Tax Policy

[Crafty_Dog]

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.

 

[Crafty_Dog]

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.

[Crafty_Dog]

"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

[ccp]

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

[Crafty_Dog]

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.

[Crafty_Dog]

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.

[Crafty_Dog]

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

[Crafty_Dog]

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

[DougMacG]

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).

[ccp]

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.****

[Crafty_Dog]

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.

[Crafty_Dog]

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

[Body-by-Guinness]

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.





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

[DougMacG]

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.

[Crafty_Dog]

 
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.

[Crafty_Dog]

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.

[Body-by-Guinness]

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.



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.



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

[Crafty_Dog]

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.

[Body-by-Guinness]

“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/

[Body-by-Guinness]

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

[Body-by-Guinness]

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

[Body-by-Guinness]

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/

[Crafty_Dog]

Two profoundly scary pieces there BBG.  The importance of marginal tax rates cannot be overstated-- and these rates are leading us to certain disaster.

[JDN]

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.



 

[Body-by-Guinness]

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.

[JDN]

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.

[Body-by-Guinness]

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:
(202) 606-5306

Bureau of Economic Analysis is an agency of the U.S. Department of Commerce.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

[Crafty_Dog]

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 , , ,

[JDN]

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?
 

[DougMacG]

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.

[JDN]

"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 ....

[DougMacG]

"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.
---
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.

[JDN]

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.

[DougMacG]

"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.

[JDN]

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. 

[DougMacG]

"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.

[Crafty_Dog]

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.

[Body-by-Guinness]

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.

[JDN]

  

[Crafty_Dog]

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.

[ccp]

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?

[HUSS]

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???

[DougMacG]

CCP: "...why is it ok for certain Americans to be targeted and discriminated against and their wealth confiscated..."
----

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.

[DougMacG]

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.

[JDN]

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...

[HUSS]

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.

[HUSS]

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.

[JDN]

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.

[HUSS]

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.

[JDN]

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...