such a massive increase?
“[The president’s] view is that [paying for the proposals] should be on the backs...of the wealthiest Americans who can afford it," White House Press Secretary Jen Psaki said. "And corporations and businesses who can afford it.”
But top free-market economists interviewed exclusively by FEE warn that the entire economy, not just the wealthy, would suffer from such a significant capital gains tax increase. In particular, they warn that heightened taxes on capital gains would hamper investment in small businesses.
“Doubling the top capital gains tax rate from 20% to 40% may make for a good progressive talking point but its economic effect would make it hard for small businesses and hardworking Americans, as it would create a significant reduction of financing for small businesses,” Mercatus Center senior fellow and economist Veronique de Rugy said.
Why would it reduce available financing for small businesses?
“Capital gains are the reward for risky investments,” she explained. “Cut the return on these investments and you will get fewer of them. New and innovative companies may never see the light of day for lack of capital.”
“The higher the capital gains tax rate, the lower the incentive to invest in more risky investments, and the higher the incentive to invest in safer investments like government bonds,” de Rugy concluded. “This sharp hike will reduce the availability of capital for small business owners, for new tech companies and others.”
Cato Institute economist Chris Edwards agreed that hiking capital gains taxes would hamper investment.
“The reward that angel investors receive for putting their time and money into startups is a capital gain five or more years down the road,” Edwards explained. “Raising capital gains taxes would prompt angels to shift their money to safer investments, starving the economy of fuel for dynamic industries such as technology.”
And it’s not just “Big Business” or “the 1%” who would take a hit, the economists argued. American workers and consumers would suffer.
“Tax increases would reduce entrepreneurship,” Edwards offered. “People considering launching startups would instead take safer wage jobs because the chance to earn a capital gain from a high-growth startup would not be worth all the extra stress, risk, and hard work.”
President Biden would seemingly have us believe that we can have it all: Massive new amounts of government spending without most Americans bearing any cost. But subjecting this narrative to even minimal economic scrutiny exposes it for the political wish-casting it truly is.
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From above NYSlimes:
"Most members of this editorial board are paying more in federal taxes because of the SALT deduction cap. In a narrow financial sense, we would benefit from its repeal. But we believe in the broader benefits of progressive taxation, and in the necessity of concrete steps toward creating a more equal society. Members of Congress who have espoused those principles repeatedly now have an important opportunity to demonstrate their sincerity."
FU
YOU don't speak for ME!
You want to pay more go right ahead
you know the Treasury's address
more "equitable" society my ass.
oh the virtuosity ........
oh the narcissism .........
you and Krugman - go write your checks out now
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"In 1968, the last year of the lower capital gains rate, the tax pulled in $7.2 billion in revenues. In 1969, at the higher rate, the tax took in $4.8 billion." - Jude Wanniski WSJ Editorial, April 26, 1978. https://facebook.com/alan.reynolds.332/posts/10223077296594065
https://twitter.com/AlanReynoldsEcn/status/1390442071081857027
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Investors are extremely sensitive to capital gains tax rates, making kind of a Laffer curve on steroids. The promised Biden rate increase promise no new revenue at all, potentially a turn backwards.
Biden's Democrat predecessor Obama was not apologetic about this with Charlie Gibson in his debate with Hillary. Acknowledging his rate increases would bring no additional revenues, he said he would do it out of "fairness":
https://taxfoundation.org/obama-and-gibson-capital-gains-tax-exchange
GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.
But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
OBAMA: Right.
GIBSON: And George Bush has taken it down to 15 percent.
OBAMA: Right.
GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.
...
GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.
...
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The 28% tax on long-term capital gains brought in only $36.9 billion a year from 1987 to 1997, according to the Treasury Department, while the 15% tax brought in $96.8 billion a year from 2004 to 2007.
https://facebook.com/alan.reynolds.332/posts/10223041259493160
https://twitter.com/AlanReynoldsEcn/status/1388841310677831681
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The post-JFK Democratic Party of George McGovern and Jimmy Carter reversed the Party's 1938 reform - which cut the capital gains tax to 15% and never let it go above 25%. By the late 1970s we tried imposing 40% tax on inflated gains. Until Steiger 1978.
How We Beat the '70s
A cap-gains cut was part of the answer.
https://www.wsj.com/articles/SB120536977668532201
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Biden is dropping new taxes in increments we don't see the BIG picture. First, higher corporate tax rates, especially on foreign profit. Second, capital gains tax (CGT) rises to 43.4%. Next, 45-65% tax on small estates PLUS 43.4% tax on inherited gains.
What’s in Biden’s $1.8 Trillion, Tax-Funded Spending Plan
President Joe Biden’s administration on Wednesday unveiled a $1.8 trillion, 10-year plan to ramp up federal support for American families, with a major expansion in spending on child care, paid leave...
https://www.bloomberg.com/news/articles/2021-04-28/what-s-in-biden-s-1-8-trillion-spending-plan-funded-by-taxes
Good luck America. Elections have consequences.
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As GM said, go to the reddest county of the reddest state you can find. This is quite disappointing. Some of those places, even red states, have property tax rates that are WAY too high.
These need to be read with some context. Values vary widely and taxes are (obviously) paid in dollars, not rate, so must make that adjustment. Also, some states are making u for no income tax by taxing other things higher.
http://www.tax-rates.org/taxtables/property-tax-by-state
Median Property Tax Rates By State
Ranked highest to lowest by median property tax as percentage of home value [1]
1.) New Jersey 1.89%
2.) New Hampshire 1.86%
3.) Texas 1.81%
4.) Nebraska 1.76%
5.) Wisconsin 1.76%
6.) Illinois 1.73%
7.) Connecticut 1.63%
8.) Michigan 1.62%
9.) Vermont 1.59%
10.) North Dakota 1.42%
11.) Ohio 1.36%
12.) Rhode Island 1.35%
13.) Pennsylvania 1.35%
14.) Iowa 1.29%
15.) Kansas 1.29%
16.) South Dakota 1.28%
17.) New York 1.23%
18.) Maine 1.09%
19.) Minnesota 1.05%
20.) Massachusetts 1.04%
21.) Alaska 1.04%
22.) Florida 0.97%
23.) Washington 0.92%
24.) Missouri 0.91%
25.) Maryland 0.87%
26.) Oregon 0.87%
27.) Indiana 0.85%
28.) Nevada 0.84%
29.) Georgia 0.83%
30.) Montana 0.83%
31.) North Carolina 0.78%
32.) California 0.74%
33.) Oklahoma 0.74%
34.) Virginia 0.74%
35.) Arizona 0.72%
36.) Kentucky 0.72%
37.) Idaho 0.69%
38.) Tennessee 0.68%
39.) Colorado 0.6%
40.) Utah 0.6%
41.) Wyoming 0.58%
42.) New Mexico 0.55%
43.) Mississippi 0.52%
44.) Arkansas 0.52%
45.) South Carolina 0.5%
46.) West Virginia 0.49%
47.) District of Columbia 0.46%
48.) Delaware 0.43%
49.) Alabama 0.33%
50.) Hawaii 0.26%
51.) Louisiana 0.18%
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https://twitter.com/howmuch_net/status/1391030309588807681
57% tax on an INFLATIONARY gain? It is already more than a 100% tax. Are you people [who support this] fucking nuts?
Karl Marx couldn't find a way to take more money from you.
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The Biden Tax Mirage
Marginal rates have been a lot higher, but the actual share the top 1% pay stays remarkably constant.
By Phil Gramm and Mike Solon
May 12, 2021 12:39 pm ET
With deficits at levels not seen since World War II, the March $1.9 trillion stimulus only beginning to spend out, and President Biden calling for significantly higher marginal tax rates to help fund another $4 trillion of spending, maybe it’s time for a reality check on how high marginal tax rates, and the actual tax rates paid by Americans, can be raised without crushing economic growth. Proponents of massive tax increases will argue that economic growth and prosperity are compatible with high tax rates by pointing to the 35 years of postwar prosperity in America, when the top federal tax rate was 70% or higher.
But before accepting this as proof by example, it’s worth examining how many taxpayers actually paid those top rates and what percentage of their income high earners actually paid in taxes. Economists Gerald Auten of the Treasury Department and David Splinter of the Joint Committee on Taxation have compiled an extraordinary new database using Internal Revenue Service data on taxes actually collected since 1962. The top marginal income-tax rates and the taxes actually paid, including payroll taxes, as a percentage of income for the top 1%, top 10% and bottom 50% of income earners are shown in the nearby chart. The figures for 2016-20 are comparable estimates by the Urban-Brookings Tax Policy Center.
The top tax rate of 91% in 1962 applied to families with joint incomes, in today’s dollars, of $3.38 million. After deductions and credits, only 447 tax filers out of 71 million paid any taxes at the top rate. The top 1% of income earners paid only 16.1% of their income in federal income and payroll taxes, while the top 10% paid 14.4% and the bottom 50% paid 7%. This followed the pattern set by the top Depression-era and wartime tax rates. Only three filers out of six million paid any taxes at the top Depression rate and only 13 out of 50 million paid any taxes at the top wartime rate. The top 1% of earners paid 12.6% and 23.5% of their income in federal income and payroll taxes in 1938 and 1945, respectively.
President Kennedy recognized that while confiscatory tax rates collected little revenue, they stifled growth as resources were squandered in the “avoidance of taxes” rather than the “production of goods.” When the top tax rate was reduced to 70%, individual income-tax collections continued to grow and the actual percentage of income paid in taxes by high-income earners barely changed. Only 3,626 out of 75 million filers paid any taxes at the new 70% rate. When the Reagan tax cut reduced the top rate to 50%, gross domestic product grew. Taxes collected from high-income earners as a percentage of their incomes were largely unchanged, as the chart shows. Only 341,000 of 109 million filers paid any taxes at the new 50% top rate.
The 1986 tax reform reduced the top rate to the postwar low of 28%. The reform also closed loopholes, offsetting the rate reductions and other changes in the tax code. Revenues grew as the economy expanded and asset sales surged at the lower marginal tax rate. Twenty-six million out of 115 million filers paid taxes at the 28% rate. The top rate was raised to 39.6% in 1993 and has fluctuated between 39.6% and 35% since. Only 453,000 out of 123 million filers paid any taxes at the 39.6% rate in 1993.
Remarkably, while the top marginal rate fell from 91% in 1962 to 28% in 1988, the percentage of income actually paid in income and payroll taxes by the top 1% and 10% of filers rose to 21.5% and 19.6% from 16.1% and 14.4%, respectively. As the top tax rate fell by two-thirds, the percentage of income paid in federal income and payroll taxes by the top 1% and 10% of earners rose by a third.
The percentage of income actually paid by the top 1% of earners, which the Tax Policy Center estimates to be 25.7% in 2020, is close to the average rate paid during the last quarter-century. Whether the federal government could actually impose a top rate of 50% on a significant number of taxpayers, or actually collect much more than 30% of the income of the top 1% of earners in income and payroll taxes, without crippling economic growth is a question our postwar experience certainly doesn’t answer.
It is also worth noting that the Organization for Economic Cooperation and Development has found that high-income Americans already bear a higher relative share of the income-tax burden than the rich do in other developed nations. The top 10% of American households earn about 33.5% of all earned income but pay 45.1% of all income taxes, including Social Security and Medicare taxes. That progressivity ratio of 1.35 is far higher than the German ratio of 1.07, French ratio of 1.1 and Swedish ratio of 1. As a percentage of their incomes, the top 10% of earners in Germany, France and Sweden paid 21%, 19% and 26% less than the top 10% in America. And the bottom 90% of earners paid 17%, 34% and 21% more as a percentage of their incomes respectively than the bottom 90% in America paid. While the OECD study predates the 2017 Tax Cuts and Jobs Act, the Congressional Budget Office found the act made the U.S. tax code even more progressive.
Before Congress bets the future of America on the federal government’s ability to soak the rich without crippling the economy, lawmakers need to recognize that the marginal rates being proposed have never been collected from any significant number of taxpayers except under the direst circumstances such as a war for survival. Voters might also note that in the rest of the developed world, where government takes a larger share of GDP in taxes, high earners pay about the same share of GDP in income taxes that high-income Americans pay today, but everybody else pays a lot more.
Mr. Gramm is a former chairman of the Senate Banking Committee and is a visiting scholar at American Enterprise Institute. Mr. Solon is a partner of U.S. Policy Metrics.
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https://www.heritage.org/taxes/commentary/1-chart-how-much-the-rich-pay-taxes
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When they tell you the Trump Republican tax cuts were for the rich, their lips are moving and they are lying.
(https://www.cato.org/sites/cato.org/files/styles/pubs_2x/public/2021-05/table%201.png?itok=44I_tZBJ)
What is most amazing is that through all of this, revenues to the Treasury increased. How can that be? Greatest year over year wage growth in a generation.
Could someone explain to me how a rational person could oppose this.
https://www.cato.org/blog/tax-rates-income-level-0
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https://www.americanthinker.com/blog/2021/05/joe_biden_wants_to_spy_on_your_bank_account.html
When did Leftist Utopia and Totalitarian Regime merge and become one reality?
Defund the Police, Arm the IRS, is that what true liberals and moderate Dems really want?
Nothing says "we're from the government and we're here to help you" like hiring 87,000 new IRS agents.
I can't even remember seeing the final report and resulting prosecutions of the IRS Targeting Scandal Commission, yet we are already expanding their powers and numbers and ability to work outside of the laws passed by our elected representatives.
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https://www.washingtonexaminer.com/policy/senate-democrats-energy-tax-code-overhaul
What could go wrong.
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The paragraph on capital gains theory is a thing of beauty.
=========
Return of the IRS Scandal
Someone leaked the tax information of individuals to serve the left’s agenda.
By The Editorial Board
June 8, 2021 6:39 pm ET
That didn’t take long. Less than half a year into the Biden Presidency, the Internal Revenue Service is already at the center of an abuse-of-power scandal. That news broke Tuesday when ProPublica, a website whose journalism promotes progressive causes, published information from what it said are 15 years of the tax returns of Jeff Bezos, Warren Buffett and other rich Americans.
Leaking such information is a crime, since under federal law tax returns are confidential. ProPublica says it received the files from “an anonymous source” and doesn’t know who provided them, how they were obtained, or what the source’s motives are.
Allow us to fill in that last blank. The story arrives amid the Biden Administration’s effort to pass the largest tax increase as a share of the economy since 1968. The main Democratic argument for a tax hike is that the rich should pay their “fair share.” The ProPublica story is a long argument that somehow the rich don’t pay enough. The timing here is no coincidence, comrade.
Someone at the IRS—or someone who hacked the IRS—leaked the documents to influence the debate in Congress. And right on time, Ron Wyden, the Senate’s chief tax writer, opened a Finance Committee hearing Tuesday by mentioning the ProPublica data dump.
“What this data reveals is that the country’s wealthiest—who profited immensely during the pandemic—have not been paying their fair share,” Mr. Wyden said. “I’ll have a proposal to change that.” You can bet he will.
***
Yet the striking fact of the initial ProPublica story—it says the disclosures will continue for months—is how undramatic the findings are. It turns out that billionaires are very good at reducing their taxable income. Who knew?
Investors and entrepreneurs like Messrs. Buffett and Bezos make most of their money from the appreciation in the value of their assets. Most of Mr. Bezos’s wealth comes from the rising value of his stock in Amazon, which he founded. Mr. Buffett has long admitted he pays a relatively low income-tax rate because his wealth is based in the value of his company, Berkshire Hathaway.
There is no evidence of illegality in the ProPublica story. As these columns keep pointing out, the rich can afford to hire lawyers and accountants to exploit every part of the tax code to pay the minimum amount of income tax the law allows.
ProPublica knows this, so its story tries to invent a scandal by calculating what it calls the “true tax rate” these fellows are paying. This is a phony construct that exists nowhere in the law and compares how much the “wealth” of these individuals increased from 2014 to 2018 compared to how much income tax they paid. ProPublica says that Mr. Buffett’s “true tax rate” over that period was only 0.10%.
But wealth and income are different, and what Americans pay is a tax on income, not wealth. ProPublica makes much of the fact that these billionaires pay a lower rate on capital gains and dividends than they do on income. The story suggests this is unfair, but it isn’t.
The preferential rate for capital gains and dividends has been a central part of the tax code for decades, and for good reasons. Congress has wanted to encourage capital investment; assets are often held for decades and gains are only realized upon their sale; gains can’t be adjusted for inflation over the years they are held; and investors can’t deduct net capital losses from income beyond $3,000 a year. Bipartisan majorities have long supported this part of the tax code.
But this has changed as the political left has risen in the Democratic Party, and Sens. Elizabeth Warren and Bernie Sanders ran for President calling for a new tax on wealth. The ProPublica story essentially argues for the Warren-Sanders agenda. We’ll leave the case against such a tax for another day, but the political point is that Ms. Warren and Mr. Sanders lost. Mr. Biden didn’t run on a wealth tax.
***
This still leaves the real scandal, which is that someone leaked confidential IRS information about individuals to serve a political agenda. This is the same tax agency that pursued a vendetta against conservative nonprofit groups during the Obama Administration. Remember Lois Lerner ?
This is also the same IRS that Democrats now want to infuse with $80 billion more to chase a fanciful amount of uncollected taxes. As part of this effort, Mr. Biden wants the IRS to collect “gross inflows and outflows on all business and personal accounts from financial institutions.” Why? So the information can be leaked to ProPublica?
The IRS says it has begun an investigation into the tax-return disclosure, and by all means send the guilty to prison. But Congress should also not trust the IRS with any more power and money than it already has.
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https://www.aljazeera.com/economy/2021/6/8/us-agencies-probe-media-leak-of-wealthiest-americans-tax-records
funny when it was Trump
tax returns leaked to the NYT
now when big shot leftists tax's get leaked the Feds are all over it.
(as they should be but the double standard is corrupt)
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Biden to close tax loopholes. We've been there before, been there before.
Obama cracks down on overseas tax loopholes," asserted NBC News in May 2009.
https://www.nbcnews.com/id/wbna30557517
Echoed NPR, "Obama: Tax Haven Curbs To Generate $210 Billion."
https://www.npr.org/templates/story/story.php?storyId=103772912?storyId=103772912
How'd that work out?
"The actual amount of tax collected by FATCA {Foreign Account Tax Compliant Act} is statistically insignificant," concluded Texas A&M University School of Law's William Byrnes and Robert Munro in an extensive March 2017 paper.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2926119
---------------------------------------------------------
Liberals and Lreftists spout off with bullsh*t pulled out of thin air with nothing to back it up. We post real data sourced and linked. The media runs with the BS that fits their narrative. The attack on wealth and prosperity only prevents new people and more people from achieving wealth and prosperity.
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More poor=More power and graft for the left.
Biden to close tax loopholes. We've been there before, been there before.
Obama cracks down on overseas tax loopholes," asserted NBC News in May 2009.
https://www.nbcnews.com/id/wbna30557517
Echoed NPR, "Obama: Tax Haven Curbs To Generate $210 Billion."
https://www.npr.org/templates/story/story.php?storyId=103772912?storyId=103772912
How'd that work out?
"The actual amount of tax collected by FATCA {Foreign Account Tax Compliant Act} is statistically insignificant," concluded Texas A&M University School of Law's William Byrnes and Robert Munro in an extensive March 2017 paper.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2926119
---------------------------------------------------------
Liberals and Lreftists spout off with bullsh*t pulled out of thin air with nothing to back it up. We post real data sourced and linked. The media runs with the BS that fits their narrative. The attack on wealth and prosperity only prevents new people and more people from achieving wealth and prosperity.
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Biden’s New Death Tax and a New York Widow
His proposed levy on unrealized capital gains would hit some modest estates especially hard.
By Hank Adler and Madison Spach
June 13, 2021 4:27 pm ET
President Biden proposes to “eliminate the loophole that allows the wealthiest Americans to entirely escape tax on their wealth by passing it down to heirs.” A White House “fact sheet” claims that “our tax laws allow these accumulated gains to be passed down across generations untaxed, exacerbating inequality.”
In fact, while most Americans can pass wealth to their heirs without incurring federal taxes, “the wealthiest” can’t. The federal estate tax applies when the person who has died has a net worth of $11.7 million or more (or twice that for married couples), and it rises to 40% after the first $1 million in taxable assets. Mr. Biden’s American Families Plan would subject many estates worth far less than $11.7 million to a punishing new death tax.
The plan would raise the total top rate on capital gains, currently 23.8% for most assets, to 40.8%—higher than the 40% maximum estate tax. It would apply the same tax to unrealized capital gains at death, exempting only the first $1 million ($2 million for a married couple) plus $250,000 for a personal residence.
To understand how uneven the burden of this tax is, consider a hypothetical taxpayer for whom it would be especially heavy: a woman who, as a young widow decades ago, bought a home in New York City for $250,000, reared her children there, and never remarried. The property is now worth $2.5 million and is her only asset. If she dies after the Biden plan becomes law, the estate itself wouldn’t be taxable, but it would be subject to the new death tax on $1 million of the unrealized gain from the home (the $2.25 million appreciation less the $1.25 million in exemptions). Her grown children would inherit $408,000 less than under current law. The Biden tax would be based on the value of the asset, not the equity, so the estate would be liable for the full amount regardless of any mortgage outstanding.
Now consider an actual couple who would likely escape the new tax entirely. Joe and Jill Biden have an estimated net worth of $8 million, according to Forbes. Mr. Biden’s disclosures indicate that their assets consist of two personal residences along with several annuities and life insurance policies. The only assets that would be subject to a capital-gains tax at death would be their two homes, the appreciation on which likely amounts to less than the $2.5 million in exemptions for a married couple.
A married entrepreneur in New York with identical wealth to the Bidens ($8 million) could face a new death tax of up to $2.4 million if his net worth consisted solely of his interest in a company that he started 30 years ago that subsequently went public.
The American Families Plan would result in negative value at death for many long-held leveraged real-estate assets. Ignoring the exemptions, if a $12 million estate included a long-held building with a fair market value of $5 million, debt of $4 million and a tax basis of $900,000, the capital gains tax at death would be nearly $1.7 million. The $672,800 in excess of the fair-market value after debt would be a liability against the remaining estate.
Scenarios in which the new death tax would significantly reduce, nearly eliminate or even totally eliminate the net worth of decedents who invested and held real estate for decades wouldn’t be uncommon.
The Internal Revenue Code has never taxed unrealized gains at death. The estate tax has always been a tax on the net assets of the taxpayer. Suddenly taxing unrealized appreciation as a separate and new tax—subjecting what could be millions of estates whose owners yesterday had nowhere near the assets to be subject to any death taxes—is a breach of faith.
The immediate effect of the American Families Plan’s passage would be dramatic. Every estate plan would be reviewed to offset the new death tax by reducing charitable donation. Plans in place to pay for college for future generations—our New York widow’s grandchildren, for instance—would be curtailed.
The American Families Plan would discourage long-term investment. That would be particularly true for those with existing wealth who would begin focusing on cash flow rather than long-term investment. The combination of the new death tax plus existing estate tax rates would change risk-reward ratios.
The American Families Plan creates a new and significant death tax that would tax estates of individuals who should not be taxed at death. If lawmakers want more revenue from decedents, they should raise the tax rate or lower the exemption, not add a new tax on unrealized gains. At least those changes wouldn’t be a total abandonment of the rules that have been in place for the lifetimes of most Americans.
Mr. Adler is an associate professor at Chapman University. Mr. Spach is an attorney in Newport Beach, Calif.
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Good article. Terrible policy. I don't see why we can't all agree on the basics of economics. Wealth is good (who knew?). We need more of it, more widespread . Tax revenues are necessary and we don't get more of them by destroying the engine of income, growth and wealth creation.
What's the matter with these people who want to pull people out of poverty by killing off the only thing that can pull people out of poverty?
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https://www.foxbusiness.com/politics/bidens-capital-gains-tax-plan-highest-among-developed-countries
Democrats support this?
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https://www.foxbusiness.com/politics/bidens-capital-gains-tax-plan-highest-among-developed-countries
Democrats support this?
Of course they do. Nothing new.
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https://www.newsmax.com/newsfront/senate-approves-3-5-budget-resolution/2021/08/11/id/1031883/
Disguised as a spending bill, it's the end of capitalism.
End of "stepped up basis". It's in the bill. It means that when you die, what you saved and invested is destroyed. It's the end of capitalism. It's the end of wealth creation. People don't create wealth just to have it passed back to the government, cf. Soviet Union, Cuba, Chavez Maduro with 100,000% inflation in Venezuela and no income or wealth. It was the wealthiest country in Latin America. "it can't happen here", they said, and we said, and it did. Jack asses like the "moderate" Marxists in the House and Senate including my Congressman, the lying moderate, "no labels" fraudster Dean Phillips of Big Vodka fortune, they vote with Bernie Burn the house down Sanders and Ilhan burn the world down Omar and Nancy get your hair done while the rest of us are locked down Pelosi at every important turn, and call themselves "moderate", with "no label", meaning no party, all bull sh*t, same with Sinema, Manchin, all liars aiming to destroy the country, or are they are just too economically illiterate to know this is a big, destructive deal? This isn't going to "pay for the spending". They collect NOTHING in capital gains taxes by destroying investment, production and wealth, like that hasn't been tried, and failed. They are dangerously incapable of second level thinking - unless destruction IS the plan. God save us.
And they try to kill bitcoin and crypto through 'taxation' and instead kill the US$ with $6 trillion more deficit. Talk about taking us past the point of no return, they do all this to save the planet. A nation that is BROKE is not going to save the planet.
https://www.cnbc.com/2021/08/11/senate-passes-3point5-trillion-budget-resolution-after-infrastructure-bill.html
F*cking liars. You don't "strengthen" the parasite, social spending, by killing the host, the private economy.
Every dollar of mine they think will go to them will go to conservative libertarian anti-Leftist causes until the day I die. Sorry but my AFTER-TAX money does not belong to you.
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1). dream up every conceivable excuse to tax everything they can
2). come up with nonsensical reasons why we need it
3). sell it as helping the masses
4) claim it only affects the rich
5). have multibillionaires who have so much money they could spend in 1,000 lifetimes.
state for the MSM they think it a great idea whose time has come
6). ignore taxpayers who pay for it all
7) chase after Romney Murkowski and Collins to get on board so they can claim
it is "bipartisan
8) be sure to shove up our asses every consceivable Leftist agenda into the bill that is
so long that no one has a clue
9). have minions in the MSM go out in force and call this a "landmark", "achievement "
"for the people " good for the USA etc
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I notice the emogi under # 8
what is weird is I did not put this in there
it was supposed to be #8
and site will NOT let me modify it
is there something going on with hacking?
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Don't think so. This is something I have pop up for me from time to time in numerical lists like this.
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ok, thanks
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Don't think so. This is something I have pop up for me from time to time in numerical lists like this.
8 followed by ) turns into an emoji 8). just add a space or a dot in between, 8 ) or 8.)
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tough we support half the state on the dole:
https://www.nj.com/politics/2021/08/murphys-gop-rival-slams-him-on-high-nj-taxes-in-first-tv-ad-of-gov-campaign.html
how outrageous
from out second goldman governor
who is now ordering everyone around during the corona problem
now mandating vaccines
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https://www.realclearmarkets.com/articles/2021/09/07/irs_guidance_would_punish_small_business_owners_with_families_793149.html
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https://washingtontimes-dc.newsmemory.com/?token=51cfcb18586ef75910c0625d1615086f_6144953c_6d25b5f&selDate=20210917
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Very wealthy tax avoiders:
https://dnyuz.com/2021/09/19/how-accounting-giants-craft-favorable-tax-rules-from-inside-government/
What if we taxed every dollar the same no matter who earned it or how, and did all the redistribution and social engineering on the spending side of the ledger? What if spending was limited by how much money taxes were collected, meaning limited by how much tax you want to pay yourself? Is that nano-macro-particle-physics level thinking, the postcard tax system, or it the other way around?
It's the current method that is rocket science to figure out, like a Bernie Made-off Ponzi scheme. Spending is limited by nothing [until the wheels fall off]. We don't even have to borrow the money to spend it. There is no deficit spending because all spending is in a deficit no one is tracking or caring about deficits. Taxation is so complex even the people who write it and pass it don't know what's in it. Taxpayers don't know their tax rate or their total tax for last year, this year or next year, and half the people think they're getting a free ride when they really pay a rate in everything they buy that is higher than what billionaires pay.
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It’s designed to be opaque and frightening. Again, it’s about graft, power and control.
Very wealthy tax avoiders:
https://dnyuz.com/2021/09/19/how-accounting-giants-craft-favorable-tax-rules-from-inside-government/
What if we taxed every dollar the same no matter who earned it or how, and did all the redistribution and social engineering on the spending side of the ledger? What if spending was limited by how much money taxes were collected, meaning limited by how much tax you want to pay yourself? Is that nano-macro-particle-physics level thinking, the postcard tax system, or it the other way around?
It's the current method that is rocket science to figure out, like a Bernie Made-off Ponzi scheme. Spending is limited by nothing [until the wheels fall off]. We don't even have to borrow the money to spend it. There is no deficit spending because all spending is in a deficit no one is tracking or caring about deficits. Taxation is so complex even the people who write it and pass it don't know what's in it. Taxpayers don't know their tax rate or their total tax for last year, this year or next year, and half the people think they're getting a free ride when they really pay a rate in everything they buy that is higher than what billionaires pay.
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"Don't tax you. Don't tax me. Tax that fellow behind the tree."
Congressman Wilbur Mills?
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https://www.breitbart.com/clips/2021/09/26/gop-sen-hagerty-dems-waging-war-on-capitalism-through-tax-system/
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do we have a thread on globalization
one losing sovereignty?
if not we need one
this is the first step :
https://www.cnbc.com/2021/10/08/oecd-reaches-deal-on-corporate-tax-after-ireland-agrees.html
when a elites can decide what the world should pay them around the world
not just within borders
:-( :x
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https://firehydrantoffreedom.com/index.php?topic=1790.msg24728#msg24728
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This sort of collusion would be a clear violation of the Sherman Act (antitrust) were it done by private actors.
Now poor countries with lower infrastructure and other less desirable features (a.k.a. "shit hole countries") may not compete for investment with lower tax rates.
https://www.reuters.com/business/reactions-landmark-global-corporate-tax-deal-2021-10-08/?fbclid=IwAR0DbSGZFiboYgCS2HMpnDhI4pUdkt7QAELGFy6tM7p1KW7MasP4neEKiBA
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https://t.co/1x2YrlrjmB?amp=1
https://taxfoundation.org/biden-estate-tax-unrealized-capital-gains-at-death/
Tax Foundation
History of Attempted Changes to Step-Up in Basis Shows Perilous Road Ahead
September 28, 2021
—--------------
Unfortunately, failure is the goal.
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Washington has had an excellent pandemic. If you doubt it, look no further than the Congressional Budget Office’s summary for revenues and outlays for fiscal 2021, which ended on Sept. 30. The federal government has never had it so good—literally.
The budget gnomes estimate that federal receipts rolled in at a record $4.05 trillion for the year, the first time annual revenues have exceeded $4 trillion. This is not a record to be proud of—like breaking the four-minute mile. Receipts rose 18%, or a remarkable $627 billion, in one year.
Nearly every revenue stream chipped in more, except for payroll taxes, which were flat. Individual income taxes rose $443 billion, or 27.5%, to reach $2.05 trillion. That’s about 9% of the entire U.S. economy. As CBO’s monthly budget summary dryly observes, “that increase most likely reflects higher total wages and salaries, particularly among the relatively high-income workers who are subject to higher tax rates on earnings.”
Translation: The rich had a good year, but they also paid a huge fiscal dividend in taxes. Question for President Biden : Does $2 trillion qualify as a “fair share”?
Corporate income taxes also rolled in at an astonishing rate, rising by 75% for the year, or $158 billion to $370 billion. That reflects robust corporate profits, but keep in mind this revenue boom came with the current 21% top corporate tax rate that passed with the GOP tax reform in 2017. Mr. Biden and Democrats keep telling Americans that corporations aren’t paying enough, even as the corporate tax boom gives them more money to spend.
Even the Federal Reserve contributed to the Beltway boom, increasing its remittances to the Treasury by 22%, or $18 billion, to $82 billion. That’s the money the Fed earns from its vast bond holdings, which have soared during the pandemic and continue to increase despite the economy’s rapid growth of the last year. This is another reason the political class doesn’t want the Fed’s “emergency” policies to end.
For readers who still care about budget deficits—and we don’t mean anyone in Congress—the revenue boom was swamped by another record spending increase. Outlays rose 4% in the fiscal year, or $265 billion, to $6.82 trillion. That’s 30% of GDP in federal spending alone. Some of that will ebb as pandemic emergency payments expire—that is, unless Democrats succeed in making them permanent or adding new benefits as part of Mr. Biden’s $5 trillion entitlement plan.
All of this raises the question: With tax revenues coming in like a gusher, and the economy slowing from supply-side shortages, why raise taxes at all? In particular, why raise tax rates when the current rates seem to be capturing the profits of companies and the income of individuals well enough?
There’s no fiscal or economic logic to it, so the likely answer is simply to punish Americans who make more than what Mr. Biden thinks is “fair.”
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https://www.cnn.com/2021/10/26/opinions/billionaires-tax-a-good-start-mccaffery/index.html
Know your enemy.
Another approach to taxation might be:
equal protection under the law,
but that's too radical,
while targeting your enemies is just common sense.
Oddly, the Billionaires are all Democrats.
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I clicked on the link so you don't have to. You can tell Leftist writing by the need to tell a lie in the first sentence to set the premise:
"(CNN)The Billionaires' Tax Plan being floated by Senate Finance Committee Chair Ron Wyden is an excellent first step in getting the wealthiest Americans to pay something, after a century of nothingness."
Fact check: The rich pay a lot. It's the poor who don't earn, report or pay their fair share, year after year.
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"Fact check: The rich pay a lot. It's the poor who don't earn, report or pay their fair share, year after year."
I read they also want to tax *unrealized* gains on the "rich"
I am against this whether for the rich or anyone else (and we all now this "good first start" will eventually be expanded to include others)
My opinion : start taxing those who pay no taxes - it is only fair.
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With inflation, we will all be "rich"! Like they were in Weimar Germany.
"Fact check: The rich pay a lot. It's the poor who don't earn, report or pay their fair share, year after year."
I read they also want to tax *unrealized* gains on the "rich"
I am against this whether for the rich or anyone else (and we all now this "good first start" will eventually be expanded to include others)
My opinion : start taxing those who pay no taxes - it is only fair.
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http://ace.mu.nu/archives/meme%2020211027%2008.jpg
(http://ace.mu.nu/archives/meme%2020211027%2008.jpg)
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https://www.city-journal.org/billionaire-tax-will-not-work
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Radical moves toward one world government really don't go under tax Policy...
Economist Veronique de Rugy points out:
"The irony, of course, is that while the United States and its richest friends are set to benefit at the expense of poorer countries, the deal is being sold in the name of fighting inequality at home."
https://townhall.com/columnists/veroniquederugy/2021/11/04/here-comes-the-hypocritical-global-minimum-tax-n2598529
There is a certain irony to a group of rich countries pushing for policies that will disadvantage poorer countries. Yet this is exactly what the leaders of the world's biggest economies did by endorsing a global minimum tax rate of 15% on the profits of large businesses, a deal that has since gained momentum and pledges from leaders in 136 countries.
The deal's objectives are simple. It creates a tax cartel, and high-tax nations believe this will limit competition from countries with lower and simpler taxes. It also benefits wealthier, higher-tax nations by shifting revenues from countries where companies are headquartered to countries where companies make their sales. At the heart of these two objectives is the need to feed wealthy nations' enormous budgets.
Here's the skinny on a global minimum tax: Most countries, including the United States since the passage of 2017's Tax Cuts and Jobs Act, use some version of a "territorial" system. Territoriality is a basic principle of good tax policy and means that governments don't tax their taxpayers' foreign-earned incomes. That money is instead taxed by the foreign jurisdictions where it is earned. Firms can choose where to do business based on what country has the best tax regime. This approach puts pressure on governments with punishing tax regimes to become less draconian.
The interesting thing is that some advocates don't bother to hide the fact that their goal is to simply extract more revenue from businesses. In a recent Washington Post piece, economist and former Treasury Secretary Lawrence Summers cheered the new deal:
"Countries have come together to make sure that the global economy can create widely shared prosperity, rather than lower tax burdens for those at the top. By providing a more durable and robust revenue base, the new minimum tax will help pay for the sorts of public investments that are fundamental to economic success in all countries."
Summers seems to believe that higher tax rates inevitably lead to more tax revenue, and that politicians will always use the money in ways that are sure to promote growth. It's putting a lot of faith in the notion that politicians will finance worthy investments, as opposed to introducing all sorts of economic distortions or buying votes by feeding corporate welfare. A look at the "Build Back Better" legislation making its way through Congress, which is loaded with counterproductive tax credits and other policies, shows that this faith is unwarranted.
What's more, scholarly work by the Tax Foundation, the International Monetary Fund, the Organisation for Economic Co-operation and Development and others show that an increase in the corporate tax rate is one of the least effective ways to raise revenue, and that it will lower gross domestic product. That's partly because it lowers investments and, in turn, reduces workers' wages and increases consumer prices.
Corporations may not be popular, but if we squeeze them too hard, how many raises can we expect them to hand out to American workers? What happens to the prices we pay for their products? Even corporations need accountable government, and that means having options in case taxes become too punishing.
The irony, of course, is that while the United States and its richest friends are set to benefit at the expense of poorer countries, the deal is being sold in the name of fighting inequality at home. Or, as Summers puts it, to avoid "lower tax burdens for those at the top."
Wealthy nations could address their budget woes by cutting spending, something most politicians don't have the stomach for. In addition, if these countries have a problem with how multinational corporations are taxed, they could change other policies like transfer-pricing rules. What they shouldn't do is tell other countries how income should be taxed within their own borders, let alone set up a global tax cartel.
The average taxpayer may feel unconcerned by this development. But beware: This cartel is just the beginning. Once such a system is in place, it's only a matter of time before revenue-hungry legislators extend the minimum tax rate to individuals.
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Doug:
Feel free to post this in the Sovereignty thread as well.
All:
This article makes the point I have been making about this being a violation of the concepts of the Sherman Act.
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https://nypost.com/2021/11/09/joe-bidens-plan-would-make-income-tax-highest-rate-in-developed-world/
President Biden’s Build Back Better agenda would hike the average top tax rate on personal income in the United States to the highest level in the developed world, according to an analysis by the Tax Foundation.
The $1.75 trillion proposal currently before the House of Representatives would end up raising the average top tax rate on personal income in the US to a whopping 57.4 percent, the highest in the 38-member Organisation for Economic Co-operation and Development, according to the analysis.
That’s up from the US’ current nationwide average top tax rate of 42.9 percent, which lands squarely in the middle when compared with the other OECD countries, according to the Tax Foundation, a Washington, DC-based think tank.
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Resist!
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(https://nypost.com/wp-content/uploads/sites/2/2021/11/top-tax-oecd.png)
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but of course,
in DEEP RED Nebraska:
https://www.nytimes.com/2021/11/23/business/taxes-family-farm.html
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but of course,
in DEEP RED Nebraska:
https://www.nytimes.com/2021/11/23/business/taxes-family-farm.html
Yes. Strange story. Rush Limbaugh first reported NYT was sending "foreign correspondents" to the heartland to find out what people are thinking, since no one at the Times knew anyone who voted Republican. Looks like a reporter went there, took pictures and talked to only one family while the plane waited.
"Drought" and climate issues. That's never happened before: https://www.drought.unl.edu/dustbowl/Home.aspx
Property tax RATES are too high in Nebraska. But at least in residential real estate, the prices and values are low too.
This is just a very late article on how hard it is to operate a small family farm. You need state of the art equipment and methods to be productive and it takes much more acreage than that for it to be worth it.
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Many good points in this. Most obvious is that 120 Americans have full time jobs working for "small businesses". Even if only the rich, think employers, are assessed each year on unrealized capital gains, they must sell the asset to pay the tax, or sell some other asset to try to keep the business and pay the tax, right while all other investors are selling their assets to pay their tax.
If you don't see the crash in that with massive loss of jobs, you are a lying (or deny the truth) Leftist.
If you don't believe logic, look at history. This has been tried around the globe and always failed.
https://www.realclearpolitics.com/articles/2021/12/08/think_youll_be_safe_from_wealth_taxes__think_again_146852.html
Think You'll be Safe from 'Wealth Taxes'? Think Again
By Mario H. Lopez
December 08, 2021
Think You'll be Safe from 'Wealth Taxes'? Think Again(AP Photo/Patrick Semansky)
As Washington Democrats seek ways to pay for massive current and future government spending, they continue to rely on the false promise of not increasing taxes on ordinary Americans. The supposed targets are always billionaires, Wall Street, or more broadly, “the rich.” Recent proposals from progressive politicians use the generic term “wealth tax” to drive their point.
Progressives may believe that cloaking tax schemes in the language of envy may help sell their proposals, but anyone who scratches just a bit beyond the surface sees that the rationale falls apart.
One mechanism for fueling “wealth taxes” is that the government should tax the “unrealized gains” of peoples’ assets. They key here is “unrealized,” about which there are two critical dimensions to note. First, the value of an asset cannot be accurately assessed until there is a real transaction. Anything prior to that is a mere projected value — what someone thinks will end up being the actual value. Second, if the projected value of an asset — your home, for example, rises 20%, it does not mean you magically have more money in the bank. That gain exists only on paper — that is, it is unrealized. The value of assets only becomes real once they are sold — when the gain is realized.
The same goes for stocks, which data shows are owned by more than half of all Americans, with 80 million to 100 million of us owning 401(k) saving and investing plans.
But yet, some politicians want to tax those “gains” as if they were real. A wealth tax regime would force people to pay taxes regardless. So if the projected value of your home rises, you would be taxed on that perceived rise, even as your income remains the same, or possibly goes down.
Wealth taxes would force people who own certain assets like stocks and other similar assets to sell them just to pay the taxes. That reduces people’s nest eggs — money that they plan to use for retirement or for a rainy day. And for the assets that remain, retirees would see their investment plans go down in value as stocks and other assets are devalued through forced sales.
And the economic impact will be exponentially worse given the effect on small businesses. Everyone, from the struggling sole proprietorship fighting to survive in the era of COVID-19 to mom-and-pop retailers, will find themselves in the IRS’s crosshairs.
It may surprise some to know that 99% of U.S. businesses are small, and that 120 million Americans — nearly half of all workers — are employed by small businesses.
The role of small businesses is especially key in underserved communities. Hispanic Americans, for example, start small businesses at a rate three times that of the general population and have seen some positive growth, especially pre-pandemic, despite facing unique challenges that include access to capital.
These businesses are key to wealth and job creation, especially in the communities where they are located. But small businesses are assets, after all, meaning that they will become easy prey for bureaucrats eager to fulfill their mission of lining government coffers to pay for the overspending that politicians demand.
As the value of the small business rises — again, on paper — owners would be forced to find ways to pay for these new, punitive taxes, undoubtedly leading to significant job losses.
But even workers who don’t lose their jobs will feel the impact directly. The American Action Forum analyzed so-called wealth taxes from two of their leading champions, Sens. Elizabeth Warren and Bernie Sanders. The analysis found workers would be hit with $1.2 trillion in lost earnings over the first 10 years of the Warren wealth tax. Over that same time span, Bernie Sanders’ version would cost workers $1.6 trillion in lost earnings. AAF shows that workers would essentially pay “an effective tax of 63 cents on workers for every dollar the government raises in revenue from the wealthy.”
In their zeal to go after “the rich,” progressives in Congress apparently don’t mind hurting average Americans and making their pursuit of the American dream even more difficult.
Mario H. Lopez is the president of the Hispanic Leadership Fund, a public policy advocacy organization that promotes liberty, opportunity, and prosperity for all Americans.
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More here:
https://www.dailysignal.com/2021/12/01/taxing-wealth-is-a-sure-fire-way-to-end-up-with-a-less-wealthy-society/
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When the say raise taxes (on the rich, they never say raise them on you), they mean tax rates.
But (ad nauseum) taxes are paid in dollars of revenue to the Treasury, not in rates or percentages (percentage of WHAT?).
Take a look:
(https://mcusercontent.com/dc8d30edd7976d2ddf9c2bf96/images/acc4accd-ef82-5cb6-9e04-a1d61e73d134.png)
Source: Laffer, Committee to unleash prosperity
Higher tax rates motivate the rich to engage in four forms of tax avoidance:
Move money offshore
Invest in tax shelters
Park their fortunes in untaxed family charitable foundations
Reduce their workload and taxable income
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https://www.theepochtimes.com/new-analysis-shows-trump-tax-cuts-helped-middle-class-more-than-rich_4143678.html?utm_source=ref_share&utm_campaign=copy&rs=SHRDBNRM&
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https://www.youtube.com/watch?v=GZT_A7MEtJg
Fee.org Common Sense Soapbox
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https://www.propublica.org/article/the-great-inheritors-how-three-families-shielded-their-fortunes-from-taxes-for-generations?utm_source=sailthru&utm_medium=email&utm_campaign=majorinvestigations&utm_content=river
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https://www.foxbusiness.com/markets/new-jersey-governor-signs-aid-bill-for-atlantic-city-casinos
as always excuse is jobs
and lost overall tax revenue from closed casinos
blah blah blah
union jobs
this from gov who is on record from stating if taxes are your main issue NJ is probably not for you.
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If more is better, why wouldn't you double the tax rate?
https://www.based-politics.com/2022/01/11/aca-11-california-constitutional-amendment-would-double-taxes/
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If more is better, why wouldn't you double the tax rate?
https://www.based-politics.com/2022/01/11/aca-11-california-constitutional-amendment-would-double-taxes/
Why not just tax everything and then dole out what is needed?
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If more is better, why wouldn't you double the tax rate?
https://www.based-politics.com/2022/01/11/aca-11-california-constitutional-amendment-would-double-taxes/
Why not just tax everything and then dole out what is needed?
Yes, the 100% tax rate question. The pure Leftist is for that, and the Lean Left voter needs to ask him or herself why that is not the best policy. In that answer lies the path to understanding and believing in the limits of government.
Strange but true, doubling the tax rates doesn't bring in more money.
It was quite amazing to see Barack Obama admit higher capital gains tax rates don't bring in more money and then favor the policy anyway, out of "fairness". Fairness of what, for whom? You're taxing INFLATIONARY gains at the same rate as real gains. Pure, anti-growth stupidity.
https://taxfoundation.org/obama-and-gibson-capital-gains-tax-exchange/
GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.
But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
OBAMA: Right.
GIBSON: And George Bush has taken it down to 15 percent.
OBAMA: Right.
GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected.
OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.
We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year — $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair.
And what I want is not oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don’t have it and that we’re able to invest in our infrastructure and invest in our schools.
And you can’t do that for free.
OBAMA: And you can’t take out a credit card from the Bank of China in the name of our children and our grandchildren, and then say that you’re cutting taxes, which is essentially what John McCain has been talking about.
And that is irresponsible. I believe in the principle that you pay as you go. And, you know, you don’t propose tax cuts, unless you are closing other tax breaks for individuals. And you don’t increase spending, unless you’re eliminating some spending or you’re finding some new revenue. That’s how we got an additional $4 trillion worth of debt under George Bush. That is helping to undermine our economy. And it’s going to change when I’m president of the United States.
GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.
OBAMA: Well, that might happen, or it might not. (HERE COMES THE SHREWD POLITICIAN PIVOT AWAY FROM A LOSING ISSUE) It depends on what’s happening on Wall Street and how business is going. I think the biggest problem that we’ve got on Wall Street right now is the fact that we got have a housing crisis that this president has not been attentive to and that it took John McCain three tries before he got it right.
And if we can stabilize that market, and we can get credit flowing again, then I think we’ll see stocks do well. And once again, I think we can generate the revenue that we need to run this government and hopefully to pay down some of this debt.
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Washington Cashes In on Inflation
Individual income tax receipts rose 55% in the first fiscal quarter.
By The Editorial Board
Follow
Jan. 17, 2022 6:02 pm ET
Journal Editorial Report: Biden spent like a drunken sailor. Now Americans are paying in higher prices. Images: AFP via Getty Images Composite: Mark Kelly
The country may be upset with inflation, but in many ways political Washington has never had it better. Covid-19 has been the excuse for record government spending and the abuse of regulatory power such as vaccine mandates and an eviction moratorium. And now we learn that tax revenue is rushing into the Treasury even as politicians plead poverty.
That’s the news you haven’t read about last week’s December budget review from the Congressional Budget Office. The budget gnomes report that federal receipts in the first fiscal quarter, from October to December, increased by a remarkable 31%. That’s a cool $248 billion increase to $1.05 trillion for the quarter.
Individual income taxes revenue soared by 55% in the quarter, or $189 billion, to $536 billion. Corporate income taxes rose 44%, or $30 billion, to $99 billion. Payroll taxes and a variety of other receipts, including a 16% increase ($4 billion) in remittances from the Federal Reserve, made up the rest.
This boom for the Beltway reflects the strong growth in nominal GDP. With 7% inflation, nominal GDP is increasing by double digits, which leads to higher nominal profits, wages and salaries. Washington gets the revenue windfall from taxes on those nominal increases even if average wages for workers falls behind inflation, as they did last year by 2.4%, according to the Bureau of Labor Statistics. A 7% rate of inflation is Christmas all year ’round for the federal government. State governments are also reaping revenue windfalls.
CBO says the federal government still had a $377 billion budget deficit in the first fiscal quarter as outlays increased 6%, or $75 billion, to $1.43 trillion. The spending increases came mainly from the pandemic-related transfer payments passed by Congress last March. That included increases of $59 billion in refundable tax credits (mainly the higher child allowance), $21 billion more for food and nutrition (mainly food stamps), and $18 billion more for schools.
The lesson here is that Washington doesn’t need a tax increase. As the economy grows, the revenue will keep flowing, even if the pace of increase slows. Even amid Covid’s Omicron variant surge, the economy is growing smartly and doesn’t need new spending. Everyone who wants a job can get one—or two. The economic problem is inflation, which is hurting workers even as it rewards politicians.
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https://www.breitbart.com/faith/2022/01/31/pope-francis-taxation-is-an-important-tool-for-wealth-redistribution/
ok, lets start with the Catholic Church.
"Bankers' best guesses about the Vatican's wealth put it at $10 billion to $15 billion. Of this wealth, Italian stockholdings alone run to $1.6 billion, 15% of the value of listed shares on the Italian market. The Vatican has big investments in banking, insurance, chemicals, steel, construction, real estate."
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I've tried hard to support the Catholic faith on this board but, in this case, this Pope can go straight to hell with his support of coercive redistribution (theft).
Opposition to his view is clear in the Ten Commandments:
10. "You shall not covet your neighbor’s goods". (via multiple translations) - God
https://strathmore.edu/su-chaplaincy/the-10-commandments-of-god/
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https://nypost.com/2022/02/15/nancy-pelosi-gets-the-best-to-both-worlds-with-the-latest-stock-deal/?fbclid=IwAR0h2lgOtsOFDAEjHzRSLzkTeABTbELWs-fRJafeXCvzq1m3M4Yu85H8Z7s
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https://www.hastingstribune.com/ap/personal_finance/shock-gas-grocery-price-hikes-spur-states-to-pursue-tax-relief/article_eaec6926-843c-5661-a2c5-1881320075c4.html
to offset inflation that is caused by Democrat policies
in time for the upcoming elections.
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hits 1/2 of beneficiaries
I suppose those that make under a certain amount
while the rest get screwed over:
https://www.marketwatch.com/story/its-time-to-get-rid-of-social-securitys-not-so-hidden-tax-11645646524?siteid=yhoof2
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hits 1/2 of beneficiaries
I suppose those that make under a certain amount
while the rest get screwed over:
https://www.marketwatch.com/story/its-time-to-get-rid-of-social-securitys-not-so-hidden-tax-11645646524?siteid=yhoof2
You don't get to keep what you earned. How come they don't put that on a bumper sticker and see how it sells?
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The 'good' side of inflation is the tax reform it must cause.
In the '70s, we had massive bracket creep. Everyone getting bumped up to tax rates designed to punish rich people and prevent wealth, not grow the economy. Enter Reagan.
This time, same. We HAVE TO stop taxing the inflation component of capital "gains".
It is not a gain. It is a lie. It is destroying incentives to buy and hold for long periods, called "stability" in a (formerly) first world economy. It puts uncontrollable moral hazard on the policy makers, and it needs to end.
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dems tax policy :
1) increase taxes
2) claim they are only taxing the rich who must pay their fair share
always the same stand up comedy schtick :roll:
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https://www.ft.com/content/4b60898d-00c2-4f1e-acad-8a210120153f?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev
including unrealized gains
not sure how that one works!
we all know this is just the beginning
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Paywalled.
https://www.ft.com/content/4b60898d-00c2-4f1e-acad-8a210120153f?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev
including unrealized gains
not sure how that one works!
we all know this is just the beginning
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https://www.nytimes.com/2022/03/26/us/politics/biden-billionaires-minimum-tax.html
I suppose the non mega rich are supposed to cheer
and I am sure many will
I don't.
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https://www.ft.com/content/4b60898d-00c2-4f1e-acad-8a210120153f?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev
including unrealized gains
not sure how that one works!
we all know this is just the beginning
'Only the ultra rich will pay'. Sneeze coming, uh, uh, uh, BULLSHIT!!
Unrealized NOT gains, they forget about inflation even though it's in all the papers!
Not sure how it works? It doesn't work. To force money out of a non-money asset, you forced its sale. Do that across the entire economy all at once and what happens? The super rich cash out of their holdings, stocks and so on, and the value collapses for the not super rich, still in, who lose all their savings and retirement. If you see that coming like a freight train before it hits, you sell even sooner to beat [and trigger] the collapse.
'Only the ultra rich will pay'? They mean pay directly? Everyone loses with bad policy - like inflation. Labor needs capital. Employees need employers. People participating in markets need other people participating in markets. That's how it works. Who knew.
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Famous people caught reading the forum:
"Republicans should counter with a proposal to index capital gains for inflation. Senator Ted Cruz of Texas has introduced legislation to do just that.". - Stephen Moore
It's not rocket science. The inflation component of an alleged gain is not a gain.
Also it creates a HUGE incentive for government to cause more inflation.
And make no mistake, government Is the cause of inflation.
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We Need to Remember What Reagan Knew About Economics
John Rutledge explained it all in a 1981 Journal op-ed foretelling the long boom that was about to begin.
By Richard Vigilante
June 16, 2022 6:56 pm ET
How did John Rutledge know Reaganomics would be such a smashing success?
In December 1981 the Journal ran a contrarian op-ed by Mr. Rutledge, then president of Claremont Economics Institute. It was the most prescient prediction by an economist I have ever read.
Mr. Rutledge predicted that inflation would decline faster than expected; that interest rates would fall, not rise, despite the growing deficit; and the economy and financial markets wouldn’t slump, but soar. It all happened.
Pre-Reagan, orthodox economics—monetarist and Keynesian alike—assumed the answer to inflation was to control the money supply, which Keynesians called “aggregate demand.” Mr. Rutledge saw that the real supply of money was beyond government’s control. People, especially investors, were in charge.
He noted that throughout the Great Inflation, people had been rejecting dollars. No matter how many of those little scraps of paper government threw at them, people turned them into “stuff.”
Private investors especially, he argued, experienced inflation as a set of choices: “Should I buy a condominium, or should I put some money into a T-bill? Should I sell some shares of stocks to buy gold coins?”
Over a decade, Americans cumulatively dumped dollars to acquire some $7 trillion in mostly unproductive stuff, always oddly described as “real assets.” That was more than double the entire annual stock of goods and services produced in the U.S. back then.
Mr. Rutledge predicted that the combination of tighter money and lower tax rates—a paradox to the orthodox—would lure much of that $7 trillion back into financial markets. With real return on investment rising, people would value stuff less and investible capital more.
Households would become massive suppliers of credit to the economy. In a reversal of orthodox expectations, interest rates would plunge precisely as the demand for dollars rose. Inflation would decline as the supply of money increased.
That is what happened. Stocks, stagnant for a decade, took off and kept going for 20 years and beyond (with brief if dramatic interruptions). Employment boomed. Interest rates dropped relentlessly. Inflation never came back, until now.
President Reagan understood something neither party grasps today: that the value of the dollar isn’t a function of how many dollars government supplies but of how many dollars people demand. Money is supplied insofar as it is demanded by people who can put it to good use. Inflation arises when people have less use for money, which is why stagnation comes with it. Reagan beat inflation not by reducing the official money supply—M2 nearly doubled during his time in office—but by boosting demand for money.
The great lesson of the Reagan era is that money supply is determined by investment opportunity. Absent such opportunities, no matter how much money the government gives people, they will reject it and turn it into stuff.
Here is the radicalism of Reagan: Orthodox economics attempts to use both monetary and fiscal policy to manipulate the availability of dollars. Reagan used both to increase the utility of dollars.
He didn’t do it alone. In 1978 a bipartisan group in Congress turned President Carter’s proposed increase in capital-gains tax rates into nearly a 50% reduction, down to 28%. Reagan won a further cut in 1981, down to 20%.
The combination of high capital-gains taxes and inflation had devastated real rates of return on investment for a decade. Cutting the capital-gains rate might have done even more to boost the demand for money than Reagan’s 25% cut in regular income tax rates.
The impact of the Reagan reforms played out for decades because their effect wasn’t a temporary boost in “aggregate demand”—the widely despised “sugar high”—but an accumulating shift of capital to people who repeatedly demonstrated they could use it productively.
The gradual but enduring impact of the Reagan policy raises even the tantalizing possibility that the 1982 recession was unnecessary. Given time, the tax cuts themselves might have conquered inflation without Fed Chairman Paul Volcker’s drastic tightening.
Today we are back to fighting inflation by letting the Fed strangle the economy. No leader from either party apparently understands what Reagan did. Joe Biden is out to lunch; Donald Trump is over the hill. Reagan’s City on the Hill still shines.
Mr. Vigilante writes The Next American Century at RichardVigilante.substack.com.
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https://www.foxbusiness.com/economy/republicans-pushing-tax-hike-midterm-elections-at-ris?fbclid=IwAR3BQh-S6nSq-UU7YMAN1y7ZbKOyDAfbSsiCApC-MYZlcngMcPujx8suJ4A
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https://www.foxbusiness.com/economy/republicans-pushing-tax-hike-midterm-elections-at-ris?fbclid=IwAR3BQh-S6nSq-UU7YMAN1y7ZbKOyDAfbSsiCApC-MYZlcngMcPujx8suJ4A
Of course.
-
https://video.foxnews.com/v/6310698051112#sp=show-
Grover :
The inflation REDUCTION bill will create
1.2 million new audits in nation of less than 1,000 billionaires and only 400 Fortune 500 companies
so guess where the rest of the audits will go?
Biden's established armed branch of the military, the new IRS, will have
87 K new members (more then double the number now)
are not being paid to do nothing
I suspect this forum is on a list(s)
with some of these "Jihad the right" agencies
-
If you aren't on a government list by now, you should be embarrassed.
https://video.foxnews.com/v/6310698051112#sp=show-
Grover :
The inflation REDUCTION bill will create
1.2 million new audits in nation of less than 1,000 billionaires and only 400 Fortune 500 companies
so guess where the rest of the audits will go?
Biden's established armed branch of the military, the new IRS, will have
87 K new members (more then double the number now)
are not being paid to do nothing
I suspect this forum is on a list(s)
with some of these "Jihad the right" agencies
-
https://i.imgur.com/eg64r6M.png
(https://i.imgur.com/eg64r6M.png)
If you aren't on a government list by now, you should be embarrassed.
https://video.foxnews.com/v/6310698051112#sp=show-
Grover :
The inflation REDUCTION bill will create
1.2 million new audits in nation of less than 1,000 billionaires and only 400 Fortune 500 companies
so guess where the rest of the audits will go?
Biden's established armed branch of the military, the new IRS, will have
87 K new members (more then double the number now)
are not being paid to do nothing
I suspect this forum is on a list(s)
with some of these "Jihad the right" agencies
-
https://www.washingtonexaminer.com/opinion/heres-why-chuck-schumer-will-never-close-the-carried-interest-loophole
-
from article posted by CD above :
"Schumer is the top beneficiary of hedge fund donations, by a large margin, according to data from the Center for Responsive Politics. Hedge funds heavily favor Democrats, as well, having given President Joe Biden $1.5 million last cycle, more than 10 times what the industry gave to Donald Trump.
The numbers for the private equity industry tell the same story — Schumer has raised more than any other candidate from them (by a factor of 2), and the industry favoring Democrats over Republicans."
Schumer is a perfect example of shyster
weasel slime bucket grifter crook
controlling everyone else while all the while being sure he profits handsomely from it
( is the work "handsomely" allowed anymore ? )
-
from article posted by CD above :
"Schumer is the top beneficiary of hedge fund donations, by a large margin, according to data from the Center for Responsive Politics. Hedge funds heavily favor Democrats, as well, having given President Joe Biden $1.5 million last cycle, more than 10 times what the industry gave to Donald Trump.
The numbers for the private equity industry tell the same story — Schumer has raised more than any other candidate from them (by a factor of 2), and the industry favoring Democrats over Republicans."
Schumer is a perfect example of shyster
weasel slime bucket grifter crook
controlling everyone else while all the while being sure he profits handsomely from it
( is the work "handsomely" allowed anymore ? )
ccp, All true. Isn't that strange that the really big money people all favor Democrats. Some of that is give to the party in power, but they were favoring Democrats also when not in power.
Democrats know how to support a complex tax code and Dem lobbyists know how to write it and benefit from it.
Joe Biden, "I will not raise taxes on anyone making under $400,000 per year."
Inflation is a tax. It hits EVERYONE making under $400,000 per year, every minute of every day.
Inflation IS Joe Biden's policy.
In the new IRS EXPANSION ACT, 87,000 new IRS agents will target taxpayers, small businesses and specially rental property owners with the task of raising more tax revenue dollars, raise taxes, not just put people in jail.
Democrats’ Spending Bill Includes $20 Billion In New Energy Taxes That Will Drive Prices Higher
https://thefederalist.com/2022/08/09/democrats-spending-bill-includes-20-billion-in-new-energy-taxes-that-will-drive-prices-higher/
That won't affect people making under 400k - if you don't let them have energy.
New bill shakes the ground of US competitiveness. That won't affect people making under 400k
- until they lose their job, while food and energy costs keep going up.
Goodwill prices are going up, way up. That won't affect people making under 400k.
Prices aren't up? Go into a Subway sandwich shop and order the $5 footlong. Go into Dollar Tree, buy something for a dollar. How about McDonalds, which burger do you want off the dollar menu? No.Such.Thing.Anymore.
-
https://threadreaderapp.com/thread/1557390432832667650.html
As the feral government becomes more desperate for money, the more ravenous the beast will become.
-
https://threadreaderapp.com/thread/1557390432832667650.html
As the feral government becomes more desperate for money, the more ravenous the beast will become.
A sad irony for the Left, revenues to the Treasury are maximized with supply side (lower, flatter) tax rates - resulting in economic growth.
This is fixed pie, flat earth thinking. There will be no growth under their policies. Only way to get more out of it is to take more from existing income and assets.
Like Putin-Russia, only way to get more is to take more from someone else.
IRS tactics are like the Trump raid. Democrats seem confident it won't happen to them.
Maybe they're right.
-
"If only Comrade Stalin knew!"
There will be collateral damage on the left, but "broken eggs" as the left likes to say....
https://threadreaderapp.com/thread/1557390432832667650.html
As the feral government becomes more desperate for money, the more ravenous the beast will become.
A sad irony for the Left, revenues to the Treasury are maximized with supply side (lower, flatter) tax rates - resulting in economic growth.
This is fixed pie, flat earth thinking. There will be no growth under their policies. Only way to get more out of it is to take more from existing income and assets.
Like Putin-Russia, only way to get more is to take more from someone else.
IRS tactics are like the Trump raid. Democrats seem confident it won't happen to them.
Maybe they're right.
-
(https://instapundit.com/wp-content/uploads/2022/08/87000-600x500.png)
https://instapundit.com/wp-content/uploads/2022/08/87000-600x500.png
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https://nypost.com/2022/08/11/joe-hunter-biden-staying-for-free-at-20-million-south-carolina-mansion/
just sickening
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https://www.breitbart.com/politics/2022/08/10/irs-job-listing-special-agents-must-carry-firearm-be-willing-use-deadly-force/
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second
https://patriotpost.us/articles/90460-about-those-87000-new-irs-agents-2022-08-11?mailing_id=6880&utm_medium=email&utm_source=pp.email.6880&utm_campaign=digest&utm_content=body
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They refuse to close the border a
allow millions upon millions of illegals to waltz in
and then arm to the hilt IRS agents to go after [conservative] citizens!
:x
They are not going to have guns to go after hedge fund managers or billionaires or liberals that is for sure.
in '24 we need to go after the Federal government and cut them down to size
along with all the crazy spending
waiting for the next article - "another billion to Ukraine". [for hunter's pals]
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https://rumble.com/v1gc9df-the-armed-irs-training-video-you-have-to-see-to-believe.html?fbclid=IwAR3pWJH-R2gN8_EHYCxU-jhpwrc7bVeetfeG-H-H1Xz3rmnPAaLcZfYCiTQ
-
https://rumble.com/v1gc9df-the-armed-irs-training-video-you-have-to-see-to-believe.html?fbclid=IwAR3pWJH-R2gN8_EHYCxU-jhpwrc7bVeetfeG-H-H1Xz3rmnPAaLcZfYCiTQ
WTF was that?
So cringe-inducing, I could only make it half way through.
I need some drinks before I try to finish it.
-
wow
turning collecting taxes into essentially an armed robbery
hand over your bank account or we blow your head off
(if we do not trip and fall down or shoot each other first !)
could they hit the side of a barn if they tried ?
-
It is not the reason
we think
it is so the IRS
can take a larger tax deduction
for "office supplies "
:wink:
watch this humor will be on Gutfeld soon
-
Schiff's new proposed tax deduction :
https://www.heritage.org/marriage-and-family/commentary/schiff-bill-would-wrongly-redefine-infertility-through-tax-law
Dems are crazier by the minute .
-
https://www.washingtontimes.com/news/2022/aug/23/irs-inability-hire-retain-workers-could-upend-bide/?utm_source=Boomtrain&utm_medium=subscriber&utm_campaign=morning&utm_term=newsletter&utm_content=morning&bt_ee=qBRAn0ZP0Q2ZfzKqS3HIVbtOiFFLT8LGPg9c7YvljTsFDiYI%2F4gJMH2OqefiohYJ&bt_ts=1661334335974
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IRS Hiring Spree Is Biggest Expansion of the Police State in American History
David Harsanyi
David Harsanyi
August 23, 2022
Commentary
The Democrats’ new reconciliation bill isn’t just going to be the largest-ever expansion of a government agency; it’s going to be the largest expansion of the domestic police state in American history. Only a statist could believe that a federal government, which already collects $4.1 trillion every year—or $12,300 for every citizen—supposedly needs 80 battalions of new IRS cops.
The average American has less reason to be concerned about cops with guns—although the IRS is looking for special agents who can “carry a firearm and be willing to use deadly force, if necessary”—than they do bureaucrats armed with pens who are authorized to sift through their lives. If you pay your taxes, you have nothing to worry about, Democrats claim. But most law-abiding citizens know they have something to fear from a state agency that doesn’t concern itself with your due process, has no regard for your privacy, and is empowered to target anyone it wants without any genuine oversight.
And please spare us this nonsense about the IRS expansion focusing exclusively on “high earners.” White House press secretary Karine Jean-Pierre promised that the IRS wouldn’t engage in new audits of anyone making less than $400,000—a claim she has no authority to make and couldn’t possibly predict even if she did. Sen. Chris Murphy (D-Conn.) also said the bill was passed to stop an “epidemic of tax cheating amongst the millionaires and billionaires” and promised that “audit rates won’t increase for anyone making under $400K.”
This is a lie. Nothing in the bill that Democrats passed through the Senate limits audits. Murphy, along with every other Democrat in the Senate, voted against a Republican amendment that would have prevented new agents from auditing individuals and small businesses with less than $400,000 of taxable income. Not long ago, Democrats passed the American Rescue Plan Act—which had as much to do with rescuing as the Inflation Reduction Act has to do with reducing inflation—and changed the tax code so that mobile payment apps, such as Venmo and Cash App, were now required to report transactions totaling $600 or more per year to the IRS. Does that sound like a party aiming fire exclusively at high-earning Americans?
Indeed, poor and middle-class Americans are far more likely to do their own taxes and thus more prone to making mistakes. In 2021, those making $25,000 or less (often the young and elderly) were audited at a rate five times higher than everyone else. The wealthier you are, the more likely it is that you can hire lawyers and accountants to work within the system. There aren’t enough millionaires and billionaires in the world to keep a potential new 87,000 IRS employees busy.
There are other overlooked aspects of the Democrats’ IRS expansion. The bill, for instance, strengthens the federal public-sector union monopoly that funds Democrats’ political aspirations. IRS and Treasury Department employees spent 353,820 hours engaged in union activism—their PAC gives every cent to the Democrats—in 2019. One can imagine what another 87,000 employees would do for that effort. In the real world, laundering taxpayer funds through unions and using them on political campaigns is called racketeering.
None of this is to say that everyone who works for IRS is corrupt or power-hungry or an ideologue. The unassailable rules of giant bureaucracies, however, are that they always experience mission creep, they always do enough to justify their funding, and sooner or later, their leaders become political operatives.
With that said, it’s worth remembering that the IRS doesn’t simply collect taxes. It enforces speech codes. This is what empowered former IRS official Lois Lerner to target conservative groups—“crazies” who used words such as “Tea Party” or “patriots” in their names. But, even at the time, leftists at The New York Times editorial board praised the IRS for going after conservative groups because they did not “primarily” engage in “social welfare” and so didn’t deserve an exemption under Section 501(c)(4) of the tax code.
Has anything in the evolution of the Democratic Party given you confidence that such power wouldn’t be abused or that an engorged IRS would be immune from political pressure?
Wrestling with an insanely complex tax code—nearly 8 million words—costs Americans billions every year. Rather than flattening and simplifying this astonishingly convoluted code, which not only would have saved citizens but also the government money, Democrats decided that we needed up to another 87,000 people to enforce it.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
-
These people are totalitarians with guns, and 87,000 of them with lots of guns and ammo are coming for we the American people.
=================
https://pjmedia.com/.../obama-era-tea-party-targeter...
Obama-Era Tea Party Targeter Appointed to Create IRS Office Overseeing 87,000 New Agents
BY ATHENA THORNE AUG 29, 2022 4:57 PM ET
(IRS)
Nikole Flax worked under Lois Lerner in the Obama administration IRS while the agency infamously targeted conservative political organizations such as the Tea Party by slow-walking and suppressing their tax-exempt applications. She was also one of seven executives whose hard drives mysteriously self-destructed, preventing House investigators from viewing her emails. Now, the career IRS executive has been tapped to establish a new, centralized office in charge of implementing the Democrats’ latest tax and spending bill, including oversight of the 87,000 new IRS agents the bill authorizes.
IRS Commissioner Charles Rettig sent an agency-wide email on Aug. 19, writing, “This is a historic time for the IRS, and we are working to move quickly to begin work on the Inflation Reduction Act signed into law earlier this week.”
He then announced the new department: “A key part of our efforts will be the creation of a new, centralized office for implementation of all IRS-related provisions. Building off our successes implementing other major legislative bills, the IRA 2022 Transformation & Implementation Office will work across the IRS and oversee our implementation efforts.”
Rettig revealed that Nikole Flax, current deputy commissioner in charge of the Large Business & International Division, would be tasked with building the new centralized office.
“We have a unique, once-in-a-generation opportunity to transform the IRS in a way to help taxpayers and fundamentally improve our tax administration work that is vital to the success of our country,” Rettig’s email quoted Flax as saying. “This is an exciting opportunity, and we will be moving quickly with our work.”
It turns out that Flax has been with the IRS since way back in the Obama days. Art Moore at WND reminds us that “In May 2014, the Treasury Department’s inspector general for tax administration concluded in a report that the IRS delayed the processing of applications for tax-exempt status by certain conservative groups and sought private information that was later deemed unnecessary.”
The Eric Holder (aka “Obama’s Wingman”) Justice Dept. spent two years investigating the head of the Exempt Organizations division, Lois Lerner, before deciding — you’ll never believe it! — not to bring any charges.
Moore directs us to a contemporaneous article by journalist and former swamp creature Jeff Bergner. In a historical footnote rendered all the more galling by the recent jackbooted raid of former President Trump’s home in search of missing documents, Moore wrote:
The computer hard drive of former IRS employee Lois Lerner — she who refused to testify so as not to incriminate herself about targeting conservative political groups — crashed. It seems, too, that the IRS has no way to retrieve her email exchanges with other governmental entities (though it could ask these entities for cooperation) because there is no backup system.
Then Bergner discussed the latest intolerable Biden administration appointee:
Less well known is that apparently six other IRS computer hard drives crashed in exactly the same time frame. Every one of these belonged to an IRS employee in Cincinnati’s tax-exempt office or at headquarters in Washington, D.C. Each of these six other employees played a role in targeting tea party groups.…
One of the missing computer hard drives belonged to Nikole Flax, chief of staff to the then-commissioner of the IRS. Flax, by the way, visited the White House no fewer than 31 times during the period the tea party was targeted between 2010 and 2012.
Need more? The Daily Caller also reported in 2014 on a secretive program Lerner and Flax set up in which they collected information from conservative groups:
…Lois Lerner spoke at a 2010 government conference where Lerner’s underling Nikole Flax announced the new IRS program scrutinizing groups applying for tax-exempt status.
Both Lerner and Flax experienced “computer crashes” that led to the permanent deletion of their emails, according to the IRS, which said it cannot hand over their emails to congressional investigators on two House committees.
Both Lerner and Flax briefed fellow government bureaucrats on the new targeting at the conference, where Lerner appeared at a workshop called “Will the IRS Come Knocking?”
Flax announced the new program scrutinizing groups at the Washington Non-Profit Legal & Tax Conference at the Grand Hyatt in Washington, D.C. from February 18-19, 2010. At the time, Flax worked under Lerner in the Exempt Organizations office.…
The IRS began flagging tea party applications in February 2010, the month of the Washington conference.
Flax went on to serve as chief of staff to IRS commissioner Steven T. Miller.
Flax made 31 visits to the White House between July 12, 2010 and May 8, 2013, according to White House visitor logs. Flax’s visits started in the early days of the IRS targeting program and ended just two days before the IRS scandal broke on May 10, 2013. Flax met twice in the Eisenhower Executive Office Building with Jeanne Lambrew, a top adviser to President Obama who exchanged confidential information on conservative groups with Lerner.
In a functioning government, someone like Flax would have been canned and prosecuted for her apparent politicization and abuse of authority. In a Democrat-run swamp, she is given even more power to harass and suppress political opposition.
“We are well beyond the issue of political targeting by a powerful but supposedly neutral government agency,” wrote Bergner back in 2014. “We are into a massive political cover-up, which hints strongly at destruction of records and obstruction of justice. It is no wonder the American public’s confidence in government is at an all-time low.” He was correct, but since no consequences are ever visited upon Leftist governmental operatives, we shouldn’t be surprised to see them continue to clamp down.
-
Are they going to live in walled green zones and move in armored convoys ?
These people are totalitarians with guns, and 87,000 of them with lots of guns and ammo are coming for we the American people.
=================
https://pjmedia.com/.../obama-era-tea-party-targeter...
Obama-Era Tea Party Targeter Appointed to Create IRS Office Overseeing 87,000 New Agents
BY ATHENA THORNE AUG 29, 2022 4:57 PM ET
(IRS)
Nikole Flax worked under Lois Lerner in the Obama administration IRS while the agency infamously targeted conservative political organizations such as the Tea Party by slow-walking and suppressing their tax-exempt applications. She was also one of seven executives whose hard drives mysteriously self-destructed, preventing House investigators from viewing her emails. Now, the career IRS executive has been tapped to establish a new, centralized office in charge of implementing the Democrats’ latest tax and spending bill, including oversight of the 87,000 new IRS agents the bill authorizes.
IRS Commissioner Charles Rettig sent an agency-wide email on Aug. 19, writing, “This is a historic time for the IRS, and we are working to move quickly to begin work on the Inflation Reduction Act signed into law earlier this week.”
He then announced the new department: “A key part of our efforts will be the creation of a new, centralized office for implementation of all IRS-related provisions. Building off our successes implementing other major legislative bills, the IRA 2022 Transformation & Implementation Office will work across the IRS and oversee our implementation efforts.”
Rettig revealed that Nikole Flax, current deputy commissioner in charge of the Large Business & International Division, would be tasked with building the new centralized office.
“We have a unique, once-in-a-generation opportunity to transform the IRS in a way to help taxpayers and fundamentally improve our tax administration work that is vital to the success of our country,” Rettig’s email quoted Flax as saying. “This is an exciting opportunity, and we will be moving quickly with our work.”
It turns out that Flax has been with the IRS since way back in the Obama days. Art Moore at WND reminds us that “In May 2014, the Treasury Department’s inspector general for tax administration concluded in a report that the IRS delayed the processing of applications for tax-exempt status by certain conservative groups and sought private information that was later deemed unnecessary.”
The Eric Holder (aka “Obama’s Wingman”) Justice Dept. spent two years investigating the head of the Exempt Organizations division, Lois Lerner, before deciding — you’ll never believe it! — not to bring any charges.
Moore directs us to a contemporaneous article by journalist and former swamp creature Jeff Bergner. In a historical footnote rendered all the more galling by the recent jackbooted raid of former President Trump’s home in search of missing documents, Moore wrote:
The computer hard drive of former IRS employee Lois Lerner — she who refused to testify so as not to incriminate herself about targeting conservative political groups — crashed. It seems, too, that the IRS has no way to retrieve her email exchanges with other governmental entities (though it could ask these entities for cooperation) because there is no backup system.
Then Bergner discussed the latest intolerable Biden administration appointee:
Less well known is that apparently six other IRS computer hard drives crashed in exactly the same time frame. Every one of these belonged to an IRS employee in Cincinnati’s tax-exempt office or at headquarters in Washington, D.C. Each of these six other employees played a role in targeting tea party groups.…
One of the missing computer hard drives belonged to Nikole Flax, chief of staff to the then-commissioner of the IRS. Flax, by the way, visited the White House no fewer than 31 times during the period the tea party was targeted between 2010 and 2012.
Need more? The Daily Caller also reported in 2014 on a secretive program Lerner and Flax set up in which they collected information from conservative groups:
…Lois Lerner spoke at a 2010 government conference where Lerner’s underling Nikole Flax announced the new IRS program scrutinizing groups applying for tax-exempt status.
Both Lerner and Flax experienced “computer crashes” that led to the permanent deletion of their emails, according to the IRS, which said it cannot hand over their emails to congressional investigators on two House committees.
Both Lerner and Flax briefed fellow government bureaucrats on the new targeting at the conference, where Lerner appeared at a workshop called “Will the IRS Come Knocking?”
Flax announced the new program scrutinizing groups at the Washington Non-Profit Legal & Tax Conference at the Grand Hyatt in Washington, D.C. from February 18-19, 2010. At the time, Flax worked under Lerner in the Exempt Organizations office.…
The IRS began flagging tea party applications in February 2010, the month of the Washington conference.
Flax went on to serve as chief of staff to IRS commissioner Steven T. Miller.
Flax made 31 visits to the White House between July 12, 2010 and May 8, 2013, according to White House visitor logs. Flax’s visits started in the early days of the IRS targeting program and ended just two days before the IRS scandal broke on May 10, 2013. Flax met twice in the Eisenhower Executive Office Building with Jeanne Lambrew, a top adviser to President Obama who exchanged confidential information on conservative groups with Lerner.
In a functioning government, someone like Flax would have been canned and prosecuted for her apparent politicization and abuse of authority. In a Democrat-run swamp, she is given even more power to harass and suppress political opposition.
“We are well beyond the issue of political targeting by a powerful but supposedly neutral government agency,” wrote Bergner back in 2014. “We are into a massive political cover-up, which hints strongly at destruction of records and obstruction of justice. It is no wonder the American public’s confidence in government is at an all-time low.” He was correct, but since no consequences are ever visited upon Leftist governmental operatives, we shouldn’t be surprised to see them continue to clamp down.
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(https://i0.wp.com/www.powerlineblog.com/ed-assets/2022/09/Screen-Shot-2022-08-31-at-10.24.36-AM.png?ssl=1)
https://i0.wp.com/www.powerlineblog.com/ed-assets/2022/09/Screen-Shot-2022-08-31-at-10.24.36-AM.png?ssl=1
(https://i0.wp.com/www.powerlineblog.com/ed-assets/2022/09/Screen-Shot-2022-08-28-at-2.42.02-PM.png?ssl=1)
https://i0.wp.com/www.powerlineblog.com/ed-assets/2022/09/Screen-Shot-2022-08-28-at-2.42.02-PM.png?ssl=1
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Americans Spent More on Taxes Last Year Than on Food, Health Care, Education, and Clothing Combined
And Still Ran a Trillion Dollar Deficit.
Try to fit that in a subject line.
https://reason.com/2022/09/12/americans-spent-more-on-taxes-last-year-than-on-food-health-care-education-and-clothing-combined/
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The Child Tax Credit Is a Failed Experiment
I introduced the idea in a 1993 Heritage Foundation paper. It was a lot better in theory than in practice.
By Scott A. Hodge
Nov. 28, 2022 1:08 pm ET
Advocates are pushing Congress to extend and make permanent the temporary expansion of the child tax credit included in the American Rescue Plan of 2021, claiming this would reduce childhood poverty. I was one of the inventors of the child tax credit, nearly 25 years ago—and I think it’s a bad idea.
Since the child tax credit was enacted in 1997, it has become one of the largest federal income transfer programs. It is one of the leading reasons that more than 40% of all filers pay no income tax. The beleaguered Internal Revenue Service isn’t the right agency to play such a big role in addressing poverty.
The child tax credit made its debut in my February 1993 Heritage Foundation paper titled “Putting Families First: A Deficit Reduction and Tax Relief Strategy.” The strategy called for a cap on the growth of federal spending, which would not only reduce the deficit but also fund pro-growth and pro-family tax relief. The pro-growth elements were faster expensing for capital purchases and a reduction in the tax rate on capital gains.
The pro-family component was a $500-a-child tax credit. The tax code wasn’t sheltering as much income of families with children as it did during the 1950s, and the credit was a simple way of remedying that problem. A credit reduces a family’s tax bill dollar for dollar, while a deduction does so indirectly by reducing taxable income.
Key elements of this plan made their way into the 1994 House Republicans’ Contract with America. Congress enacted the $500 child tax credit as part of the Taxpayer Relief Act of 1997, and it grew from there.
The Bush tax cuts in 2001 temporarily doubled the credit to $1,000 and made it partly refundable for some families whose tax liability was less than the credit. That provision was extended in 2010 and made permanent in 2012. The 2017 Tax Cuts and Jobs Act doubled the credit again, to $2,000, and eased the limits on refundability. Each expansion meant fewer households on the tax rolls.
Last year the American Rescue Plan included another temporary expansion, to $3,000 a child and $3,600 for children under 6. It also required the IRS to distribute half these benefits to taxpayers monthly instead of waiting until tax season the following year.
The expanded credit was one of many relief programs available to families in 2021, and it contributed significantly to increasing the number of households with little or no income-tax liability. According to a Tax Policy Center estimate, some 74 million tax filers—or nearly half (48.3%) of all filers in 2021—had no income tax liability.
A study by the Paris-based World Inequality Lab titled “Why is Europe More Equal Than the U.S.?” determined that the U.S. tax system is more progressive than European systems and redistributes more to the bottom 50% of taxpayers than European systems. The child tax credit is one reason why. Even post-pandemic, the Tax Policy Center estimates that 44 million tax filers will have no income tax liability in 2022.
Can we have a sustainable tax system if the number of nonpayers continues to grow? Expanding the child tax credit would take our redistributionist tax code to a new level. Although 2021 was a pandemic year, it gives us a picture of what that world would look like.
Handing a family $3,000, $6,000 or even $9,000 in cash is certainly palliative, but does it truly improve long-term living standards? No. On the contrary, recent studies estimating the economic effects of the proposed expansion suggest that it would cause people to leave the workforce, reduce work effort, and lower capital investment, ultimately shrinking economic output.
A recent study by economists at the University of Chicago determined that without any changes in behavior, expanding the credit would reduce child poverty by 34% and “deep” child poverty—families whose income is less than half the poverty level—by 39%. But those gains would come at a cost: the diminution of the workforce by 1.5 million people. Consequently, fewer working parents would diminish the child tax credit’s impact on reducing child poverty by more than a third, to 22% from the initial estimate of 34%.
A new study by Congress’s Joint Committee on Taxation assesses both the budgetary and economic impact of expanding the child tax credit. First, JCT determined that it would be a budget-buster, reducing revenue by more than $1.3 trillion over the next decade. By contrast, all provisions of the 2017 Tax Cuts and Jobs Act combined reduced revenues by roughly $1.5 trillion over a decade.
The child tax credit is a drain not only on the federal budget but on the nation’s economy. JCT’s economic models predict that over a decade the policy would reduce the labor supply by 0.2% and reduce the amount of capital by 0.4%. As a result of the reduced supply of labor and capital investment, gross domestic product would shrink by 0.2%.
Aside from the effect on redistribution, nonpayers and the economy, the policy did something worse to the way we think about taxes—it conditioned conservative and liberal lawmakers alike to use the tax code for all manner of social policy.
In the 25 years since the child tax credit was enacted, the number of tax credits has proliferated. There are now tax credits for adoption, daycare expenses, college costs, electric vehicles, solar panels, housing and energy-efficient refrigerators. The Inflation Reduction Act alone created or renewed 26 credits for climate and energy industries. No wonder the IRS is dysfunctional—it’s not equipped to be a social-service agency.
The “put money in people’s pockets” approach of the child tax credit might have been good politics, but 25 years’ experience shows it was bad policy. The country needs a tax agenda that promotes growth and opportunity, not handouts and redistribution.
Mr. Hodge is president emeritus and a senior policy adviser at the Tax Foundation.
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Many norms have been broken in American politics in recent years, and one of them is the use of private tax returns as a political weapon. The trend is destructive, as a pair of events this week illustrate.
The first is a useful lawsuit by hedge-fund manager Ken Griffin against the Internal Revenue Service seeking damages for the leak of his tax records to ProPublica. In June 2021 and in articles since, the left-wing website has published the confidential tax data of Mr. Griffin, who runs Citadel Securities, and other wealthy Americans.
ProPublica used the tax data to argue that the rich don’t pay enough taxes, and the first article came out when Democrats were making the case for a wealth tax. ProPublica has never disclosed how it obtained the tax records, and the IRS claims to be investigating the leak but has produced nothing.
Leaking tax data is a crime, and Mr. Griffin’s suit alleges that “the IRS made these unlawful disclosures knowingly, or at the very least negligently or with gross negligence.” Congrats to Mr. Griffin for taking on the tax agency, and perhaps his suit will turn up information that the Biden Administration hasn’t on the tax disclosures.
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Meanwhile, the House Ways and Means Committee may release some or all of Donald Trump’s tax returns that it obtained after a long court fight. The committee is meeting next week to discuss the matter and could vote to release the private returns as part of a report to the House.
This would be a mistake and set a precedent likely to torment more than the former President. We thought Mr. Trump should have done what other recent presidential candidates have done and release his returns when he ran in 2016. But he didn’t, and voters elected him anyway.
Releasing the tax records now, when Mr. Trump has left office and there are less than three weeks left in the current Congress, would serve no legislative purpose. The only point would be to embarrass the former President, perhaps to show he paid little tax. Democrats would set a new standard that means many more Americans will have their tax records targeted for politicized disclosure.
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https://moores.samaltman.com/
Moore's Law for Everything
by Sam Altman · March 16, 2021
My work at OpenAI reminds me every day about the magnitude of the socioeconomic change that is coming sooner than most people believe. Software that can think and learn will do more and more of the work that people now do. Even more power will shift from labor to capital. If public policy doesn’t adapt accordingly, most people will end up worse off than they are today.
We need to design a system that embraces this technological future and taxes the assets that will make up most of the value in that world–companies and land–in order to fairly distribute some of the coming wealth. Doing so can make the society of the future much less divisive and enable everyone to participate in its gains.
In the next five years, computer programs that can think will read legal documents and give medical advice. In the next decade, they will do assembly-line work and maybe even become companions. And in the decades after that, they will do almost everything, including making new scientific discoveries that will expand our concept of “everything.”
This technological revolution is unstoppable. And a recursive loop of innovation, as these smart machines themselves help us make smarter machines, will accelerate the revolution’s pace. Three crucial consequences follow:
This revolution will create phenomenal wealth. The price of many kinds of labor (which drives the costs of goods and services) will fall toward zero once sufficiently powerful AI “joins the workforce.”
The world will change so rapidly and drastically that an equally drastic change in policy will be needed to distribute this wealth and enable more people to pursue the life they want.
If we get both of these right, we can improve the standard of living for people more than we ever have before.
Because we are at the beginning of this tectonic shift, we have a rare opportunity to pivot toward the future. That pivot can’t simply address current social and political problems; it must be designed for the radically different society of the near future. Policy plans that don’t account for this imminent transformation will fail for the same reason that the organizing principles of pre-agrarian or feudal societies would fail today.
What follows is a description of what’s coming and a plan for how to navigate this new landscape.
Part 1
The AI Revolution
On a zoomed-out time scale, technological progress follows an exponential curve. Compare how the world looked 15 years ago (no smartphones, really), 150 years ago (no combustion engine, no home electricity), 1,500 years ago (no industrial machines), and 15,000 years ago (no agriculture).
The coming change will center around the most impressive of our capabilities: the phenomenal ability to think, create, understand, and reason. To the three great technological revolutions–the agricultural, the industrial, and the computational–we will add a fourth: the AI revolution. This revolution will generate enough wealth for everyone to have what they need, if we as a society manage it responsibly.
The technological progress we make in the next 100 years will be far larger than all we’ve made since we first controlled fire and invented the wheel. We have already built AI systems that can learn and do useful things. They are still primitive, but the trendlines are clear.
Part 2
Moore's Law for Everything
Broadly speaking, there are two paths to affording a good life: an individual acquires more money (which makes that person wealthier), or prices fall (which makes everyone wealthier). Wealth is buying power: how much we can get with the resources we have.
The best way to increase societal wealth is to decrease the cost of goods, from food to video games. Technology will rapidly drive that decline in many categories. Consider the example of semiconductors and Moore’s Law: for decades, chips became twice as powerful for the same price about every two years.
In the last couple of decades, costs in the US for TVs, computers, and entertainment have dropped. But other costs have risen significantly, most notably those for housing, healthcare, and higher education. Redistribution of wealth alone won’t work if these costs continue to soar.
AI will lower the cost of goods and services, because labor is the driving cost at many levels of the supply chain. If robots can build a house on land you already own from natural resources mined and refined onsite, using solar power, the cost of building that house is close to the cost to rent the robots. And if those robots are made by other robots, the cost to rent them will be much less than it was when humans made them.
Similarly, we can imagine AI doctors that can diagnose health problems better than any human, and AI teachers that can diagnose and explain exactly what a student doesn’t understand.
“Moore’s Law for everything” should be the rallying cry of a generation whose members can’t afford what they want. It sounds utopian, but it’s something technology can deliver (and in some cases already has). Imagine a world where, for decades, everything–housing, education, food, clothing, etc.–became half as expensive every two years.
We will discover new jobs–we always do after a technological revolution–and because of the abundance on the other side, we will have incredible freedom to be creative about what they are.
Part 3
Capitalism for Everyone
A stable economic system requires two components: growth and inclusivity. Economic growth matters because most people want their lives to improve every year. In a zero-sum world, one with no or very little growth, democracy can become antagonistic as people seek to vote money away from each other. What follows from that antagonism is distrust and polarization. In a high-growth world the dogfights can be far fewer, because it’s much easier for everyone to win.
Economic inclusivity means everyone having a reasonable opportunity to get the resources they need to live the life they want. Economic inclusivity matters because it’s fair, produces a stable society, and can create the largest slices of pie for the most people. As a side benefit, it produces more growth.
Capitalism is a powerful engine of economic growth because it rewards people for investing in assets that generate value over time, which is an effective incentive system for creating and distributing technological gains. But the price of progress in capitalism is inequality.
Some inequality is ok–in fact, it’s critical, as shown by all systems that have tried to be perfectly equal–but a society that does not offer sufficient equality of opportunity for everyone to advance is not a society that will last.
The traditional way to address inequality has been by progressively taxing income. For a variety of reasons, that hasn’t worked very well. It will work much, much worse in the future. While people will still have jobs, many of those jobs won’t be ones that create a lot of economic value in the way we think of value today. As AI produces most of the world’s basic goods and services, people will be freed up to spend more time with people they care about, care for people, appreciate art and nature, or work toward social good.
We should therefore focus on taxing capital rather than labor, and we should use these taxes as an opportunity to directly distribute ownership and wealth to citizens. In other words, the best way to improve capitalism is to enable everyone to benefit from it directly as an equity owner. This is not a new idea, but it will be newly feasible as AI grows more powerful, because there will be dramatically more wealth to go around. The two dominant sources of wealth will be 1) companies, particularly ones that make use of AI, and 2) land, which has a fixed supply.
There are many ways to implement these two taxes, and many thoughts about what to do with them. Over a long period of time, perhaps most other taxes could be eliminated. What follows is an idea in the spirit of a conversation starter.
We could do something called the American Equity Fund. The American Equity Fund would be capitalized by taxing companies above a certain valuation 2.5% of their market value each year, payable in shares transferred to the fund, and by taxing 2.5% of the value of all privately-held land, payable in dollars.
All citizens over 18 would get an annual distribution, in dollars and company shares, into their accounts. People would be entrusted to use the money however they needed or wanted—for better education, healthcare, housing, starting a company, whatever. Rising costs in government-funded industries would face real pressure as more people chose their own services in a competitive marketplace.
As long as the country keeps doing better, every citizen would get more money from the Fund every year (on average; there will still be economic cycles). Every citizen would therefore increasingly partake of the freedoms, powers, autonomies, and opportunities that come with economic self-determination. Poverty would be greatly reduced and many more people would have a shot at the life they want.
A tax payable in company shares will align incentives between companies, investors, and citizens, whereas a tax on profits does not–incentives are superpowers, and this is a critical difference. Corporate profits can be disguised or deferred or offshored, and are often disconnected from share price. But everyone who owns a share in Amazon wants the share price to rise. As people’s individual assets rise in tandem with the country’s, they have a literal stake in seeing their country do well.
Henry George, an American political economist, proposed the idea of a land-value tax in the late 1800s. The concept is widely supported by economists. The value of land appreciates because of the work society does around it: the network effects of the companies operating around a piece of land, the public transportation that makes it accessible, and the nearby restaurants, coffeeshops, and access to nature that makes it desirable. Because the landowner didn’t do all that work, it’s fair for that value to be shared with the larger society that did.
If everyone owns a slice of American value creation, everyone will want America to do better: collective equity in innovation and in the success of the country will align our incentives. The new social contract will be a floor for everyone in exchange for a ceiling for no one, and a shared belief that technology can and must deliver a virtuous circle of societal wealth. (We will continue to need strong leadership from our government to make sure that the desire for stock prices to go up remains balanced with protecting the environment, human rights, etc.)
In a world where everyone benefits from capitalism as an owner, the collective focus will be on making the world “more good” instead of “less bad.” These approaches are more different than they seem, and society does much better when it focuses on the former. Simply put, more good means optimizing for making the pie as large as possible, and less bad means dividing the pie up as fairly as possible. Both can increase people’s standard of living once, but continuous growth only happens when the pie grows.
Part 4
Implementation and Troubleshooting
The amount of wealth available to capitalize the American Equity Fund would be significant. There is about $50 trillion worth of value, as measured by market capitalization, in US companies alone. Assume that, as it has on average over the past century, this will at least double over the next decade.
There is also about $30 trillion worth of privately-held land in the US (not counting improvements on top of the land). Assume that this value will roughly double, too, over the next decade–this is somewhat faster than the historical rate, but as the world really starts to understand the shifts AI will cause, the value of land, as one of the few truly finite assets, should increase at a faster rate.
Of course, if we increase the tax burden on holding land, its value will diminish relative to other investment assets, which is a good thing for society because it makes a fundamental resource more accessible and encourages investment instead of speculation. The value of companies will diminish in the short-term, too, though they will continue to perform quite well over time.
It’s a reasonable assumption that such a tax causes a drop in value of land and corporate assets of 15% (which only will take a few years to recover!).
Under the above set of assumptions (current values, future growth, and the reduction in value from the new tax), a decade from now each of the 250 million adults in America would get about $13,500 every year. That dividend could be much higher if AI accelerates growth, but even if it’s not, $13,500 will have much greater purchasing power than it does now because technology will have greatly reduced the cost of goods and services. And that effective purchasing power will go up dramatically every year.
It would be easiest for companies to pay the tax each year by issuing new shares representing 2.5% of their value. There would obviously be an incentive for companies to escape the American Equity Fund tax by off-shoring themselves, but a simple test involving a percentage of revenue derived from America could address this concern. A larger problem with this idea is the incentive for companies to return value to shareholders instead of reinvesting it in growth.
If we tax only public companies, there would also be an incentive for companies to stay private. For private companies that have annual revenue in excess of $1 billion, we could let their tax in equity accrue for a certain (limited) number of years until they go public. If they remain private for a long time, we could let them settle the tax in cash.
We’d need to design the system to prevent people from consistently voting themselves more money. A constitutional amendment delineating the allowable ranges of the tax would be a strong safeguard. It is important that the tax not be so large that it stifles growth–for example, the tax on companies must be much smaller than their average growth rate.
We’d also need a robust system for quantifying the actual value of land. One way would be with a corps of powerful federal assessors. Another would be to let local governments do the assessing, as they now do to determine property taxes. They would continue to receive local taxes using the same assessed value. However, if a certain percentage of sales in a jurisdiction in any given year falls too far above or below the local government’s estimate of the property’s values, then all the other properties in their jurisdiction would be reassessed up or down.
The theoretically optimal system would be to tax the value of the land only, and not the improvements built on top of it. In practice, this value may turn out to be too difficult to assess, so we may need to tax the value of the land and the improvements on it (at a lower rate, as the combined value would be higher).
Finally, we couldn’t let people borrow against, sell, or otherwise pledge their future Fund distributions, or we won’t really solve the problem of fairly distributing wealth over time. The government can simply make such transactions unenforceable.
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https://www.washingtontimes.com/news/2022/dec/29/tax-cut-fever-sweeps-nation-states-enact-unprecede/?utm_source=Boomtrain&utm_medium=subscriber&utm_campaign=morning&utm_term=newsletter&utm_content=morning&bt_ee=R8nFKEqd1lCUhQdKixIarjyl3TXo1eFTZN7RT0BALvgQcp8qQa87bxqhQMe9RjLm&bt_ts=1672402831317
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https://www.yahoo.com/news/newsom-says-95-texans-pay-130000005.html
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https://www.washingtontimes.com/news/2023/jan/18/bidens-army-irs-auditors-falls-victim-hiring-woes-/?utm_source=Boomtrain&utm_medium=subscriber&utm_campaign=morning&utm_term=newsletter&utm_content=morning&bt_ee=gRtuecY%2FB6gkgt%2BfshoBCLo0gZjJ5ynvVrHOXmr8JPHCFRWzxrQ1ni1ZAr6DGN7q&bt_ts=1674132015407
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https://www.semafor.com/article/01/18/2023/republicans-worry-a-national-sales-tax-bill-would-be-a-political-gift-for-democrats
this would be a political blunder
what is fair (though crats and media will demonize that too)
would be flat tax
and cut out most if not all loopholes
in MHO
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Flat tax would leave us with the IRS in place with all the attendant legal accounting obligations.
Getting rid of EVERTHING and its attendant corruption, getting rid of the paperwork/accounting burdens should have one helluva lot of appeal for a lot of people.
I am concerned that for most citizens, the intelectual groundwork/familiarization has not been done really.
This will need someone with the character, communications skills, and testosterone to lead the charge.
Who do they have in mind?
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"Fair" Tax, from a conservative and a practical standpoint, requires the repeal of the 16th amendment, which is never, never, never, never, never going to happen.
https://constitution.congress.gov/constitution/amendment-16/#:~:text=The%20Congress%20shall%20have%20power,to%20any%20census%20or%20enumeration.
If we had 2/3 of the Congress and 3/4 of the legislatures supporting tax reform, we wouldn't be talking about tax reform, we'd already have it.
With that in mind, any Republican talk of a consumption tax is a gift to the democrats.
Additional point on the fair tax, we are asking conservatives to favor a 30% tax on all housing payments, food etc. and to support selectively issued, massive "prebate" checks to anyone the Democrats want. Illegal aliens for example, aren't they all low in reported income? What could go wrong? Come to think of it, if there were no income tax, how would you know who is low income? Start removing major categories like housing, food, medical, and the tax rate goes up astronomically. That is conservative?That is reform? That is a political winner? I don't think so.
Great point by crafty on the flat tax:
'Flat tax would leave us with the IRS in place with all the attendant legal accounting obligations."
Right!
My problem is with the words longer than the holy Bible that define calculating income in a complicated business. Anybody can multiply 99% or 0% times income to calculate the tax. For example, flat tax would still define inflationary gain as ordinary income.
Main point again is that, if we had majorities or supermajorities willing to remove the progressivity in the tax code, we wouldn't have a tax problem.
I'm no longer against the progressivity in the tax code. The argument is, how steep should that slope be?
Given the above, in my mind, we are stuck with the current structure of the tax apparatus.
We still should scrap the entire tax code and rewrite it in the current structure to be simple and fair, and to prohibit unelected bureaucrats and technocrats from writing enforceable laws.
As in the side, one day I decided to rewrite the tax code. I came up with, I thought, the greati dea of continuously variable tax rates, from some minimum tax rate up to some statutory maximum. Long story short, it didn't work. There isn't some easy, magic way out of this.
Best policy idea I remember was Herman Cain's 9-9-9. The good part was the focus on low rates, to minimize the distance for the economic activity. But it failed the test describe above. It opens the Federal consumption tax without closing off any others. What do tax rates do after they are initially enacted? Go up, go up, go up. We don't need more political gifts for Democrats. We give them enough already.
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Taxation happens in the context of spending. See budget summary (2022).
https://fiscaldata.treasury.gov
2022 United States federal budget:
Taxes = $4.896 trillion (actual) 19.6% of GDP
Total expenditures $6.272 trillion (actual) 25.1% of GDP
Deficit $1.375 trillion (actual) 5.5% of GDP
The problem is the spending.
For the conservatives, any proposal that raises less than $5 trillion isn't serious.
For the Left, any proposal that punishes production, and all of them do, will not raise more revenue, no matter how high they hike the rates. Our experience before and after 2008 has proven that.
For an admission of that, see Charlie Gibson interview with candidate Barack Obama, April 2008.
https://taxfoundation.org/obama-and-gibson-capital-gains-tax-exchange/
If not through Obama 2008, avid readers of History have known since 1377 that more and more taxes levied don't necessarily bring in more and more money:
"In the early stages of the state, taxes are light in their incidence, but fetch in a large revenue...As time passes and kings succeed each other, they lose their tribal habits in favor of more civilized ones. Their needs and exigencies grow...owing to the luxury in which they have been brought up. Hence they impose fresh taxes on their subjects...[and] sharply raise the rate of old taxes to increase their yield...But the effects on business of this rise in taxation make themselves felt. For business men are soon discouraged by the comparison of their profits with the burden of their taxes...Consequently production falls off, and with it the yield of taxation."
- Ibn Khaldun, 'The Muqaddimah' (introduction to history) books.google.com
https://firehydrantoffreedom.com/index.php?topic=1467.msg63568;topicseen#msg63568
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Great point by crafty on the flat tax:
'Flat tax would leave us with the IRS in place with all the attendant legal accounting obligations."
I disagree
get rid of deductions and everyone pays same rate
can do it on post card .
I suppose either way
the LEFT will scream hoot stamp their feet that this hurts the poor and is a "tax break" for the rich ignoring who really pays the bulk of taxes as it is.
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"The problem is the spending."
Yes, AND the problem are the constrictions on Supply due to the tax code.
"I disagree. Get rid of deductions and everyone pays same rate. Can do it on post card."
Umm, for a simple wage earner perhaps, but what about businesses and people that have costs and revenues?
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Great point by crafty on the flat tax:
'Flat tax would leave us with the IRS in place with all the attendant legal accounting obligations."
I disagree
get rid of deductions and everyone pays same rate
can do it on post card .
I suppose either way
the LEFT will scream hoot stamp their feet that this hurts the poor and is a "tax break" for the rich ignoring who really pays the bulk of taxes as it is.
Not for me. I've had years where the return is 22 pages and the bottom line rounds to zero. The calculation of income IS the return. It doesn't fit on a postcard unless they take my word for net income.
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And net income requires keeping track of both costs and revenues.
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Adding this to the discussion:
Eliminating a federal tax return doesn't make the state income tax (and return) go away. State return requires "all the federal schedules ".
My state tax was greater than my federal tax the last or 3 years. It's also a longer return because it's the state plus the federal.
On the flat tax, it comes down to politics, not just math. The flat tax rate will be somewhere between 0 and the highest current tax rate. They used to shoot for something like 19%. Now write the attack ad against that. The super rich will have their taxes cut in half while the poor have an infinite percentage increase, from zero to 19 or 20%. It won't sell.
The best policy I think is to be flatter and fairer, but every time they made the progressivity steeper, they also made it irreversible. To reverse it to overcome the impossible, the attack ad that writes itself.
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The flat tax rate will be somewhere between 0 and the highest current tax rate. They used to shoot for something like 19%. Now write the attack ad against that. The super rich will have their taxes cut in half while the poor have an infinite percentage increase, from zero to 19 or 20%.
but do the super rich really pay ~ 39 %
but what about the proposed *federal income tax*
How would THAT work with businesses?
this is what I read Republicans propose
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"but do the super rich really pay ~ 39 %"
In terms of reported income, for individuals, every dollar over 42,000 is taxed in the twenties percent and every dollar over 170 is taxed in the thirties. In the higher incomes, in the bad states, add close to 10% state income tax to that.
As far as I know, we don't have exclusions like they had for the Kennedy and even the Reagan tax reforms. I only know of one loophole, and it doesn't apply to me.
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"but what about the proposed *federal income tax*"
I misspoke
I meant what about the proposed Federal *SALES* tax some Republicans are pushing
I can hear 1,000 miles away the Dems saying how it would hurt the poor and the rich will not notice.....
"As far as I know, we don't have exclusions like they had for the Kennedy and even the Reagan tax reforms. I only know of one loophole, and it doesn't apply to me."
I didn't know . I must not be super rich.
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he GOP’s Fair Tax Masochism
A national sales-tax proposal is a gift to Democratic campaigns to retake the House.
By The Editorial BoardFollow
Updated Jan. 20, 2023 6:35 pm ET
Rule No. 1 in the legislative handbook is to make your opponent take the tough votes, but House Republicans may be reading it backwards. They’re set to vote on a national sales tax that won’t become law but will give Democrats a potent campaign issue.
The plan is called the Fair Tax and its premise is simple: Replace every existing federal tax with a new national tax on sales. The most recent version, introduced by Georgia Rep. Buddy Carter, would slap a 23% tax on “gross payments.” That rate includes the sticker price for any purchase plus the tax paid, which means the true rate would be about 30%. The Fair Tax rate would be on top of state sales taxes.
The bill would in turn repeal federal taxes on income, payrolls and estates. It would also eliminate the Internal Revenue Service, but hold the applause—it would replace it with a new Sales Tax Bureau and Excise Tax Bureau.
The new bureaucracies would have to keep track of the inevitable exceptions to the tax introduced by politicians that would erode the tax base. A 30% tax on food and healthcare—really? The bill would offset the tax’s regressive nature in part by a hefty new rebate, charmingly titled a “family consumption allowance.”
The Fair Tax is based on the reasonable theory that levies on consumption distort the economy less than our current taxes on work and investment. Killing the income tax also sounds good until you realize that a future Congress could restore it if the Constitution’s 16th Amendment isn’t repealed. The bill tries to dodge this with a provision that would end the sales tax in seven years unless the 16th Amendment is repealed. Good luck with that.
The point is that a consumption tax might make sense if Congress were writing the tax code from scratch. But it isn’t, and we could end up with both a national income and sales tax, the later of which could evolve over time into a value-added tax.
The Fair Tax has been floating around since the 1990s. So why has it shot to the top of the House GOP agenda now? News reports say Kevin McCarthy promised Mr. Carter and Freedom Caucus members a vote on the bill in return for their support in his quest for the Speakership.
Republicans have been mum about the vote’s timing, but Democrats aren’t waiting. “It would raise taxes on the middle class by taxing thousands of everyday items, from groceries to gas,” President Biden said last week. Democratic Reps. Pramila Jayapal and Don Beyer have chimed in on Twitter to call the tax a death blow to middle-class pocketbooks.
These attacks don’t take much imagination when inflation is running hot, and the Fair Tax has hurt GOP candidates before. When tea party Republicans ran on the idea in 2010, Democratic groups ran ads that blasted the sales tax but ignored the other tax cuts. Few voters listen to a second sentence after they hear about a 30% tax on everything they buy.
The tax issue is a rare GOP advantage these days, and Republicans would be crazy to squander it with a Fair Tax vote. If Mr. Carter and other supporters insist on a masochistic vote, the GOP could invoke the Freedom Caucus’s demand for “regular order” and kill the Fair Tax in the Ways and Means Committee.
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Sweeping tax reform in a way that is beneficial to the American people is off the table until the White House and Senate change hands. Everything happening in the meantime in this regard in the Republican House is about positioning and messaging, so far all negative.
What can or should they do now?
1. Attack all taxation on inflation. Get the message out, government can't profit from inflation. The moral hazard is just too great for government to continue and accelerate inflation, and inflation is killing us.
2. Simplify. The tax code needs to be far simpler and more understandable. Attack the complexity and put the blame for it on Democrats. It's true and it's good political messaging.
3. Stop the expansion of the IRS. The taxpayers are not the enemy.
4. Cut spending first before cutting taxes. More than a trillion a year needs to come off the top before the growing burden of federal taxation can be alleviated.
One extra point, pin inflation on the Dems. "We all knew...". Getting Democrats out of power is the first step in tax reform. Make them own the results of their policies. Fighting amongst ourselves and other missteps and distractions is how they avoid that.
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https://www.c-span.org/video/?522780-1/the-myth-american-inequality
I only was able to see about 15 to 20 minutes of this but
it sounded really interesting
what I got out of it is some groundbreaking "data crunching" (it is all how you interpret and get the data )
has found wealth inequality if not near what the simple census data shows
when you account for wealth transfer and other factors
such as the people at the bottom quintile of incomes work only 17 hrs
and are employed , I think he states ~ 37% of the time
while higher incomes work longer hours get less free benefits and taxed more
so in the end there really is less of wealth gap between the top 5th and bottom 5th of Americans
Additionally the take away is that the government welfare programs take away work incentive at the bottom and leads to resentment at higher quintiles say at least above the second quintile
the Feds and economists
always use Census data to determine wealth " inequality
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"what I got out of it is some groundbreaking "data crunching" (it is all how you interpret and get the data ) has found wealth inequality if not near what the simple census data shows when you account for wealth transfer and other factors such as the people at the bottom quintile of incomes work only 17 hrs and are employed , I think he states ~ 37% of the time while higher incomes work longer hours get less free benefits and taxed more so in the end there really is less of wealth gap between the top 5th and bottom 5th of Americans
"Additionally the take away is that the government welfare programs take away work incentive at the bottom and leads to resentment at higher quintiles say at least above the second quintile"
Well summarized.
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It's official, Republican tax cuts paid for themselves.
https://www.washingtonexaminer.com/restoring-america/courage-strength-optimism/its-official-trumps-tax-cuts-paid-for-themselves
This should go in the media thread, since they won't cover it.
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The Ninth Circuit Upholds a Wealth Tax
The Supreme Court should review the ruling, which ignores constitutional limits on the taxing power.
By Christopher Cox and Hank Adler
Jan. 25, 2023 4:11 pm ET
The 16th Amendment authorizes the federal government only to tax income, but some members of Congress would love to tax wealth as well. That is widely understood to be unconstitutional, but a recent ruling from the Ninth U.S. Circuit Court of Appeals upholding a form of wealth tax could upend that conventional wisdom if it is allowed to stand.
The case, Moore v. U.S., involves a unique provision of the 2017 Tax Cuts and Jobs Act, which imposed a one-time retroactive tax applicable to individual U.S. shareholders of foreign corporations. Under previous law, U.S. taxpayers had to pay taxes on overseas corporate income when that income was repatriated to the U.S. in the form of dividends. The 2017 act abolished the tax on overseas income, bringing the U.S. tax system into line with those of most other developed countries. But it also created a “mandatory repatriation tax” on the corporation’s undistributed income since 1986, payable not by the corporation but its shareholders.
The result was that without selling their stock or receiving a dividend, U.S. investors were deemed to have received “income” and suddenly became liable for the new tax.
The plaintiffs are a couple, Charles and Kathleen Moore, who purchased 11% of a small foreign corporation in 2005. The Moores were passive investors, never participating in management of the corporation. The corporation never paid dividends. More than a decade after their investment, they suddenly became liable for a hefty tax bill under the new law, which applied to any shareholder with an interest of more than 10%.
The Ninth Circuit’s three-judge panel ruled that it didn’t matter that the Moores never received any money from their investment. A dividend, stock sale or other realization event wasn’t necessary, the court said, because there is “no set definition of income under the Sixteenth Amendment.” That is a remarkable concept: The operative word in a key provision of the Constitution has no fixed meaning. The ruling upends a bedrock principle of taxation, which is that to create taxable income, there must be a transaction, or “realization.” That’s what distinguishes an income tax from a tax on property or wealth.
The Moores petitioned for a rehearing by an 11-judge panel of the Ninth Circuit but were denied. Four judges dissented from the denial, noting that based on Supreme Court precedent, federal case law and the history of the 16th Amendment, ordinarily a realization event must occur in order for there to be taxable income. The Moores plan to seek Supreme Court review.
Much hangs on the future of this case. If Moore is allowed to stand, Congress would have a green light to tax every U.S. investor in a domestic corporation in the same way. There would be no constitutional bar to requiring that shareholders pay income tax on their proportionate share of accumulated and undistributed earnings of every corporation in which they, or even their 401(k) plan, hold stock.
That isn’t all. With Moore as precedent and no realization requirement to bound the meaning of “income,” Congress could extend the income tax to include unrealized asset appreciation of any kind. Stamp collections, coin collections, art on the living-room wall—all suddenly would be sources of “income” without yielding the taxpayer a cent. What’s more, since appreciation, unlike realization, is a constantly changing process, the frequency of measurement of the “income” would be at the whim of Congress and the Internal Revenue Service.
Moore provides the Supreme Court the opportunity to rule that when the states ratified the 16th Amendment in 1913, they didn’t give Congress unchecked authority to tax. Accepting the case for review would also permit the justices to address the Constitution’s limits, if any, on retroactive taxation. The Ninth Circuit’s three-judge panel ruled that even though the mandatory repatriation tax reaches back to 1986, it doesn’t violate the right to due process under the Fifth Amendment. In 1938 and again in 1994, the Supreme Court upheld tax laws that reached back one year, but the justices have never considered decadeslong retroactivity.
The Ninth Circuit approved of the extraordinary retroactivity of the Mandatory Repatriation Act because otherwise, in its view, shareholders of corporations with undistributed earnings would achieve a “windfall” by not paying taxes on “earnings that have not yet been distributed.”
Yet the long-established rationale for a separate corporate-level tax is that it prevents undistributed earnings from going untaxed. Further, those earnings would be taxed again whenever paid to shareholders, just as are dividends of all companies.
There is one more extraordinary feature of the tax law at issue in Moore. The rate of tax varies depending on the corporation’s balance-sheet liquidity. The greater the ratio of liquid to illiquid assets, the higher the tax rate. That distinction gives away the game. Liquidity is unrelated to income—it is solely a function of assets and liabilities. This is a tax on a corporation’s balance sheet, passed through to individual shareholders.
The Moore case will solidify, revitalize or obliterate the long-established norm of federal income taxation that a realization event is required before there is taxable “income” in the constitutional sense. If the justices accept the case for review, they can finally lay to rest the notion that the 16th Amendment is based on a term with “no set definition.”
What if they decline? The Ninth Circuit’s dissenters answered that question: “Divorcing income from realization opens the door to new federal taxes on other types of wealth without the constitutional requirement of apportionment.”
Mr. Cox served as chairman of the Securities and Exchange Commission, 2005-09, and a U.S. representative from California, 1989-2005. Mr. Adler is a professor of accounting at Chapman University.
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of course :
https://www.msn.com/en-us/news/other/democrats-hammer-gop-plan-to-impose-national-sales-tax-abolish-irs/ar-AA16K00R
the usual
"this hurts the poor more "
(and indeed that probably is true ! - not that I am against it since I am not for progressive taxation )
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From the article:
"The Ninth Circuit’s three-judge panel ruled that it didn’t matter that the Moores never received any money from their investment. A dividend, stock sale or other realization event wasn’t necessary, the court said, because there is “no set definition of income under the Sixteenth Amendment.” "
- Depends on what the meaning of income is?
They mean, depends on what the changing meaning of income is. Income has had clearly defined meaning since 1913, as the article goes on to point out.
A 3 judge panel, or one swing vote in the 9th Circus changes that? In what kind of country does that happen?
As opposed to the property tax, another wealth tax, the sales tax and income tax are attached to transactions, money changing hands, where the government can rather easily demand and take what it decides is it's share.
With unrealized gains, the taxpayer must pay the tax out of other income, often paying the tax with after tax income. After double taxed income.
What if the taxpayer doesn't have extra 'other income'? Then the tax forces the sale of the asset, changing the ownership of the asset against the will of the (former) owner.
Think family farm, for example. On top of your property tax and all other escalating costs, if large corporations (and foreign powers) are buying up similar properties and driving up the tax value of the rest, this has the power to force the rest to sell to them too. Great.
In America, we used to have at least some protections against that.
The family farm was an example. Same applies to ALL individual or family owned businesses and assets. If all your life is invested in building one business, you don't have other income to pay for what government thinks is the value of your asset. They are already fully taxing the income of the business. This is on top of that.
On my street where lakeshore values have gone crazy, one neighbor whose example is even worse than mine, he paid 33k for his house in the early 1970s. His property tax is now 28k per year. The old properties are in high demand by rich people for teardown. His tax per year is on track to pass his entire purchase price, every year, in a couple years. Now put a "wealth" tax on top of that. A couple million of 'wealth' times say 10% would bring hundreds of thousands in taxes. Out of what? The property does not produce any income. By definition. If it did, we already have at least two taxes on that, federal and state, plus city fees.
Why don't we just handcuff and remove the guy from his home or business, maybe with swastika uniforms, if we want him out and the richer and more powerful and connected in.
The question is, what kind of country do we want?! And who really owns your asset, you or the government?
How about gold? It goes up, you must sell some to pay the tax every year. How much do you have in the long run if they take some every year? How about crypto? They already ask on form 1040 if you bought or otherwise acquired any crypto. If it goes up, you owe. It goes down, you think you're going to get a full tax deduction? Dream on. Deductions are called loopholes and are all under attack.
Do people still think the elections that determine who picks and confirms who sits in the Supreme Court don't matter?
We don't care if Fetterman, Biden and Warlock et al decide who decides what the meaning of income is?!?!
It used to be, if it moves, tax it. Now it's if it exists, tax it.
Pretty soon only the extremely rich will be able to afford being rich.
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of course :
https://www.msn.com/en-us/news/other/democrats-hammer-gop-plan-to-impose-national-sales-tax-abolish-irs/ar-AA16K00R
the usual
"this hurts the poor more "
(and indeed that probably is true ! - not that I am against it since I am not for progressive taxation )
Yes. "Of course."
I'm not for progressive taxation either but losing all elections sucks.
From the article:
"The Fair Tax Act, sponsored by Rep. Earl L. “Buddy” Carter (R-Ga.) and introduced this month, would do away with income, payroll, estate and gift taxes, and instead impose a 23 percent national sales tax. It would also eliminate funding for the IRS after fiscal 2027."
- Um, no it wouldn't. Rescinding the 16th amendment would and isn't the least bit realistic. Whomever we elect in 2026 will determine what the 2027 IRS budget will look like. Proposing a 30% national sales tax, bound to be misread, didn't help our cause.
I assume this vote (McCarthy opposes) was part of the Speaker negotiations. Unforced errors. First level thinking. Self inflicted wounds. Maybe we are the stupid party. (
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"The Fair Tax Act, sponsored by Rep. Earl L. “Buddy” Carter (R-Ga.) and introduced this month, would do away with income, payroll, estate and gift taxes, and instead impose a 23 percent national sales tax. It would also eliminate funding for the IRS after fiscal 2027."
- Um, no it wouldn't. Rescinding the 16th amendment would and isn't the least bit realistic. Whomever we elect in 2026 will determine what the 2027 IRS budget will look like. Proposing a 30% national sales tax, bound to be misread, didn't help our cause.
=====================
Where is the 30% number coming from?
My condensed assessment-- very good idea but needs lots of groundwork familiarizing the American people with the idea first.
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"The Fair Tax Act, sponsored by Rep. Earl L. “Buddy” Carter (R-Ga.) and introduced this month, would do away with income, payroll, estate and gift taxes, and instead impose a 23 percent national sales tax. It would also eliminate funding for the IRS after fiscal 2027."
- Um, no it wouldn't. Rescinding the 16th amendment would and isn't the least bit realistic. Whomever we elect in 2026 will determine what the 2027 IRS budget will look like. Proposing a 30% national sales tax, bound to be misread, didn't help our cause.
=====================
Where is the 30% number coming from?
My condensed assessment-- very good idea but needs lots of groundwork familiarizing the American people with the idea first.
Some say 23%, some say 30%. Depends on whether you measure inclusive or exclusive. If calculated like a sales tax, it's 30% added to the total.
https://buddycarter.house.gov
https://www.vox.com/policy-and-politics/2023/1/26/23563563/fairtax-national-sales-tax-kevin-mccarthy
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Confused.
Aren't total federal revenues approximately 20% of GDP?
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Confused.
Aren't total federal revenues approximately 20% of GDP?
I will have to find a source for the math. Is the tax on everything? Business purchases, labor, services, government purchases, investments, homes?
It has to raise enough to replace all federal taxes, estate, corporate, individual, FICA, etc. And then you still have state income taxes in 42 states.
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exclusive, inclusive math:
$100 goods + 30% tax = $130 you pay
Of that $130 you pay, 30/130 (23%) is tax.
Proponent/sponsor Rep Carter calls 30% a myth because 23% sounds smaller, but both are true and opponents calling it a 30% national sales tax is true by all current conventions.
Why is that greater than something like 19.8% (?) current actual, I can't remember, but think it has to do with government purchases paying government taxes being a no gain event. These numbers come from the sponsor's site.
The whole thing is a non starter because:
1. You can't repeal the 16th amendment.
The rest of the reasons are academic, moot.
2. The prebates are a mess. How do you know who is low income, everyone might want to be. What is the amount that gets mailed out monthly, quarterly? How many checks? How is it updated? What could go wrong?
3. You can't repeal progressivity. Read any poll, such as 2022 midterms.
4. 30% is too big an incentive for black market, gray market, underground economy, barter, buy from friends or do without.
5. Start making exceptions (food, clothing, medicine, doctor visits) and that rate that's already too high spirals upward. What is the tax on free health care, 30% times nothing, or again, government pays government the tax on underlying value and no money is raised.
6. What percent of Americans favor zero income tax on trillionaires? Not even all trillionaires agree on that!
Proposing new taxes without any indication the old ones will go away is not playing with a little fire; it's more like playing with massive nuclear weapons.
There isn't some easy, magical or painless way to pay for massive, out of control spending. The first step toward a less painful and intrusive tax system would be to spend far less. The cradle to grave government spending approach doesn't lend itself to having a vibrant private sector or a low impact tax system, ever!
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exclusive, inclusive math:
$100 goods + 30% tax = $130 you pay
Of that $130 you pay, 30/130 (23%) is tax.
Proponent/sponsor Rep Carter calls 30% a myth because 23% sounds smaller, but both are true and opponents calling it a 30% national sales tax is true by all current conventions.
Why is that greater than something like 19.8% (?) current actual, I can't remember, but think it has to do with government purchases paying government taxes being a no gain event. These numbers come from the sponsor's site.
The whole thing is a non starter because:
1. You can't repeal the 16th amendment.
The rest of the reasons are academic, moot.
2. The prebates are a mess. How do you know who is low income, everyone might want to be. What is the amount that gets mailed out monthly, quarterly? How many checks? How is it updated? What could go wrong?
3. You can't repeal progressivity. Read any poll, such as 2022 midterms.
4. 30% is too big an incentive for black market, gray market, underground economy, barter, buy from friends or do without.
5. Start making exceptions (food, clothing, medicine, doctor visits) and that rate that's already too high spirals upward. What is the tax on free health care, 30% times nothing, or again, government pays government the tax on underlying value and no money is raised.
6. What percent of Americans favor zero income tax on trillionaires? Not even all trillionaires agree on that!
Proposing new taxes without any indication the old ones will go away is not playing with a little fire; it's more like playing with massive nuclear weapons.
There isn't some easy, magical or painless way to pay for massive, out of control spending. The first step toward a less painful and intrusive tax system would be to spend far less. The cradle to grave government spending approach doesn't lend itself to having a vibrant private sector or a low impact tax system, ever!
Proposing new taxes without any indication the old ones will go away is not playing with a little fire; it's more like playing with massive nuclear weapons.
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Agreed that by proper conventions the number is 30%.
Not exercising the power of the 16th Amendment does not require its repeal.
Of course the repeal of other taxes is the core of this idea.
Still not comprehending how matching current revenues (approx 20% of GDP) could require a 30% rate.
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https://www.sfgate.com/cannabis/article/jerry-garcia-cannabis-leaving-california-17741843.php
I don't know why they call it legal cannabis. It's not legal until you pay the tax.
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quote author=Crafty_Dog
...
"Not exercising the power of the 16th Amendment does not require its repeal."
...
-----------
My view, if you don't repeal the income tax amendment, it will come back - in addition to the new consumption taxes that for the moment took its place.
I'm not sure why you see that differently. Doesn't all of western Europe have both a consumption tax and an income tax?
If we somehow ever win an election, cf. 2016 and tax reform 2017, isn't it also a certainty we will lose an election sometime after that. (To state the obvious.)
Unfortunately and ironically, when growth policies work, attention shifts to other priorities.
While nobody likes the tax code as is, the vast majority in polling, support progressive taxation.
Almost no one thinks Warren buffett's secretary should be taxed at the same rate as her boss. It's a non-starter politically.
Because of that, both fair tax and flat tax are moot, unicorns and distractions from currently realistic proposals, IMHO.
Also, tax cutting and tax rate cutting will not be center stage in the era of 1.6 trillilso,on dollar deficits.
Realistic proposals:
1. No new taxes.
2. Clean up the tax code.
3. Cut spending first.
4. Return tax law to the lawmakers. Depower the bureaucracy.
5. No tax bills reach the floor that don't enhance economic growth.
6. No tax on inflation, ever.
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"Not exercising the power of the 16th Amendment does not require its repeal."
...
-----------
My view, if you don't repeal the income tax amendment, it will come back - in addition to the new consumption taxes that for the moment took its place.
I'm not sure why you see that differently.
=====================================
=====================================
My words to not contradict yours.
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Putting this in the tax thread:
Rule: Tax rates, once started, only go up.
Exceptions in the last century:
Calvin Coolidge / Andrew Mellon, 1923,
JFK early 1963
Reagan 1983
Clinton Gingrich capital gains rate cuts 1997
Bush 2003
Trump Republican tax reform 2017
In all these cases of tax rate cutting, revenues and growth went up!
Reason being, in the word of Nobel prize winning economist Robert Mundell, we have only agreed to cut tax rates after they've grown to be "asphyxiating".
The private sector needs to breathe to flourish.
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funny
Biden in front of CNN cameras points out the tax increase proposal would only effect "billionaire's" and corporation
but this couple with raising more salary taken out for Soc Sec tax hits others as well
https://www.kiplinger.com/taxes/biden-calls-for-doubling-capital-gains-tax-rate
Biden and his bureaucrats - >
April fools !
it ain't just on billionaires hahahahahha
me - >. :x
and CNN silent of course
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The New and Improved IRS?
Here’s what you’ll be getting this tax season for the $80 billion in new funding.
By The Editorial BoardFollow
Updated April 11, 2023 7:03 pm ET
It’s tax filing season, oh joy, and the Internal Revenue Service is here to help you. Or so the agency says in a new 146-page report laying out its plans to spend the $80 billion windfall it’s getting from Congress. Message: the agency is new and improved, if you choose to believe.
New IRS Commissioner Danny Werfel’s report says the agency will focus on a “world class customer service operation” with “cutting-edge technology,” “dramatically improve[d] services,” and a “highly skilled, diverse workforce.” We’ll believe that when the IRS answers our phone calls.
As the report acknowledges in a table near the end, some 60% of the new funds ($47.4 billion) will go to “expanded enforcement on taxpayers.” This compares to the 9% the IRS plans for improving services or more quickly resolving taxpayer problems. The enforcement percentage will surely be higher, since much of the rest of the money will buy new technology and hire new staff for audits.
Mr. Werfel pledges that none of the money will “raise audit rates on small businesses and households making under $400,000 per year, relative to historic levels.” Yet the report fails to explain how it will abide by that pledge or what is an historic level.
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The IRS promises a focus on “complex tax filings” and “high dollar noncompliance,” with particular enforcement emphasis on “large corporations,” “large partnerships,” and “high-income and high-wealth individuals.” The IRS has made similar promises in the past, only to migrate to softer targets.
Corporations and the super-wealthy hire armies of lawyers, which makes the tax yield low. The Joint Committee on Taxation has estimated that 78% to 90% of the money raised from under-reported income will come from those making less than $200,000 a year. A leading target will be “pass through” small businesses that file under the individual code. The report says the IRS will also rev up audits on returns that feature non-wage or salary income, such as estate and gift taxes.
Syracuse University’s Transactional Records Access Clearinghouse looked at tax data from fiscal 2021 and found that the IRS could keep its audit numbers from declining only by significantly increasing its “correspondence audits,” which are mailed letters that query aspects of a tax return. All but 100,000 of the IRS’s estimated 659,000 audits in fiscal 2021 were conducted with these letters. Half of all correspondence audits (54%) went to low-income wage earners with less than $25,000 in gross receipts. More such letters will be forthcoming.
The Werfel report also says the agency plans to arm enforcement teams with “advanced analytics” and “emerging technologies”—alongside an IRS promise that this snooping will happen “responsibly” and respect “taxpayer privacy and civil liberties.” Glad to hear it. The agency will also devote new resources to ensuring that taxpayers “receive the tax incentives for which they are eligible.” In other words, the agency will take on a new social-justice role in delivering welfare payments.
Republicans point to a 2021 Treasury document that says the IRS cash boost will fund 87,000 new employees. Democrats deny this. But the Werfel report admits the IRS plans to hire 30,000 more employees in fiscal 2023 and 2024 alone—including 8,782 in enforcement and 13,883 in taxpayer services. The agency already employs 79,000.
The only silver lining to the $80 billion infusion is that the agency will face a test of whether it can deliver both better service for taxpayers and the vast new amounts of revenue Democrats promised as a return on investment. Confidence is not high.
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Just a reminder, we could put an armed law enforcement officer in every school in the US for the money spent on the new IRS personnel.
Priorities and stolen elections matter.
The New and Improved IRS?
Here’s what you’ll be getting this tax season for the $80 billion in new funding.
By The Editorial BoardFollow
Updated April 11, 2023 7:03 pm ET
It’s tax filing season, oh joy, and the Internal Revenue Service is here to help you. Or so the agency says in a new 146-page report laying out its plans to spend the $80 billion windfall it’s getting from Congress. Message: the agency is new and improved, if you choose to believe.
New IRS Commissioner Danny Werfel’s report says the agency will focus on a “world class customer service operation” with “cutting-edge technology,” “dramatically improve[d] services,” and a “highly skilled, diverse workforce.” We’ll believe that when the IRS answers our phone calls.
As the report acknowledges in a table near the end, some 60% of the new funds ($47.4 billion) will go to “expanded enforcement on taxpayers.” This compares to the 9% the IRS plans for improving services or more quickly resolving taxpayer problems. The enforcement percentage will surely be higher, since much of the rest of the money will buy new technology and hire new staff for audits.
Mr. Werfel pledges that none of the money will “raise audit rates on small businesses and households making under $400,000 per year, relative to historic levels.” Yet the report fails to explain how it will abide by that pledge or what is an historic level.
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The IRS promises a focus on “complex tax filings” and “high dollar noncompliance,” with particular enforcement emphasis on “large corporations,” “large partnerships,” and “high-income and high-wealth individuals.” The IRS has made similar promises in the past, only to migrate to softer targets.
Corporations and the super-wealthy hire armies of lawyers, which makes the tax yield low. The Joint Committee on Taxation has estimated that 78% to 90% of the money raised from under-reported income will come from those making less than $200,000 a year. A leading target will be “pass through” small businesses that file under the individual code. The report says the IRS will also rev up audits on returns that feature non-wage or salary income, such as estate and gift taxes.
Syracuse University’s Transactional Records Access Clearinghouse looked at tax data from fiscal 2021 and found that the IRS could keep its audit numbers from declining only by significantly increasing its “correspondence audits,” which are mailed letters that query aspects of a tax return. All but 100,000 of the IRS’s estimated 659,000 audits in fiscal 2021 were conducted with these letters. Half of all correspondence audits (54%) went to low-income wage earners with less than $25,000 in gross receipts. More such letters will be forthcoming.
The Werfel report also says the agency plans to arm enforcement teams with “advanced analytics” and “emerging technologies”—alongside an IRS promise that this snooping will happen “responsibly” and respect “taxpayer privacy and civil liberties.” Glad to hear it. The agency will also devote new resources to ensuring that taxpayers “receive the tax incentives for which they are eligible.” In other words, the agency will take on a new social-justice role in delivering welfare payments.
Republicans point to a 2021 Treasury document that says the IRS cash boost will fund 87,000 new employees. Democrats deny this. But the Werfel report admits the IRS plans to hire 30,000 more employees in fiscal 2023 and 2024 alone—including 8,782 in enforcement and 13,883 in taxpayer services. The agency already employs 79,000.
The only silver lining to the $80 billion infusion is that the agency will face a test of whether it can deliver both better service for taxpayers and the vast new amounts of revenue Democrats promised as a return on investment. Confidence is not high.
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https://www.yahoo.com/finance/news/white-house-issues-report-justifying-001338202.html
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https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
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good article :-o
Federal income tax - I could hear it now - "it hits the low income people more"
I still like a flat tax better
but that has no chance today and will bring the same - "it hits the low income people more"
how can we close loopholes that only benefit the very rich?
how can we make if more fair:
the lower incomes pay none
the higher incomes pay less than the working middle classes
that is not fair to me.
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"How can we close loopholes that only benefit the very rich?"
The essence of loopholes is that the math only makes sense at the higher rates.
I would also note that the advantages of a sales tax over a flat tax include:
A) flat tax would still entail an IRS to monitor the reporting of income;
B) flat tax is triggered in the year earned and sales tax occurs when the money is spent. Thus a major incentive on the margin to save.
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what kind of revenue will generated by sales tax
vs flat
tax
or what we have now ?
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The assertion is that the rate will be selected to generate the same revenue.
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https://washingtontimes-dc.newsmemory.com/?token=1bbc291ec07c58e48febbdb68812e89f_64886f11_6d25b5f&selDate=20230613
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Is a U.S. Wealth Tax Constitutional?
A bad Ninth Circuit ruling needs Supreme Court review.
By The Editorial BoardFollow
Updated June 14, 2023 7:21 pm ET
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The Ninth Circuit Court of Appeals in San Francisco PHOTO: MONICA M. DAVEY/EUROPEAN PRESSPHOTO AGENCY
Progressives have long dreamed of imposing a tax on wealth, and it looks as if an arcane corner of the 2017 tax reform might give them a legal opening. The Supreme Court can shut this constitutional door if it takes up a bad ruling on appeal from the Ninth Circuit Court of Appeals.
The Sixteenth Amendment revised the Constitution to allow “taxes on incomes, from whatever source derived.” The Supreme Court has long held that income is defined as money that is realized from, say, wages or the sale of a property or financial asset. It has never been defined as unrealized income, such as from an increase in the value of an asset on paper that isn’t paid out to the owner.
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Enter 2017’s mandatory repatriation tax, which taxed shareholders of some foreign corporations on their retained earnings. Congress was scrambling for revenue to pay for its reduction in tax rates, and foreign companies were an easy political target. But the tax also hits unsuspecting American bystanders.
Two of them are Charles and Kathleen Moore, of Washington state, who invested in a friend’s venture to distribute farm equipment in rural India. The company reinvested earnings to distribute more proceeds in India, and the Moores received no payout. Yet they were hit with a tax bill of $14,729 under the mandatory repatriation tax.
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The Moores sued the Internal Revenue Service and sought a refund on grounds that the tax is an unconstitutional levy on income. They lost in federal district court, and a panel of the Ninth Circuit Court of Appeals upheld the tax. ruling that “realization of income is not a constitutional requirement.”
The Moores also lost a request for hearing by the full Ninth Circuit. But Judge Patrick Bumatay issued a hard-hitting dissent that called out the majority decision as contrary to “ordinary meaning, history and precedent.” In Eisner v. Macomber in 1920, the Supreme Court held that a gain in an asset’s value qualifies as income only if it is “received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal.” That sure doesn’t apply to the Moores. The High Court has reinforced that ruling in more recent cases.
As Judge Bumatay writes, the Ninth Circuit is the first court in the U.S. to depart from this Supreme Court definition of income for tax purposes. He rightly notes that the ruling opens the door “to expansion of the federal taxing power beyond the limits” of the Constitution, including taxes an “all sorts of wealth and property” that has never been subject to the federal income tax.
The Moores have appealed to the Supreme Court, and we hope the Justices will hear the case. The Ninth Circuit ruling controls only in its area, but if the High Court lets it stand, it will encourage Democrats in Washington, D.C., to think that they could get away with imposing a wealth tax.
No less than the Chairman of the Senate Finance Committee, Oregon’s Ron Wyden, has floated a wealth tax proposal. The Justices have a chance in Moore v. U.S. to restore the proper legal application of the income tax and avoid a constitutional clash that could do substantial economic harm
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Do you know of ANY tax that remained only on the super rich?
I think these people are morons but really it's the ones who are buying it are the cognitively questionable. Cut the voters of the left just this once you something beyond first level thinking?
From the article:
"The extreme wealth inequality we see today, which disproportionately impacts Black and brown families, is a result of centuries of discrimination towards working-class, vulnerable communities while allowing tax breaks for the rich and wealthy," he said.
https://www.foxbusiness.com/politics/dems-propose-new-tax-extreme-wealth-combat-aristocracy
Umm, there is no math or science behind his accusation of causation, the facts are exactly the opposite. The legalization of wealth creation "lifts all boats".
This is also a false flag distraction. Democrats are now the party of the rich and the states with the highest 'income inequality ' are California and New York.
Wealth tax failed everywhere it was tried. cf. France. Is there a right of privacy for what you own? How will they value your assets? How often, when? Will they tax you on the value of your guns? Will they need to come inspect and count them? Wealth means all assets, right? Tax you on wild swings in value of bitcoin, gold, even if you've sold none of it? How did they know the little people aren't super rich? They will need to know all of their assets and values too. Income involves a transaction, and it is legal to tax because the leftists in charge at the time sold us an amendment to the Constitution to change what was previously banned. The Revenue Act of 1913 imposed a one percent tax only on people five times greater than the median income. Do you think that amendment would be ratified if we were shown then today's tax code?
It's all about politics for the gullible.
I don't care about the rich. I care about the process that makes the pursuit of wealth creation possible. That is what they are attacking.
A tax on the rich is a tax on the economy. It NEVER hits just the rich and does not benefit the poor. They know it won't pass now (Republican House, divided Senate) but put the snake oil out there for political gain nonetheless.
Teachers pay more tax than billionaires? Oh good grief. False of course, aimed at the gullible, but all the maladies they complain of would be solved with a flat tax. Tax every dollar of income the same no matter who earned it or how, and limit all the funny business to the spending side of the equation. Key word is equation. Limit the tax rate to what all are willing to pay and limit the spending to the amount of money that brings in.
But no ...
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P.S. Note that Black is capitalized, brown is not, ('people of color' is acceptable, 'colored people' is not.). What the f*** does race have to do with tax rates?? Woke journalism poisons our language and has infected even fox business in economic coverage.
Rise up now or lose everything. The intent here is poison your mind and empower a regime. YOU are the target, not some zillionaire.
Is it constitutional? See previous post:
https://firehydrantoffreedom.com/index.php?topic=1791.msg159971#msg159971
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Hat tip. Steve Moore, CTUP
Grace-Marie Turner is one of America’s top healthcare analysts, but she also has the distinction of having sat in on a famous dinner in Washington that changed economics forever. She recently wrote about her recollections of that meeting.
Birth of the Laffer Curve - by Grace-Marie Turner (substack.com)
Grace-Marie was a young reporter and attended the dinner in 1974 between then White House chief advisors to Gerald Ford – Dick Cheney and Don Rumsfeld – along with the Wall Street Journal editorial writer Jude Wanniski. Jude coined the phrase “the Laffer Curve.” It was at this meeting that Laffer wrote the curve (below) on a famous cocktail napkin (now in the Smithsonian Institute).
Here is how Wanniski described what happened:
“'There are always two tax rates that yield the same revenue,’ observes Arthur Laffer…[who] drew the curve shown above to illustrate his point.
When the tax rate is 100 percent, all production ceases in the money economy. People will not work in the money economy if all the fruits of their labor are confiscated by the government. An individual will not work for $1,000 a day if, after taxes, his paycheck comes to zero. Because production ceases, there is nothing for the government’s 100 percent rate to confiscate, and revenues to the state are also zero.
On the other hand, if the tax rate is zero, people can keep 100 percent of what they produce in the money economy. There is no government wedge, and thus no governmental barrier to production, so production is maximized … but because the tax rate is zero, government revenues also are zero.”
Political leaders’ job is to find that optimal balance where workers and investors are incentivized to work and produce but where there is sufficient revenue for the government to operate and provide its essential services.
Some 50 years later, why is this concept so hard for politicians to understand?
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Posting this in Tax Policy as well.
Deficits in the 1980s and every other time we're all about excess spending, not undertaxation. And the House of Representatives, where all spending ordinates, was under complete Democrat control the entire decade of the 1980s, also Biden's first two years when all this current spending was passed.
"Income inequality between the wealthiest 1% and everybody else really took off under Reagan"
Logic fallacy called post hoc ergo propter hoc, as old as the Roman empire. This preceded that therefore this caused that.
Income inequality is widest today in the blue run states of California and New York. Is that because tax rates there are too low?
When you have to lie about the opposing argument to win, are you really winning an argument?
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"Income inequality between the wealthiest 1% and everybody else really took off under Reagan"
This is because under the pre Reagan 70% tax rates money hid in tax shelters (e.g. real estate or . .. ahem , , , commodity futures in Arkansas. After the Reagan cuts the math was not there (i.e. the shelters no longer made sense at 30% rates) and thus money allowed itself to be taxed. Voila, income disparity increased! When actually the rich were paying MORE in taxes!
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Excellent point.
Another point along those lines, revenues doubled in the decade of the 80s, even at lower rates, for the same reason. Prima facia proof that the lower rates weren't the problem, spending was.
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Using skills developed in my "Foreign Exchange Risk Management" course at Wharton, at the end of the Reagan years I went into IMF data books at the library (twas pre internet after all haha) and per my calculations adjusting for inflation etc. at the end of the Reagan years in constant dollars federal revenues were up 35%. In that the tax rate cuts were phased in over three years, I had to make certain assumptions and now over 30 years later I do not remember what they were.
The other big picture thing to keep in mind is the effect of baseline budgeting.
If a multi-year budget (and that is how they have been done for decades now just like a 5 year or 10 year plan in the Soviet Union) there is an assumption of a certain level of inflation in determining nominal spending. If inflation turns out to be less than that, then the numerical increase in spending has a greater component of a real increase.
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Yes and exactly right on baseline budgeting as that comes back to bite Biden lies in the ass.
Voters don't usually get too deep in math but this one is kind of obvious.
Biden and Dems took covid crisis temporary spending to be the new baseline. We were on a path to a 3 trillion deficit. While Biden says he cut the deficit by a trillion, the debt went from 31 to 33 trillion, exposing the complete BS of "baseline" thinking.
The deficit went from 1:00 to 2 trillion right while he is saying he cut it by a trillion the best liberal fact checkers can't get him out of this one.
Meanwhile, voters know their costs went up by thousands more than their income.
The bleep has hit the fan, reckless spending is no longer cost free to anyone and we all know it.
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https://www.msn.com/en-us/news/politics/maddow-blog-gop-s-tom-cotton-points-to-taxes-he-d-like-to-see-raised/ar-AA1jl1GG?ocid=msedgntp&pc=DCTS&cvid=1a248c35d41847f980b1296f9bcd333d&ei=8
I understand the thinking but not clear I agree with it in philosophically.
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I'll go further than that.
This is crap that diminishes our moral authority.
This is the sort of crap that Trump not infrequently comes up with.
I cannot picture DeSantis supporting this.
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"two years ago, Cotton unveiled a bill he called the “Ivory Tower Tax Act,” which called for a 1% tax on the wealthiest private colleges’ endowments, in order to finance vocational education and training."
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I like Tom Cotton and he can explain his own thinking for himself. It could be he's just messing with them because he knows it's never going to happen, exposing that they care only about themselves.
But this, this is a Leftist tactic. Let's say allocating 1% of those funds "to finance vocational education and training" is a good idea. Why would you start with making it a federal mandate? Why wouldn't you form a foundation and ask these groups, pressure these groups, guilt these groups, publicize your idea, before you mandate these groups to spend their money your way.
A better argument might be made for putting 100% of that money to that purpose, but not without their consent.
If this, then what next.
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https://www.businessinsider.com/selling-sunset-los-angeles-mansion-tax-millionaires-housing-crisis-2023-11#:~:text=On%20the%20new%20season%20of,sold%20for%20over%20%245%20million.
Article stumbles into big truths. How could a mansion tax hurt regular people? Just as the yacht tax did.
https://www.washingtonpost.com/archive/opinions/1991/12/31/luxury-tax-everybody-loses/11141980-feda-4982-a43e-8fb4189e7b9a/
Maybe a doctor could tell us how a bad right knee could hurt your left hip if you walk badly on it, it's all connected.
If I have a dozen properties I won't sell because the capital gains tax rate is too high, and they each would have sold again 3 times since then but didn't, that's a lot of (taxable) transactions that did not happen. Transactions that didn't happen are the hardest things to measure in economics., but perhaps the largest cost of all.
How do you measure the number of new businesses that did not start up because of bad tax policy and excessive regulations are an even bigger tax. It's hard to describe and impossible to measure.
Looks like young people are helping us here with economics language. "To chill" is an 'action verb' for doing nothing. Explains a lot. Chilling effect, doing nothing is the enemy of the salesman and the tax man, and of GDP, velocity of money, and everyone directly and indirectly affected. Customer says, oh we're going to think about it. The new refrigerator stays on the showroom floor. No sales tax collected. No commission. No tax collected on the commission. No delivery needed. No reorder at the factory to replace the (not) sold inventory, and so on. Whatever caused the no sale, inflation, tax, regulations, all have a "chilling effect" from here to China and back, including the waitress at the restaurant where the salesman might have taken his wife out to eat that night and the valet parking guy. It's all connected. And nobody seems to know.
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The converse is true as well.
With the Reagan tax rate cuts, RE tax shelters losts their viability and the money hidden therein allowed itself to be exposed to realization events. This yielded tax revenue increases-- as promised by the Laffer Curve. At as atendant effect, the number of millionaires "seen" by the IRS increased triggering Dem howls of increasing concentrations of the rich. Oy vey.
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https://www.npr.org/2023/11/20/1214135694/shakira-tax-fraud-deal-trial
I don't know the legal system in Spain
but on the face of it the deal makes no sense
she owes 15 million but makes a deal to pay half with 3 yr "suspended" sentence whatever that means
so it pays NOT to pay tax in Spain. She saved 7.5 million euros.
what did she do give them a private dance?
perhaps they figured a jury would not convict the celebrity as usual.
if they have juries there.
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https://www.msn.com/en-us/money/markets/this-lawsuit-could-disrupt-the-u-s-tax-system-key-facts-are-in-dispute/ar-AA1kAxgo?ocid=msedgntp&cvid=538bd15435324f05b524fe8d94256c2c&ei=73
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Tax law rests on ruling over $15,000 bill for investors
Feds hold couple liable for unrealized profits
BY ALEX SWOYER THE WASHINGTON TIMES
The Supreme Court is scheduled to hear a case early next month that could nullify part of the 2017 tax reform law enacted by congressional Republicans and President Trump — all over a Washington state couple’s $15,000 tax bill.
Charles and Kathleen Moore’s case centers on unrealized profits from investments in a foreign company. In 2006, they invested in a friend’s business, KisanKraft Machine Tools Private Ltd., which serves rural farmers in India.
The Moores put up $40,000 for a 13% share in the company. They said they never realized any profits because the money was always reinvested to help the company grow.
In 2018, they were told they owed money to the federal government as part of the mandatory repatriation tax, part of the Tax Cuts and Jobs Act of 2017. They were taxed on a proportion of their ownership dating to 2006, rendering a tax bill of
$14,729.
Their court filing says the bill runs afoul of the 16th Amendment because it is a tax on income they never received from their investment. The 16th Amendment allows Congress to assess an income tax without regard to a census.
The 9th U.S. Circuit Court of Appeals ruled against the Moores, reasoning that income doesn’t have to be realized to be taxed under the Constitution and that shareholders can be taxed on their portion of a corporation’s profits, not only on the individual’s direct income.
“The decision below sweeps away the essential restraint on Congress’s taxing power, opening the door to unapportioned taxes on property (as in this case) and anything else Congress might deem to be ‘income,’” the Moores’ legal filing reads.
The federal government argues that the 16th Amendment gives Congress the power to collect taxes from income “from whatever source derived.”
“Nothing in the Amendment’s text refers to the concept of realized gains,” the federal government’s brief reads.
The central question for the justices is what constitutes income.
Experts say the Supreme Court could nullify the so-called wealth tax. The Mandatory Reparation Tax was intended to apply to investors with a 10% or greater share in a corporation as a onetime tax. It was expected to generate roughly $340 billion in revenue, according to The Associated Press.
The Moores own 13% of their friend’s foreign company.
“I would be surprised if 1% of individual taxpayers are in this position,” said Duke University law professor Lawrence Zelenak. “Most of the taxpayers who are subject to this tax … are not individuals at all. They are corporations.
“This case, where it involves married couple individual shareholders … is very atypical of the application of this tax,” he said.
In hearing the Moores’ case, the high court will look at the 1920 Eisner v. Macomber ruling, in which justices decided that taxing unrealized gains is unconstitutional. That case has never been overruled but has not been applied as tax laws evolve.
Adam Chodorow, a law professor at Arizona State University, said a victory for the Moores based on the Eisner ruling could implicate other parts of the tax code because taxes wouldn’t be due until income is realized. He said such a decision could impact the partnership tax and some limited liability companies.
“The initial effect would be corporations and the international setting, but it would expand way beyond that,” Mr. Chodorow said. “It could undo huge swaths of the tax code.”
American University law professor Caroline Bruckner said tax experts are paying close attention to the Moores’ case and how the justices reason their decision.
“If the U.S. Supreme Court rules in favor of the Moores and finds that the tax is unconstitutional, there is a great deal of concern among tax experts and practitioners that other taxpayers will challenge settled law on how the U.S. taxes international investments,” Ms. Bruckner said.
A decision in Moore v. United States is expected by the end of June.
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“It could undo huge swaths of the tax code.”
Pretty much the whole tax code is a massive law that never went through Congress.
In-come, as opposed to outgo, isn't the idea to tax money that comes to you from work, investment, etc, presumably when it comes in.
Individual taxes are never based on accrual versus cash basis, are they? In other words, if you work in December and get paid for that work in January, it is taxed in January (the following year) , not when it was earned.
In contrast, a wealth tax takes part of your wealth, something the constitution, in my view, clearly identifies as a "taking", and bans it without 'just compensation' , meaning it must be made not a taking to be allowed .
Does the international aspect of this change anything? They were trying to force or entice taxpayers to bring assets back into this country, repatriate. But you can't bring back a 13% share of a foreign company. You can only Force the sale, or as is the case here, try to make them pay attacks on it out of other income and assets that were already taxed.
Does anyone still think elections don't matter, party doesn't matter, when you might otherwise have 9 Sonia Sotomayors or 9 Bernie Sanders deciding the limits on government?
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"In other words, if you work in December and get paid for that work in January, it is taxed in January (the following year) , not when it was earned."
IIRC the precise term is an "Actualization Event" , , , or was it when "realized"?
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https://finance.yahoo.com/news/trump-era-tax-cuts-set-160750197.html
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The Supreme Court Will Finally Decide What ‘Income’ Means
The justices hear Moore v. U.S., a case asking if Congress can tax unrealized capital gains under the 16th Amendment.
By Hank Adler and Lacy Willis
Dec. 4, 2023 5:37 pm ET
The Supreme Court hears oral arguments Tuesday in the most important tax case in decades. Moore v. U.S. will answer the question of whether Congress can tax unrealized capital gains as if they were income under the 16th Amendment.
The case has attracted a flood of friend-of-the-court briefs, mostly cheering for the tax collectors. Many argue outright that there is no requirement for profit to be realized—which usually means selling an asset at a profit—for a taxpayer to be hit with an income tax as the Constitution means it.
The case before the justices is straightforward. In 2006, Charles and Kathleen Moore invested $40,000 in a 11% equity interest in a foreign corporation. Between 2006 and 2017, the company was profitable but reinvested all its earnings in the business. The Moores thus didn’t receive dividends or any other income from the investment.
Under the Tax Cuts and Jobs Act of 2017, however, the Moores became subject to a new federal levy called the “mandatory repatriation tax,” applicable to investors in overseas corporations. The new tax treated their allocable share of the corporation’s undistributed earnings as if they were actually received by the shareholders. The tax was retroactive, covering the entire period beginning with the Moores’ initial investment through 2017. The rate of tax was unusual. Instead of a statutory rate, it was a floating rate that varied according to the balance-sheet liquidity of the corporation.
The legal problem is how any of this could qualify as a tax on income. The federal income tax is constitutional, but a constitutional amendment was needed to make it so. The Constitution requires that any direct tax levied by the federal government be apportioned according to each state’s population, so that the per capita tax is the same in all 50 states. Income taxes couldn’t fit that description, so the 16th Amendment was necessary to allow taxing of individual income.
In 2018, long before we heard of the Moores, we noted the unconstitutionality of the mandatory repatriation tax in an essay titled “The Worst Statutory Precedent in Over 100 Years.” We argued that it isn’t a tax on income and therefore is an unconstitutional direct tax. We questioned whether Congress could tax the undistributed earnings of a corporation retroactively to 1986, which is what the law did. We noted that the rate was based on liquidity, making it not an income tax but a balance-sheet tax.
The result—a noncontrolling shareholder being taxed on undistributed earnings, retroactively for more than a decade, based on the corporation’s liquidity—made the mandatory repatriation tax unconstitutional in the extreme.
That the justices agreed to hear the Moores’ appeal is encouraging. Some of the usual reasons for the high court to hear the case were missing: There was no split among the circuit courts, and the amount of the Moores’ tax ($14,729) wasn’t momentous. The decision to grant review likely demonstrates that at least four justices recognize the horrible precedent the Ninth U.S. Circuit Court of Appeals set by upholding this tax. If realization is no longer a requirement for taxable income, then “income tax” has no boundaries in the Constitution, and Congress can directly tax wealth.
Among the briefs from those who want to save the law, several switch subjects to other sections of the Internal Revenue Code instead of arguing the fairness and reasonableness of the mandatory repatriation tax. A win for the Moores, they claim, could result in calling other sections of the Internal Revenue Code into question—even such well-established precedents as taxing partnerships or Subchapter S corporations.
This is a red herring. Neither partnerships nor Subchapter S corporations pay income taxes. They simply act as pass-through entities for partners or shareholders, who are liable for taxes on their share of earnings. Income that isn’t passed through immediately clearly belongs to the partner or shareholder, and thus creates no issue of realization.
Even if the outcome of the case does call some other sections of the tax code into question, the justices are obligated to focus on whether this tax is constitutional. The Supreme Court will likely decide the case by June. A decision that carefully, thoughtfully and clearly defines “income” is at least a century overdue. If in the process we also learn something about when retroactive taxes are unconstitutional, the taxpaying public will be the better for it.
Mr. Adler is an associate professor and Ms. Willis is an assistant professor at Chapman University.
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IRS Expansion Led to 53 Percent Increase in Prosecutions: Report
By Mark Gilman
12/7/2023
Additional staffing and a post-pandemic focus on tax fraud have led to the Internal Revenue Service (IRS) and its U.S. Sentencing Commission (USSC) prosecuting 53 percent more tax offenders in the past two years, according to a December report from Scholaroo. According to its research, in a state-by-state breakdown, those attempting fraud against the IRS in the states of Pennsylvania, Rhode Island, and Wyoming had the greatest chance of getting caught.
But according to Scholaroo's research, to be in the IRS crosshairs, you must make some serious money. “The IRS suggests that approximately 75 percent of tax fraud is committed mainly by individuals in the middle-income range,” the Scholaroo data team shared in a written statement to The Epoch Times. “However, the highest incidence of evasion is observed among the wealthiest 5 percent, with an income of at least $200,000. In this elite group, taxpayers hide more than 20 percent of their income from the tax authorities.”
Scholaroo has made its mark as an online college scholarship cloud platform and has recently gotten involved in the data research business. The report comes as some taxpayers have been concerned about the purpose of the Biden administration's plan to add 30,000 IRS employees over the next two years as part of an $80 billion funding mandate from the Inflation Reduction Act passed in the summer of 2022.
Initially, the concern was that the additional IRS employees would target independent contractors and small-business owners. But Robert Nassau, a law professor and director of the Low Income Taxpayer Clinic at Syracuse University, told The Epoch Times that making less-than-honest claims on tax forms will still get you in trouble no matter your income level.
“Those independent contractors who get audited must have a stamp on their head that says audit me. It’s complete BS. The wealthier people who are going to get audited are engaged in more sophisticated planning,” he said. “Occasionally, I have seen business expense audits, and I’ll tell you some of those people frankly are idiots. They haven’t embraced the saying ‘the pigs get fat and the hog gets slaughtered.’ Obviously, you’re going to get audited if you show $41,000 in income and $75,000 in write-offs four years in a row.”
Scholaroo's U.S. Tax Evasion report, examined tax evasion behavior among Americans and found that the average loss in these crimes in fiscal year 2022 was $301,009.
According to a November press release from the IRS, its Criminal Investigation team initiated over 2,550 criminal investigations, getting a 90.6 percent conviction rate on cases accepted for prosecution. The agency continues to make statements assuring American taxpayers that audit rates will stay the same for taxpayers earning less than $400,000 annually, representing the top 2 percent of income earners. They claim that their 2,077 special agents spent 70 percent of their time investigating tax-related crimes, including tax evasion and tax fraud, in 2022, while nearly a third of their time was devoted to money laundering and drug trafficking cases.
Mark Luscombe, principal North American analyst for tax and accounting for Wolters Kluwer Tax & Accounting, says that even though the IRS is becoming more aggressive and adding to its ranks to bring down those with high-level tax crimes, the agency’s increased staffing is a far cry from what they had over a decade ago.
“If you look at the IRS criminal division headcount in 2010, it was 40,000. In 2023, it’s up from 2022, but only a total of 3,138,” he said to The Epoch Times, but added that most of the people being added now are working in customer service, not tax fraud convictions. “The IRS claims that between 2022 and 2023, they made a significant increase in having people available to answer phones, picking up calls from 15 percent of the time to 85 percent, but I think it's one thing to answer the phone and another to answer the questions taxpayers have. They’re still inexperienced and not answering the questions.”
In a Pew Research poll conducted earlier this year about how Americans feel about federal agencies, the IRS was the least popular of the 16 mentioned in the survey. More than half (51 percent) had an unfavorable opinion of the IRS and only 42 percent said they had a favorable view of the agency.
“I don't think they’re the evil empire, but they’re still trying to get the right answers. From everything you’ve read, there’s billions not being collected right now, and I feel like the American perception of the IRS’s role is just not right,” Mr. Nassau said.
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How long is the tax code? No one knows?
https://www.politifact.com/factchecks/2017/oct/17/roy-blunt/tax-code-so-long-nobodys-really-sure-its-length/
Makes me (and millions of others) afraid to make a transaction, sell an asset etc because in the reporting of it I might end up in jail. Better to sit still. And stagnation is the result, opposite of a dynamic, flourishing economy.
Mentioned earlier today, Biden (Hunter) was deducting sex club memberships while I'm afraid to deduct a roof repair that might be hard to prove.
I'm enjoying life right now; why take a chance? On anything.
An example I use, open a lemonade stand, experience a little success with it and tell me how many laws, federal, state and local you may be breaking. It's so many that no one knows, and I have a degree in it.
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https://www.msn.com/en-us/money/retirement/41-states-that-won-t-tax-social-security-benefits-in-2024/ar-AA1mNYKT?ocid=msedgntp&pc=DCTS&cvid=61268459f90d45a896659852f211cfd9&ei=23
NJ is surprisingly not on the list
Doug, sorry but MN is :-o
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https://www.msn.com/en-us/money/retirement/41-states-that-won-t-tax-social-security-benefits-in-2024/ar-AA1mNYKT?ocid=msedgntp&pc=DCTS&cvid=61268459f90d45a896659852f211cfd9&ei=23
NJ is surprisingly not on the list
Doug, sorry but MN is :-o
This hurts. I know so many retirees leaving I don't know who to share this with that cares but doesn't already hate Left governance.
People elsewhere think, people in high tax states get what they deserve, but California for example has the most Republicans of any other state, and Minnesota is an almost purple state, Hillary won by 1.5%, but with far Left governance. A LOT of people are subject to laws they don't support. Dividing lines will be tricky to set up once the war begins.
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who then paid more as a total percentage of total taxes:
https://nypost.com/2024/02/29/opinion/data-prove-it-the-trump-tax-cuts-soaked-the-rich/
supply side worked again.
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who then paid more as a total percentage of total taxes:
https://nypost.com/2024/02/29/opinion/data-prove-it-the-trump-tax-cuts-soaked-the-rich/
supply side worked again.
Thank you for posting this ccp and thank you to NY Post for getting the word out.
We already knew all this on the forum but now we have more data, more proof.
Weird thing. They cut corporate tax rates and black and Hispanic unemployment dropped to historic lows, and per capita incomes rose to historic highs (who knew?) - before covid shutdowns and Bidenflation killed the boom.
Democrats like to talk about the "education level" of their voters. But how many of their voters know that revenues to the Treasury went up when tax rates were cut? It hasn't made the NYT yet. (If they knew, would they be Democrats?)
["Modern Journalism, covering the biggest stories of the day, with a pillow, until they stop breathing."]
Instead they 'straw man' the Laffer Curve. It doesn't say all tax rate cuts bring in more revenue. It says there is a level of taxation where higher rates won't bring in more money - because it stifles the incentive to work and produce.
It's not rocket science to know that under a 100% tax rate (zero pay) not much work or investing would get done. From there it follows that at some point between 0 and 100%, further tax rate increases aren't helpful and tax rate cuts might be. We are provably past that point.
Recall the question Charlie Gibson asked candidate Barack Obama in 2008:
https://taxfoundation.org/blog/obama-and-gibson-capital-gains-tax-exchange/
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GIBSON: "All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.
But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
OBAMA: Right.
GIBSON: And George Bush has taken it down to 15 percent.
OBAMA: Right.
GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?"
(Obama's answer: Uh Charlie, it's about fairness.)
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What they fail to recognize is how powerful this economic law is. If tax revenues are even the same at a significantly lower tax rate as they were at the higher rate, it means INCOMES went up that much as well. And the converse, when we raise the rates and revenues drop, it mean incomes are falling by even more than the rate increase! [Hey Washington, incomes falling is a bad thing.]
It has even more profound meaning than that. Since higher rates will not bring in more money at this point, it means the ONLY WAY to move at all toward a more balanced budget is to cut spending. Imagine that!
But instead of any attempt to cut spending, the powers in Washington have brought forward so many new multi-trillion dollar spending bills no one can remember what they all were.
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https://issuesinsights.com/2024/03/11/bidens-criminally-fuzzy-tax-math/
Angry Joe said billionaires pay only 8% in federal taxes. They actually pay 23%. according to the measurements of his own government. Just off by 3-fold. He wants them to pay 25% (with rounding they already do). 25% of WHAT??!! His new definition of TAXABLE income that includes taxing unrealized capital gains, in other words a WEALTH TAX.
It's such a great new idea that it was tried, failed and repealed in France multiple times and other European countries. Do we want their economic growth rate? Their unemployment rate? Their exodus of wealth and job creation?
https://www.investorschronicle.co.uk/education/2021/02/11/lessons-from-history-france-s-wealth-tax-did-more-harm-than-good/
Taxable income is a measure developed over the last 90 years that Joe has been in Washington. Is he really not familiar with it.
And how much more revenue do we really raise when we keep raising the top rate? ZERO?? But by Joe's static math it will pay interest on the debt for a little over 20 days. What a deceptive liar this demented man is.
And why do we learn this TRUTH about it from a distant pro-growth opinion site instead of from "This is CNN", or MSLSD, don't they care about the truth? I've seen them fact check other Presidents.
May I remind, a tax on the wealth in an economy is a tax on the economy. It doesn't limit its impact to wealthy, in fact it doesn't hurt those already wealthy. It hurts all of us. But who is Joe to tell you that - when he can raise up some more anger and division over zero dollars in additional revenues to the Treasury.
We are in deficit because we spend too much. There is no way around that.
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and are tax cuts at this point actually counter productive and will no longer pay for themselves:
https://patriotpost.us/articles/105324-tax-cuts-a-reappraisal-2024-03-20
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A pleasantly and well reasoned piece.
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WH claiming they cut taxes for the middle class with solar payouts.
https://dnyuz.com/2024/03/25/biden-promising-corporate-tax-increases-has-cut-taxes-overall/
:x
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and are tax cuts at this point actually counter productive and will no longer pay for themselves:
https://patriotpost.us/articles/105324-tax-cuts-a-reappraisal-2024-03-20
He makes some good points but misses a few things.
He says 2017-2018 tax rate cuts were unpopular, maybe so, but the voting public trusts Trump more than Biden on the economy by a huge margin, enough to win the election perhaps, and that happens to be what he did to get his results.
Trump tax cuts did pay for themselves. Revenues never dipped. The casual observer misses how profound that effect is. Real incomes had to rise an offsetting amount, and they did! Under Biden, real income fell with spending based inflation.
Author misses the flip side argument of the Laffer curve. He thinks further rate cutting is not helpful, maybe so, but the issue before us is a president and ruling party that wants further rate hikes that will (most likely) bring in no new revenue. Biden will shrink incomes by the proportion of the increases, if not worse. Obama said it to Charlie Gibson, they don't care. The rhetoric is popular with the base, but the economic results of stagnation recession are not popular with anyone. If he really wanted to raise rates, why didn't he do it while he controlled all the levers of government? Even Biden's leftist guides knew what that would do to the economy.
Author misses the point of who pays the corporate tax. People noticed they benefitted but not necessarily how or why. Repatriating a trillion dollars is a lot of productive investment, benefitting those who want to work.
This is when black unemployment fell to record lows and Hispanic incomes rose to record highs. Not because they own a lot of big corporations but because we are an interconnected economy.
Without investment, the job market sucks.
Author worries about inequality and fairness but the rich already pay most of the (direct) taxes. The other 40% pay indirectly.
Our problem today is with spending.