Tax Policy

[DougMacG]

CCP,  I was going to post this video and see you already posted it.  Jon Lovitz formerly of SNL.

Is this a bit??  People are laughing at his lines but the attack sure sounds sincere and true.  He is a Democrat who voted for Obama ripping Obama.  Full of profanity and passion!

What's wrong with making money, making a success of yourself, earning it.  Isn't that what we wanted you to do?

'This is the United States of America, they tell you you can do anything you want - so go for it.  You go for it and you make it and they're like Fuck You. (hahahahaha from the audience)  What the fuck was that, you just said go for it..."

Another link at 'The Blaze':  http://www.theblaze.com/stories/f-a-former-snl-star-slams-obama-over-taxes/

[ccp]

Doug don't you like this guy Lovitz because he comes across as saying the truth?  He went into showbiz to become rich and famous.

Not like the other phoney celebs who pretend it was all about their craft and art.  They vote Dem for show.  For naricissm.  For BS reasons.   They appear to have to prove something.   Perhaps this makes them feel good about themselves.   Do they despise themselves that much?

I became a doctor for different reasons.  I didn't expect to get rich.  I did like the idea of helping people.  But if I said I didn't EXPECT to make a good living I would be lying.   What, was I supposed to work hard to achieve this because I am a darn saint?

[DougMacG]

Oops, posted a tax policy piece today on political economics. Maybe it was an excuse to get it out there twice.  Maybe hard to follow, but it is VERY IMPORTANT to know the answer to this question ifyou plan toraise taxes on the rich: How much will they adjust their income to the new circumstance? Does revenue go up? By how much?

Where he points out the other economists are misguided on elasticity, they are wrong in his estimation by up to a factor of 10.  From as low as 0.2 versus as high as 1.99!  If we cannot narrow it closer than that or agree one side is wrong, Economics is hardly a science.
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Alan Reynolds: Rasising Tax Rates Excessively is Counterproductive

Economist Alan Reynolds is always worth the read IMO, challenging politicians, and economists who ignore elasticity.  It reminds me of the arguments made to raise minimum wage a dollar. It there is no ill effect, why not raise it $20 or $50.  If 50% or 70% tax rates have no ill effect, why not go to 100%?  Those who project no revenue loss are using the wrong elasticity multiplier, Reynolds argues.

http://online.wsj.com/article/SB10001424052702303916904577376041258476020.html?mod=WSJ_Opinion_LEFTTopOpinion

Of Course 70% Tax Rates Are Counterproductive
Some scholars argue that top rates can be raised drastically with no loss of revenue. Their arguments are flawed.

By ALAN REYNOLDS

President Obama and others are demanding that we raise taxes on the "rich," and two recent academic papers that have gotten a lot of attention claim to show that there will be no ill effects if we do.

The first paper, by Peter Diamond of MIT and Emmanuel Saez of the University of California, Berkeley, appeared in the Journal of Economic Perspectives last August. The second, by Mr. Saez, along with Thomas Piketty of the Paris School of Economics and Stefanie Stantcheva of MIT, was published by the National Bureau of Economic Research three months later. Both suggested that federal tax revenues would not decline even if the rate on the top 1% of earners were raised to 73%-83%.

Can the apex of the Laffer Curve—which shows that the revenue-maximizing tax rate is not the highest possible tax rate—really be that high?

The authors arrive at their conclusion through an unusual calculation of the "elasticity" (responsiveness) of taxable income to changes in marginal tax rates. According to a formula devised by Mr. Saez, if the elasticity is 1.0, the revenue-maximizing top tax rate would be 40% including state and Medicare taxes. That means the elasticity of taxable income (ETI) would have to be an unbelievably low 0.2 to 0.25 if the revenue-maximizing top tax rates were 73%-83% for the top 1%. The authors of both papers reach this conclusion with creative, if wholly unpersuasive, statistical arguments.

Most of the older elasticity estimates are for all taxpayers, regardless of income. Thus a recent survey of 30 studies by the Canadian Department of Finance found that "The central ETI estimate in the international empirical literature is about 0.40."

But the ETI for all taxpayers is going to be lower than for higher-income earners, simply because people with modest incomes and modest taxes are not willing or able to vary their income much in response to small tax changes. So the real question is the ETI of the top 1%.

Harvard's Raj Chetty observed in 2009 that "The empirical literature on the taxable income elasticity has generally found that elasticities are large (0.5 to 1.5) for individuals in the top percentile of the income distribution." In that same year, Treasury Department economist Bradley Heim estimated that the ETI is 1.2 for incomes above $500,000 (the top 1% today starts around $350,000).

A 2010 study by Anthony Atkinson (Oxford) and Andrew Leigh (Australian National University) about changes in tax rates on the top 1% in five Anglo-Saxon countries came up with an ETI of 1.2 to 1.6. In a 2000 book edited by University of Michigan economist Joel Slemrod ("Does Atlas Shrug?"), Robert A. Moffitt (Johns Hopkins) and Mark Wilhelm (Indiana) estimated an elasticity of 1.76 to 1.99 for gross income. And at the bottom of the range, Mr. Saez in 2004 estimated an elasticity of 0.62 for gross income for the top 1%.

A midpoint between the estimates would be an elasticity for gross income of 1.3 for the top 1%, and presumably an even higher elasticity for taxable income (since taxpayers can claim larger deductions if tax rates go up.)

But let's stick with an ETI of 1.3 for the top 1%. This implies that the revenue-maximizing top marginal rate would be 33.9% for all taxes, and below 27% for the federal income tax.

To avoid reaching that conclusion, Messrs. Diamond and Saez's 2011 paper ignores all studies of elasticity among the top 1%, and instead chooses a midpoint of 0.25 between one uniquely low estimate of 0.12 for gross income among all taxpayers (from a 2004 study by Mr. Saez and Jonathan Gruber of MIT) and the 0.40 ETI norm from 30 other studies.

That made-up estimate of 0.25 is the sole basis for the claim by Messrs. Diamond and Saez in their 2011 paper that tax rates could reach 73% without losing revenue.

The Saez-Piketty-Stantcheva paper does not confound a lowball estimate for all taxpayers with a midpoint estimate for the top 1%. On the contrary, the authors say that "the long-run total elasticity of top incomes with respect to the net-of-tax rate is large."

Nevertheless, to cut this "large" elasticity down, the authors begin by combining the U.S. with 17 other affluent economies, telling us that elasticity estimates for top incomes are lower for Europe and Japan. The resulting mélange—an 18-country "overall elasticity of around 0.5"—has zero relevance to U.S. tax policy.

Still, it is twice as large as the ETI of Messrs. Diamond and Saez, so the three authors appear compelled to further pare their 0.5 estimate down to 0.2 in order to predict a "socially optimal" top tax rate of 83%. Using "admittedly only suggestive" evidence, they assert that only 0.2 of their 0.5 ETI can be attributed to real supply-side responses to changes in tax rates.

The other three-fifths of ETI can just be ignored, according to Messrs. Saez and Piketty, and Ms. Stantcheva, because it is the result of, among other factors, easily-plugged tax loopholes resulting from lower rates on corporations and capital gains.

Plugging these so-called loopholes, they say, requires "aligning the tax rates on realized capital gains with those on ordinary income" and enacting "neutrality in the effective tax rates across organizational forms." In plain English: Tax rates on U.S. corporate profits, dividends and capital gains must also be 83%.

This raises another question: At that level, would there be any profits, capital gains or top incomes left to tax?

"The optimal top tax," the three authors also say, "actually goes to 100% if the real supply-side elasticity is very small." If anyone still imagines the proposed "socially optimal" tax rates of 73%-83% on the top 1% would raise revenues and have no effect on economic growth, what about that 100% rate?

Mr. Reynolds is a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press, 2006).

[Crafty_Dog]

Doug:  Good analysis by Reynolds there.

===============

http://www.spectator.co.uk/essays/7779228/swedens-secret-recipe.thtml

from Mark Perry...good stuff!
________________________________________
 
Sweden’s secret recipe
FRASER NELSON
SATURDAY, 14TH APRIL 2012
 
Advice from a successful – and tax-cutting – finance minister

When Europe’s finance ministers meet for a group photo, it’s easy to spot the rebel — Anders Borg has a ponytail and earring. What actually marks him out, though, is how he responded to the crash. While most countries in Europe borrowed massively, Borg did not. Since becoming Sweden’s finance minister, his mission has been to pare back government.

His ‘stimulus’ was a permanent tax cut. To critics, this was fiscal lunacy — the so-called ‘punk tax cutting’ agenda. Borg, on the other hand, thought lunacy meant repeating the economics of the 1970s and expecting a different result.

Three years on, it’s pretty clear who was right. ‘Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,’ he says. ‘Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.’ Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit. The recovery started just in time for the 2010 Swedish election, in which the Conservatives were re-elected for the first time in history.

All this has taken Borg from curiosity to celebrity. The Financial Times recently declared him the most effective finance minister in Europe. When we meet in his Stockholm office on a Friday afternoon (he and his aide seem to be the only two left in the building) he says he is just carrying on 20 years of reform. ‘Sweden was a textbook case of European economic sclerosis. Very high taxes and huge regulatory burden.’ An economic crisis in the early 1990s forced Sweden on the road to balanced budgets, and Borg was determined the 2007 crash would not stop him cutting the size of government.

‘Everybody was told “stimulus, stimulus, stimulus”,’ he says — referring to the EU, IMF and the alphabet soup of agencies urging a global, debt-fuelled spending splurge. Borg, an economist, couldn’t work out how this would help. ‘It was surprising that Europe, given what we experienced in the 1970s and 80s with structural unemployment, believed that short-term Keynesianism could solve the problem.’ Non-economists, he says, ‘might have a tendency to fall for those kinds of messages’.
He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs. If cutting taxes for the rich encouraged risk-taking, then it had to be done. ‘In most cases, the company would not have been created without the owner,’ he says. ‘There would be no Ikea without [Ingvar] Kamprad. We would not have Tetra-Pak without [Ruben] Rausing. They are probably the foremost entrepreneurs we have had in the last few decades, and both moved out of Sweden.’

But they were not rich, I say, when they were starting out. ‘No, but they were becoming rich. If you have a high wealth tax and an inheritance tax, people emigrate because it becomes too costly to own a company. Ownership is a production factor. Entrepreneurs are a production factor. Yes, these people are rich and you can obviously argue that we want to encourage social cohesion. But it is also problematic if you drive out entrepreneurs from your country, because they are the source of job creation.’

Just as George Osborne took a hit for reducing the 52p tax to a 47p tax, so Borg’s party paid an political price for helping the rich. ‘If you are going to survive that politically, it is very important to cut taxes on low-income earners.’ He focused the tax credit on the low-paid, giving some the equivalent of a month’s extra salary every year. But there was still resentment. ‘We lost a lot of voters when we cut the property and the wealth tax, I don’t make any excuse for that. It was a severe blow to our support.’

This is the only time in the interview when Borg speaks like the politician he claims not to be. ‘When I look at other politicians I tend to see myself more as an economist,’ he says. This is true in that he is appointed, not elected, and was chief economist for SEB bank. But before this, he was a young libertarian longing to turn the world upside-down. Internet footage still exists of a denim-clad Borg declaring on television that if he was prime minister he ‘wouldn’t do a damn thing, so the people could do whatever they want’. When he later became a prime ministerial adviser, he caused a stir when it emerged that a government staffer backed drug legalisation.

When Fredrik Reinfeldt became party leader in 2003, he made Borg his right-hand man. It seemed a gamble at the time, but his faith in Borg’s expertise was absolute — Borg’s views had moderated, but his sense of urgency had not. ‘We came into government in October 2006 and we launched tax cuts in January 2007,’ he says, ‘so the first three months were extremely hectic.’ The Conservatives’ slogan was striking: ‘We are the new workers’ party.’ Tax rates would be cut for workers, and welfare cut to pay for it. High welfare levels, he says, can inflict cruelty in the name of compassion. ‘People emigrate from the labour market. Unemployment traps capture a lot of people in social exclusion.’ Tax cuts are not spoken of as an ideological aim, but as a tool to cut unemployment and advance social justice.

What even Borg did not expect was that his tax cut for the low-paid would increase economic growth so much that it has almost entirely paid for itself. Borg had created something that Osborne’s critics say does not exist: a self-financing tax cut. ‘There was some criticism at the time that we were borrowing to finance tax cuts,’ he says. But Sweden could do it, because it was expecting to return to surplus soon; Britain has no such luxury, he says. His main advice to Osborne is: ‘Keep on dealing with the deficit, because deficits destroy everything else.’

Borg and Osborne have a good relationship, as do David Cameron and Reinfeldt (who keep in touch via text message). All are men in their early forties, who pick fights with the old guard of their parties to flaunt their ‘modernising’ credentials. But politics in Britain and Sweden are as different now as they were in the 1980s, except the roles are reversed. Sweden is the unlikely champion of supply-side economics, with ideas too radical for Brits. There is cross-party support in Sweden for profit-seeking state schools, which Michael Gove won’t attempt. Borg’s tax-cutting policy was accompanied by a 268-page book explaining the dynamic link between lower taxes and more jobs. Such a document would be unthinkable from HM Treasury.
Sound economics is simply a far larger part of the government mission in Sweden than in Britain. Cameron once observed that no one ‘gets up in the morning thinking “I wish the state was smaller”,’ which is perhaps true in Whitehall. But not in Stockholm where, on Reinfeldt’s 45th birthday, Borg presented him with a graph showing Sweden’s tax-to-GDP ratio dipping under the 45 per cent mark for the first time in decades. That is still, of course, one of the highest rates in the world.

In public, Borg is not in the least triumphalist — if anything, he’s trying to stir up a bit of pessimism. Success has meant he now has to manage expectations, and Borg has taken to warning in his speeches that ‘a future economic crisis is as much a certainty in life as death and taxes’. He could add another certainty: that high taxes will slow down any economic recovery, and fortune tends to favour politicians who do something about that.

The Spectator, 22 Old Queen Street, London, SW1H 9HP. All Articles and Content Copyright ©2012 by The Spectator (1828) Ltd. All Rights Reserved

[Crafty_Dog]

"In a general sense, all contributions imposed by the government upon individuals for the service of the state, are called taxes, by whatever name they may be known, whether by the name of tribute, tythe, tallage, impost, duty, gabel, custom, subsidy, aid, supply, excise, or other name." --Joseph Story, Commentaries on the Constitution, 1833

[Crafty_Dog]

By HENRY I. MILLER
Much of the political conversation in Washington these days concerns innovation, job creation and competitiveness. But talk is cheap, and elected officials must enact policies that enhance economic activity and job creation. The medical device industry is an example of Washington doing exactly the opposite.

Medical device manufacturing is one of the nation's most dynamic and vibrant industries. The United States is the global leader in medical technology innovation, and it is one of the few major industries with a net trade surplus. This industry is responsible for more than 400,000 American jobs—and is indirectly responsible for almost two million more that supply and support this highly skilled workforce. Most important, its products are essential elements of modern medical care. They include everything from CT scanners and pacemakers to blood pressure cuffs and robots used by surgeons.

Yet instead of protecting this paragon of American ingenuity and innovation, the Obama administration and Congress have viewed the industry as a cash cow from which they could milk profits to help pay for the president's health law. So they added to the Affordable Care Act a 2.3% excise tax on medical devices that will take effect at the beginning of 2013.

This tax is especially pernicious because it is assessed on sales, not profits. To put this in perspective, imagine that you've manufactured medical devices and had sales of $1 million, after all your costs and expenses—everything from materials and labor to research and development—your profit was $100,000. The excise tax would be $23,000, wiping out almost 25% of your profits.

Many medical device companies have to ramp up sales before they become profitable. Due to the long, draconian and sometimes unpredictable regulatory process that must be negotiated before a product can be sold, it can take from $70 million to $100 million in total sales before these businesses make their first cent of profits. Nevertheless, they would have to pay the excise tax on their revenue.

The nation's medical device industry is vulnerable. It is not comprised of behemoths: 80% of its companies have 50 or fewer employees, the very businesses we are relying on to turn the U.S. economy around. The new excise tax comes when regulatory delays and uncertainty are increasing, and as many device firms are shutting down or moving abroad to take advantage of the more favorable tax and regulatory climate in Europe. The tax will force companies to lay off employees, cut back on research and development, or diminish capital investment.

The governors of five prominent states—Tom Corbett of Pennsylvania, Mitch Daniels of Indiana, Nikki Haley of South Carolina, Robert McDonnell of Virginia and Scott Walker of Wisconsin—agree. "As governors of states with a significant concentration of medical technology manufacturers, we believe that this tax could harm U.S. global competitiveness, stunt medical innovation and result in the loss of tens of thousands of good-paying jobs," they wrote in an April 30 letter to congressional leaders.

Anticipating the excise tax, several companies already have announced layoffs or withheld investments. Recent surveys show that medical technology executives are examining a host of other undesirable options, including passing along the added costs through price increases. Even if the market would tolerate that—which is surely questionable given the current pressure to drive down costs—it would, ironically, raise the costs of medical care. That was not supposed to be an outcome of ObamaCare.

The U.S. remains the global leader in medical device development and manufacturing, although reports from PricewaterhouseCoopers and others show that its lead is tenuous, in part due to regulatory uncertainties and dysfunction that thwart innovation. If we allow foreign competition to seize the lead, it will be difficult to regain.

We need to create a more nurturing entrepreneurial climate, one in which ingenuity and innovation are rewarded, not penalized. Legislation has been introduced in both the House and Senate to repeal the medical device excise tax. That would be a good start.

Dr. Miller, a physician and molecular biologist, is a fellow at Stanford University's Hoover Institution and a fellow at the Competitive Enterprise Institute. He was the founding director of the FDA's Office of Biotechnology.

[Crafty_Dog]

"There is no part of the administration of government that requires extensive information and a thorough knowledge of the principles of political economy, so much as the business of taxation. The man who understands those principles best will be least likely to resort to oppressive expedients, or sacrifice any particular class of citizens to the procurement of revenue. It might be demonstrated that the most productive system of finance will always be the least burdensome."

--Alexander Hamilton: Federalist No. 35

[DougMacG]

This quote is too good to just leave over on the health thread:

"I noticed that taxes do play a role in persuading people to quit.  Demand is elastic; as the price goes up, less people smoke or they smoke fewer per day. "  - JDN

JDN (or whoever stole his sign-in ID this week) refers to smoking, yet smoking is perhaps the least elastic product with a physical addiction component and still has proven price elasticity. 

Paraphrasing for something with far greater elasticity:

Taxes play a role on investors and job creators, persuading them to quit

Imagine the elasticity of someone who owns hotels to not build another hotel if the tax (and regulatory climate) is perceived as hostile. What is the elasticity of GE or 3M to not build its next facility in America or to not build it at all when threatened with higher taxes of just a failure to lower them to keep up with OECD competitor nations.  The answer is nearly 100% elasticity at some range on the curve.  There is an amount of tax or threatened future tax that will cause them to delay an investment or not make it at all, an investment or plant or facility construction project or other employment expansion they otherwise would have made.  Delayed investment is lost business in an economic sense and the effect spills over to employees, customers, suppliers and supporting businesses.

There is an old American proverb, if it doesn't move, and it should, use WD40. If it moves and it shouldn't, use duct tape.  High tax rates (and excessive regulations) are the duct tape of the economy.

[JDN]

Who was that poser over on the health thread?   

Demand is elastic, HOWEVER it's not a straight line.  For example, using my cigars as an example (non physically addicting) if prices went up 2% I doubt if if would have any effect on my smoking habits.  However, if taxes increased significantly (as CA is proposing to do for tobacco) I may consider cutting back although I buy out of state (that is another discussion for another day; is that fair?).  Further, if taxes went out the window, I might consider quitting or saving a cigar for a special day.  The same, IMHO can be said about taxes.  If we raise taxes on the "rich" 2.00% I truly doubt it will have much effect.  Raise them 10% and it will have an effect.  Raise taxes to 75% it will have a great effect.  But even raising taxes to 90% will not totally dissuade some entrepreneurs.  Like me who would pay whatever for the very occasional cigar, they are driven to create. 

Anyway, we agree that it is elastic.  We disagree on the curve.  I contend that a minimal tax rate increase will have a minimal impact if any on new investment.  But I concede, 2.00% this year, 2.00% next, eventually it becomes real money, eventually it will have an impact on new investment.  But IMHO we are not there.

On another subject, bureaucracy, Doug, you are in the real estate investment business.  I don't know about MN, but in CA there are so many hoops you must jump through, not to mention jump at the right time, have everything in line and I mean everything, or simply your permit is denied.  Now I'm all for safety in construction, but sometimes government is simply ridiculous.  No common sense.

Speaking of, let my give you an example.  Someone owes me a few thousand.  It's the principle and the money, so I decided to to do a wage garnishment.  I went to the Sheriff's Office downtown since I was already in the courthouse for other business.  I wait in line, get to the front, and they said my form was wrong (it was the form provided by the court on the internet).  Ok, I get out of line, redo the form and wait again.  I get to the front, and they say ok, it looks good, but I need 4 copies.  Huh?  Their form, they gave me one, and so now I get out of line, go downstairs and pay $.50 a copy (I think the snack bar guy with the photo machine is in cahoots) and go back into line.  Finally, they accept my forms and my $30.00.  I wait. It should be posted on their web sit in 2-3 days.  I wait, and I wait, 3 weeks later, I call again.  After repeated calls (they simply don't answer their phone) I got someone.  "Oh, we are way behind, call back in another two weeks"  Ok, I wait some more.  Then I call back and get upset.  Finally a Supervisor admits they have lost my forms.  I'm suppose to go back downtown and file again (frankly reporting a Writ lost is a pain).  We negotiate and they finally agree to accept a fax of the original.  Finally 6 weeks later, service was done.  My point of this long story is that for an additional (only because I still have to pay the Sheriff's Office for not doing their job) $40.00 (recoverable) I could have had a private process server do it; I know them well, they would have done it in 2-3 days.  They are polite, efficient, and profit motivated.  I wish the government would be run like a business........  I'm exhausted dealing with the government; it shouldn't be that way. 

[Crafty_Dog]

"But I concede, 2.00% this year, 2.00% next, eventually it becomes real money, eventually it will have an impact on new investment.  But IMHO we are not there."

A couple of questions present themselves here.

What IS the current rate?  Federal?  State? Municipal?  What other taxes are there?  FICA?  Obamacare?  (not to mention Capital Gains) If we add them up, what is the total?  (Of course the answer will vary from state to state)

And in your opinion, what IS the rate at which new investment is discouraged? 

And, what is the basis for that opinion?

[DougMacG]

"Anyway, we agree that it is elastic.  We disagree on the curve.  I contend that a minimal tax rate increase will have a minimal impact if any on new investment.  But I concede, 2.00% this year, 2.00% next, eventually it becomes real money, eventually it will have an impact on new investment.  But IMHO we are not there."

Crafty already got on this point with some great questions.  I would just point out that in the context of Calif, they already are rated worst perhaps for business climate, obviously they compensate for some of that with their positive qualities, but every 2% added to every tax rate that is already too high just makes the decision to invest elsewhere or not at all easier.

For the US Corporate tax rate, same thing.  We are already worst.  link below.  Staying the same makes us uncompetitive.  Raising it 2% would be just stupid.

Using round numbers for Calif or MN, if the top individual tax rate is 10%, a 2% increase takes it to 10.2% not 12%.  Let's get our math straight.  Don't tell me that a 20% or 40% increase on rates that are already the worst will not cause economic carnage.  It most certainly will.
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China lowered it's corporate rate in Jan 2008 that was already lower than ours, coincidentally they largely avoided the financial collapse while the USA was transitioning from a Pelosi-Reid congress with Obama in the majority committed to raising the top individual tax rates to a government where that philosophy would control all branches of government.  Then we act so shocked when the asset selloff exploded just months before the tax rate changes - that didn't even happen.  The fact that "communist" countries have lower tax rates in the first place should be our first clue of the problem.
------------------

I searched and found this in Reuters, but this story, like the cuts in China in 2008 certainly went by the American press without much notice.  How stupid and dysfunctional can we be to not know that have the highest rates of quadruple taxation in the world does NOT yield greater revenues - as we hit our what, 4th year in a row of trillion dollar deficits.  How are those high rates to punish big businesses for doing big business working out for us??  This was delayed one year by the earthquake.  We have had a long time to know it was coming.

http://www.reuters.com/article/2012/03/30/usa-tax-japan-idUSL2E8EU5VV20120330

US displacing Japan as No 1 for highest corp taxes         MARCH 30, 2012


* Japan's corporate tax rate dropping to 38.01 pct on Sunday

* Combined U.S. 39.2 pct rate will be developed world's highest

By Patrick Temple-West and Kim Dixon

WASHINGTON, March 30 (Reuters) - The United States will hold the dubious distinction starting on Sunday of having the developed world's highest corporate tax rate after Japan's drops to 38.01 percent, setting the stage for much political posturing but probably little tax reform.

Japan and the United States have been tied for the top combined, statutory corporate rate, with levies of 39.5 percent and 39.2 percent, respectively. These rates include central government, regional and local taxes.

Japan's reduction , prompted by years of pressure from Japanese politicians hoping to spur economic growth, will give that country the world's second-highest rate.

This has triggered complaints from U.S. politicians and business groups.

"This isn't an April Fool's Day joke," said Senator Orrin Hatch, the leading Republican on the Senate Finance Committee.

"Every industrialized country around the globe understands that tax rates can determine whether or not businesses succeed or fail," Hatch said in a statement.

Across most of the political spectrum there is broad agreement that the U.S. corporate tax rate is too high, though few corporations actually pay that rate because the loophole-riddled tax code gives them lower "effective" rates.

Republicans and Democrats agree that the tax code needs work. It has not been thoroughly overhauled in 25 years.

In February, President Barack Obama proposed a corporate tax reform blueprint that included a 28 percent top rate.

Republican presidential hopeful Mitt Romney has said he wants to cut the corporate rate to 25 percent.

COMPETITIVE EDGE

The average 2012 corporate tax rate for the 34 developed countries is 25.4 percent, according to the Organization for Economic Co-operation and Development.

"As countries such as Canada and the United Kingdom have moved to reform their tax systems and lower rates to encourage economic growth, America's inaction puts American worldwide companies at a competitive disadvantage and threatens our economic recovery," said Bruce Josten, an official at the U.S. Chamber of Commerce.

Some U.S. companies pay close to the 35 percent top corporate tax rate; some pay nowhere near that, thanks to tax breaks that let them lower their "effective" tax rates.

Of the 30 companies in the Dow Jones industrial average, 19 told shareholders their effective rate for their 2011 fiscal years, mostly ending Dec. 31, was below Obama's proposed new tax rate, according to a Reuters analysis of securities filings.

Of these companies, three - telecom company AT&T, Bank of America, and insurance company Travelers - posted a tax gain.

For the index's other 27 companies, effective rates reported ranged from 2.7 percent for telecom giant Verizon Communications to 43.3 percent for energy group Chevron Corp.

These figures are taxes for shareholder accounting but not necessarily what was paid last year because Congress lets companies defer parts of their income tax for future years.

[Crafty_Dog]

I second the point about corporate tax rates and amend the questions in my post to include it.

I second the point about double taxation too and amend my questions to include it.

[JDN]

"He (Obama) hasn't raised other important issues of tax fairness, such as this one: How is it that two people with roughly the same income can wind up paying very different amounts in taxes?

The answer lies in our colossal and complex federal tax code, which is filled with deductions, exclusions, credits and other "tax expenditures." These amount to back-door spending by the government, and they create huge inequities even as they drain the nation's treasury. What's needed is comprehensive tax reform that eliminates many of these deductions, or at least restructures them in ways that make common sense."

I think the author makes some excellent points in his commentary.  "Deductions, exclusions, credits...." have always been my complaint. 

http://www.latimes.com/news/opinion/commentary/la-oe-walker-obama-romney-fiscal-reform-20120523,0,1078158.story

[DougMacG]

" "Deductions, exclusions, credits...." have always been my complaint.  "

Deductions, exclusions, credits keep getting put in there because the rates are too high and the high rates are known to kill off businesses and investment- if not for the targeted mercy of our gift horse elected officials help9ing key constituencies.  That is the point behind across the board rate cuts; they alleviate the need for all the loopholes.  Eliminating real loopholes and lowering the tax rates correspondingly is something we all should be able to agree on.  The Huntsman Plan. http://www.boston.com/Boston/politicalintelligence/2011/08/huntsman-unveils-economic-plan/EaG9972xXVpV487E3dsENN/index.html

Targeted alleviation of tax burden is unequal treatment under the law.  There ought to be a constitutional amendment against it.

Keep in mind though that deducting normal business costs is how you accurately calculate income, such as the cost of a pharmaceutical company's research or an oil company's cost of drilling both producing and non-producing wells.  These are not loopholes no matter how often or loudly one demagogues them.  Eliminate the deductibility of legitimate business expenses and the job creating investment and production in those industries will dry up.

ROI.  Investors look at return on investment.  It is not what you send to the government, it was you keep after all that.  The Man from Marx calls it 'maximizing profits" - with an evil sound to it.  More simply, investors look for a return.  If the return is not there or not sufficient, they invest elsewhere or not at all.

Uncertainty is worse.  It prevents an accurate calculation from being made and acts to delay investment/expansion decisions, which means job growth lost.

If we had a coherent set of governing principles, then policy changes from day to day and year to year would only be minor adjustments to current policy, keeping uncertainty within a very narrow range.  That is not the case today.  Instead we are arguing today over whether we even want a free enterprise based system at all.

[DougMacG]

It's hard to believer that we have a special Obama sin tax on the manufacturing and sale of life saving medical devices in the United States.    This is my congressmen, Erik Paulsen R-MN, authoring the repeal and delivering the GOP response address this weekend.

http://www.youtube.com/watch?v=Lq9oYeAW5zs

[Crafty_Dog]

http://www.dickmorris.com/obamas-coming-taxes-dick-morris-tv-lunch-alert/

[Crafty_Dog]

"An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." --John Marshall
Government
 
Taxmageddon is coming
"[Friday's] jobs report is a broken record, with the unemployment rate stuck at 8.2 percent. The Department of Labor reports that only 80,000 jobs were added in June -- consistent with other data revealing the economy has downshifted from slow to slower. ... In 2009, the President promised that his 'recovery plan' composed almost entirely of government spending was the only way to stave off rising unemployment. The White House even drafted a chart showing projected unemployment with the economic stimulus plan and without it -- to scare lawmakers into voting for it. According to their projections, by now, unemployment should be at 5.5 percent. ... [E]mployers aren't hiring because they are suffering from prolonged uncertainty, as economists readily admit. ... That uncertainty ... stems primarily from America's date with Taxmageddon on January 1, 2013. The largest tax increase in U.S. history -- $494 billion in one year -- will hit on that day, as a host of tax cuts expire and new tax hikes (including some of Obamacare's new taxes) take effect. Taxmageddon falls primarily on middle- and low-income Americans. Heritage research shows that families will see an average tax increase of $4,138. Visit the new Taxmageddon page to see the impact of these tax hikes on individuals. ... The President should be leading the country in the opposite direction -- giving employers and individuals the assurance that these tax hikes will be prevented. Instead, in his 2013 budget submission, the President called for $2 trillion in tax increases, and he has showed no signs of saving Americans from Taxmageddon. ... The longer Congress waits to prevent Taxmageddon, the more uncertainty there will be for workers and businesses. This is an element of the economy that is actually in the complete control of American policymakers. They should act quickly to increase certainty and stability at a time when the economy greatly needs it." --Heritage Foundation's Amy Payne

[Crafty_Dog]

Obama V. Clinton On Taxes
By DICK MORRIS
Published on DickMorris.com on July 10, 2012

President Obama is trying to re-write history when he says that his tax program is the same as Bill Clinton supported "when 23 million jobs were created."
     
It's not that way at all. Clinton's 1993 increase of personal income taxes on the top bracket to 39.6% had a very negative effect on the economy.   It was only after Clinton's 1997 cut the capital gains tax - the opposite of what Obama proposes - that job growth really piled up.
 
When Clinton took office he did all the wrong things. He raised taxes sharply, hiking the top bracket from 35% to 39.6% and raised taxes on gasoline.  The result was that the economy, which had been recovering, staggered.  GDP growth dropped to 0.7% in Clinton's first quarter (down from 4.3% in Bush's last quarter) and stayed around 2% for the rest of 1993.   Personal income rose 6.3% in 1992 under Bush but slowed to 4.1% under Clinton in 1993.
 
The tax increases Clinton passed failed to generate the revenue he had expected.  The tax paradox set in.  Martin Feldstein, former Chairman of the Council of Economic Advisors, summed it up in his Wall Street Journal article, "What the '93 Tax Increase Really Did," published on October 26, 1995.  He said taxpayers reduced their incomes when they saw the tax hikes coming.  Feldstein writes that "the Treasury lost two-thirds of the extra revenue that would have been collected if taxpayers had not changed their behavior."  Because of Clinton's tax hikes, real personal income fell by $25 billion.  High income taxpayers, facing the prospect of a tax increase reported 8.5% less taxable income in 1993 than they would have if their tax rates had not changed.  The tax paradox!
       
Then Clinton got wiped out in the Congressional elections of 1994, losing control of the Senate and the House - the first time the Republicans had run the House in forty years!
 
Clinton suddenly saw the error of his ways and began to hold down spending and push for a tax cut.  In 1997, he and the Republican Congress combined to cut capital gains taxes from 28% (the rate to which Bush had increased it) to 20%.  The result was electrifying!  Real wage growth was 6.5% in the four years after the tax cut compared to minuscule wage growth of 0.8% over the four years after Clinton's tax increase!
 
And the tax paradox was again evident: lower rates produced higher revenues!  In 1996, the year before the capital gains cut, the tax collected revenues of only $66 billion.  In the four years after the cut, they averaged $100 billion a year.  But, what was more important was the surge in economic activity that the capital gains tax cut generated.  In 1996, before the tax cut, there were $261 billion in capital gains in America.  In the three years after the cut, capital gains rose to an average of $440 billion.  The increased tax collections and the greater economic activity were such that they pushed the budget into a surplus for the first time since the 1950s.
 
These facts may be "inconvenient truths" for Obama to face but they are the facts!

[Crafty_Dog]

Patriot Post
http://patriotpost.us/editions/14084/#post-comment

Chronicle • July 11, 2012
The Foundation
"Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands." --Thomas Jefferson
Editorial Exegesis
 
"So the 2013 tax cliff is a big enough economic problem that President Obama now wants to postpone it for some taxpayers. But it isn't so big that he's willing to curb his desire to raise taxes on tens of thousands of job-creating businesses. That's the essence of Mr. Obama's announcement Monday that he wants Congress to extend current tax rates for a year, but only for those making less than $200,000 a year. This is a political gambit designed to protect Democrats who are starting to feel queasy about opposing GOP plans to extend all of the Bush rates as the economy weakens again. ... If the Bush tax rates expire as scheduled on December 31, rates on the top two income brackets will jump to 39.6% from 35%, and 36% from 33%. Add the scheduled return of income phaseouts for exemptions and deductions, and the rates go up another two-percentage points -- to at least 41% and 35%. Mr. Obama claims this will merely return rates to what 'we were paying under Bill Clinton,' but that's not true either. It ignores his ObamaCare tax increase of 0.9% on top of the current 2.9% Medicare tax, plus a new 2.9% surcharge on investment income, including interest income. That's an additional 3.8% surcharge on investment income, and added to the Bush expirations would take the capital gains rate to 23.8% from 15% today, and the dividend tax rate to about 45% from 15%. ... Congress's Joint Tax Committee -- not a conservative outfit -- estimates that in 2013 about 940,000 taxpayers will have enough business income to meet Mr. Obama's tax increase threshold. And of the roughly $1.3 trillion in net business income, about 53% will get hit with the higher tax rates. This is because millions of businesses report their income as sole proprietors and subchapter S corporations that file under the individual tax code. So Mr. Obama wants these businesses to pay higher tax rates than the giant likes of General Electric or J.P. Morgan. Does that qualify as 'tax fairness'? ... Republicans can win this debate by stressing growth over fairness and jobs over income redistribution." --The Wall Street Journal

[Crafty_Dog]

"As far back as the 1920s, a huge cut in the highest income tax rate -- from 73 percent to 24 percent -- led to a huge increase in the amount of tax revenue collected by the federal government. Why? Because investors took their money out of tax shelters, where they were earning very modest rates of return, and put their money into the productive economy, where they could earn higher rates of return, now that those returns were not so heavily taxed. This was the very reason why tax rates were cut in the first place -- to get more revenue for the federal government. ... Yet the invincible lie continues to this day that those who oppose high tax rates on high incomes are doing so because they want to reduce the taxes paid by high income earners, in hopes that their increased prosperity will 'trickle down' to others. ... When [Barack Obama] was a candidate for president back in 2008, Charles Gibson of ABC News confronted him with the fact that there was no automatic correlation between the raising and lowering of tax rates and whether tax revenues moved up or down. Obama admitted that. But he said that he was for raising tax rates on higher income earners anyway, in the name of 'fairness.' ... The point here is that Obama knew then that tax rates and tax revenues do not automatically move in the same direction. In other words, he is lying when he talks as if tax rates and tax revenues move together." --economist Thomas Sowell

[Crafty_Dog]

Though some conceptual issues are presented in the following-- leading to its numbers being inherently murky, its essential point strikes as both sound and profound.
================

THURSDAY, JULY 05, 2012
The Real-World Middle Class Tax Rate: 75%
If we include all taxes, the real-world tax rate is much higher than the "official" income tax rate.

For those Americans earning between $34,500 and $106,000, the real-world middle class tax burden in high-tax locales is 15% + 25% + 5% + 15% + 15% = 75%. Yes, 75%.
Before you start listing the innumerable caveats and quibbles raised by any discussion of taxes, please hear me out first. Let's start by defining "taxes" as any fee that is mandated by law or legal necessity. In other words, taxes are what is not optional.

If we include all taxes, the real-world tax rate is much higher than the "official" income tax rate. These "other taxes" vary from nation to nation. France, for example, has a "television tax." It is mandatory, and since virtually every household has a TV this operates as a universal tax. The argument that this is "optional" is specious.

In every other advanced democracy, basic universal healthcare is paid by tax revenues. In the U.S., healthcare insurance is "optional" but this too is specious: in the real world, private healthcare insurance is mandatory because the alternative--having zero insurance--places your entire net worth and income at risk of catastrophic loss.

Having no healthcare insurance only makes sense if you have no real assets and a low income. At that point, your care will be provided by the taxpayer-funded Medicaid program, which is the default universal-care program in the U.S.

For this reason I consider the cost of private healthcare insurance in the U.S. the equivalent of a tax. We pay over $12,000 annually for barebones healthcare insurance, which amounts to about 15% of our gross income. Some countries pay for healthcare with a 15% tax, here we pay the 15% directly. There is no difference except the process of collecting the 15%. (The only real difference is that healthcare costs twice as much per person in the U.S. because the system is operated by cartels whose business model is fraud, opaque pricing and the elimination of competition via Central State regulation.)

Yes, the super-wealthy can absorb a $150,000 hospital bill, but the 99.9% cannot. Thus any claim that healthcare insurance is "optional" is specious.

Property tax is mandatory. Some countries have no property tax, others do. Once again, only counting social-insurance and income taxes as the "official tax rate" is horrendously misleading. For countries without property taxes, the revenues are collected as value-added taxes (VAT) or higher income taxes. One way or another, the services paid by property taxes in the U.S. are paid by other tax schemes in countries without property taxes. So property taxes must be included in any accounting of total taxes paid.

Many of us who reside in states such as Illinois, New York, New Jersey and California pay $12,000 or more annually in property taxes. That is about 15% of our household income.

Renters pay the property taxes indirectly, but to the degree that rents would be lower if property taxes were eliminated and the tax burden shifted to a VAT, then renters "pay" the tax just like property owners.

Employees looking at the paycheck stubs do not see the entire tax paid on their labor. Empoyees may wonder why their net pay has stagnated for decades. One reason is that the total compensation costs of employees has risen substantially.

To give but one example of many, Social Security taxes were once modest, 3% paid by the employee and 3% paid by the employer for a total of 6% of the wage. Now the total for Social Security (12.4%) and Medicare (2.9%) is 15.3%. Self-employed people pay the total 15.3% as "self-employment tax." This is the real-world tax burden of Social Security and Medicare.
The 15.3% Social Security/Medicare tax starts with dollar one of net income. The Social Security tax goes away above around $106,000 in income, the Medicare tax does not.

Most employees do not know how much healthcare insurance "tax" is paid by their employer. To the degree that wages would rise if the healthcare "tax" was not paid by employers, then employees pay for this "tax" indirectly. To act like it isn't a mandatory part of compensation costs is both specious and misleading.

The only transparent way to calculate the total tax burden is to count all taxes (or equivalent) paid by self-employed property owners. Not counting the indirect taxes of healthcare and property taxes is misleading to the point of blatant misrepresentation.
The basic Federal income tax gives each individual earner $9,500 in standard deductions and exemptions. The tax rate for all income above that is:
$1 to $8,500: 10%
$8,501 to $34,500: 15%
$34,501 to $83,600: 25%
$83,601 to $174,400: 28%
$174,401 to $379,150: 33%
Above $379,151: 35%

These rates are scheduled to rise at the end of 2012 unless Congress acts to maintain rates at current levels.

Many households have gigantic interest deductions stemming from gigantic mortgages, but let's set aside outsized debt-based tax deductions as far from universal.

Above a rather modest $34,600 in taxable income and up to around $106,000, the real-world middle class tax burden in high-tax American locales is 75%:
Social Security and Medicare: 15.3%
Federal income tax: 25% (28% above $83,600)
State income tax: 5% (mid-range)
Healthcare insurance: 15%
Property tax: 15%
15% + 25% + 5% + 15% + 15% = 75%

Clearly, the percentage of income devoted to healthcare insurance and property taxes declines as income rises. Someone earning $200,000 has not only dropped the 12.4% Social Security tax for income above $106,000, healthcare insurance and property taxes as a percentage of their income drops from about 30% for those earning around $86,000 to 15%.

We can argue fruitlessly about how many tax angels can dance on the head of a pin, but all the caveats and quibbles don't change the basic fact that real-world tax rate for the "middle class" earning more than $34,500 in taxable income in high-tax locales is a confiscatory 75%.

Please don't tell me the U.S. is a "low-tax" nation; I might suffer a breakdown that I couldn't afford due to exclusions in my "voluntary" healthcare coverage.

[Crafty_Dog]

http://www.dickmorris.com/obama-fudges-clinton-tax-record-dick-morris-tv-lunch-alert/?utm_source=dmreports&utm_medium=dmreports&utm_campaign=dmreports

[DougMacG]

Tax something, get less of it.  Putting an extra excise tax on medical devices as if saving lives needs a sin tax is unbelievably stupid and counter-productive.

“In anticipation of the tax, some manufacturers (of medical devices) have announced plans to lay off workers or reorganize operations.”    - Robert Pear, reporter for The New York Times.

http://www.nytimes.com/2012/06/08/us/politics/bill-to-repeal-tax-on-medical-devices-clears-house.html

The Obamacare excise tax adds insult to injury for any remaining US Device manufacturers:

“The device industry is leaving. According to a summer 2011 survey by the National Venture Capital Association, in the next three years, 85 percent of venture-backed health-care companies expect to seek regulatory approval for their new products outside the U.S. first.”  - WSJ
-------------------

Another idea would be to let innovative Americans who build medical devices to save lives be successful and tax them at the same rate as everyone else!

Instead we watch to see if the manufacturers or the patients in need die first.

[DougMacG]

Raise taxes on employers and small businesses in a zero growth economy and you have a guaranteed recession, if all other factors are constant.

Senate Votes to Raise Taxes on Small Businesses

http://blog.heritage.org/2012/07/26/morning-bell-senate-votes-to-raise-taxes-on-small-businesses/?roi=echo3-12667655766-9251751-7fa21e7f52565d84305973172381cb07&utm_source=Newsletter&utm_medium=Email&utm_campaign=Morning%2BBell

Yesterday, the Senate narrowly voted (51-48) to raise taxes on 1.2 million small businesses, which will likely kill more than 700,000 jobs at a time when nearly 13 million Americans are out of work. Senators Joe Lieberman (I-CT) and Jim Webb (D-VA) joined all Republicans in bipartisan opposition to the tax hike.
---------

Raising taxes on "only the rich" polls well as a plurality of people still believe you can soak someone else and not yourself, your family, your neighbors in an  integratively interconnected economy.  It just doesn't happen to be true.  Labor requires capital and employment requires employers with enough funds to meet a payroll and profit incentives to drive economic growth.

The Senate is actually bluffing or positioning because they know they don't have the votes in the  House.

Two Dem Senators, Joe Lieberman and Jim Webb, crossed party lines.

[DougMacG]

Good data presented here by Ari Fleischer in the WSJ a few days ago taken from the latest CBO study.  The top 20% make 50% and pay 70% of federal taxes, while the middle quintile pays 9% of the burden and the lowest pay essentially nothing and receive the most back. The wealthy "haven't been asked to do their fair share"??  What a crock.

http://online.wsj.com/article/SB10000872396390444873204577537250318931044.html?mod=WSJ_Opinion_LEADTop

Ari Fleischer: The Latest News on Tax Fairness
A new Congressional Budget Office reports shows the share of taxes paid by the top 20% has gone up over the last 30 years, while the share of taxes paid by everyone else has gone down.

By ARI FLEISCHER

If fairness in paying taxes means the amount you pay is based on the amount you make, then the only group in America paying at least a "fair share" is the top 20%—people who make more than $74,000. For everyone else, the tax code is a bargain.

You wouldn't know this from President Obama's rhetoric, but our tax system, according to a recent report by the Congressional Budget Office (CBO), is incredibly progressive. Consider: The top 1% of income earners pay an average federal tax rate of 28.9%. (See the nearby table.) The average federal tax rate on the top 20% is 23.2%. The 20% of taxpayers earning between $50,100 and $73,999 pay an average 15.1%, and so on down the line. The CBO report includes payroll as well as income taxes paid.

There's also another way of looking at fairness, and that's the tax burden. Here, consider the top 20% of income earners (over $74,000). They make 50% of the nation's income but pay nearly 70% of all federal taxes.

The remaining 30% of the tax burden is borne by 80% of the taxpayers, those who make less than $74,000. In short, this group's share of taxes paid, 30%, is lower than the share of income they earn, 50%.

Yet President Obama says that "for some time now, when compared to the middle class," the wealthy "haven't been asked to do their fair share."

He's right that the system isn't fair, but not because the top 1% pay too little. It is because they pay too much.

Mr. Obama has said that some wealthy employers pay a lower tax rate than their secretaries. True, some are able to lower their effective federal tax rate by giving millions to charity. Or because they derive much of their income as capital gains or from tax-free municipal bonds.

But middle- and low-income Americans who do not invest also pay lower rates thanks to the deductions they receive, such as a $1,000 per child tax credit (which phases out for couples who make more than $110,000), or the Earned Income Tax Credit, which no one making more than $50,000 is supposed to receive.

The CBO report ("The Distribution of Household Income and Federal Taxes, 2008 and 2009") covers the years 1979-2009. It makes plain that the impression conveyed by the president about what upper-income Americans pay in taxes does not hold up to scrutiny.

First of all, the share of taxes paid by the top 20% has gone up over the last 30 years, while the share of taxes paid by everyone else has gone down. It has gone up despite the tax cuts enacted by President Clinton in 1997 and by President Bush in 2001 and 2003. But that makes no difference to the president. The only group of taxpayers he calls on to "sacrifice" are those already doing all the tax sacrificing.

The top 20% in 1979 made 44.9% of the nation's income and paid 55.3% of all federal taxes. Thirty years later, the top 20% made 50.8% of the nation's income and their share of federal taxes paid had jumped to 67.9%.

And the top 1%? In 1979, this group earned 8.9% of the nation's income and paid 14.2% of all federal taxes. In 2009, they earned 13.4% of the nation's income but their share of the federal tax burden rose to 22.3%.

Meanwhile, the federal tax burden on middle- and lower-income earners is lighter. In 1979, the bottom 20% paid barely any taxes at all, just 2.1%. Now their share of taxes is a minuscule 0.3%. The burden on the middle-income earners ($34,900 to $50,100) has dropped too. In 1979, they paid 13.6% of all federal taxes; in 2009 they paid 9.4%.

One reason our country is so divided is because the president keeps dividing us. If taxes need to be raised to fight a war or fund a cause, the president should ask everyone to pitch in. If the need is national, the solution should be national—and that includes all of us.

But that's not how Mr. Obama governs. We learned during the 2008 campaign that he believes in spreading the wealth around. And recently we learned he doesn't believe that successful people made it on their own. Without the government, the president tells us, job creators and entrepreneurs would not be able to make it in America.

It's really the other way around. Without job creators and the successful, the government wouldn't have any money. So next time Mr. Obama meets someone in the top 1% or even the top 20%, instead of saying they're not paying their fair share, he should simply say thank you.

[DougMacG]

Received in the email:

Tax his land,
Tax his bed,
Tax the table,
At which he's fed.

Tax his tractor,
Tax his mule,
Teach him taxes
Are the rule.

Tax his work,
Tax his pay,
He works for
peanuts anyway!

Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.

Tax his ties,
Tax his shirt,
Tax his work,
Tax his dirt.

Tax his tobacco,
Tax his drink,
Tax him if he
Tries to think.

Tax his cigars,
Tax his beers,
If he cries
Tax his tears.

Tax his car,
Tax his gas,
Find other ways
To tax his ass.

Tax all he has
Then let him know
That you won't be done
Till he has no dough.

When he screams and hollers;
Then tax him some more,
Tax him till
He's good and sore.

Then tax his coffin,
Tax his grave,
Tax the sod in
Which he's laid...

Put these words
Upon his tomb,
'Taxes drove me
to my doom...'

When he's gone,
Do not relax,
Its time to apply
The inheritance tax.

Accounts Receivable Tax
Building Permit Tax
CDL license Tax
Cigarette Tax
Corporate Income Tax
Dog License Tax
Excise Taxes
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel Permit Tax
Gasoline Tax (currently 44.75 cents per gallon)
Gross Receipts Tax
Hunting License Tax
Inheritance Tax
Inventory Tax
IRS Interest Charges IRS Penalties (tax on top of tax)
Liquor Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Personal Property Tax
Property Tax
Real Estate Tax
Service Charge Tax
Social Security Tax
Road Usage Tax
Recreational Vehicle Tax
Sales Tax
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone Federal Excise Tax
Telephone Federal Universal Service Fee Tax
Telephone Federal, State and Local Surcharge Taxes
Telephone Minimum Usage Surcharge Tax
Telephone Recurring and Nonrecurring Charges Tax
Telephone State and Local Tax
Telephone Usage Charge Tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
Workers Compensation Tax

Not one of these taxes existed 100 years ago

[Crafty_Dog]

The Numbers Inside a Hot-Button Issue Amid the Debate About Whether and How to Reform the Tax Code, a Look at How the Picture Has Changed
By DAVID WESSELLike this columnist ..

President Barack Obama says someone has to pay more taxes if the U.S. is to tame its budget deficit and provide the government he thinks the nation needs. He proposes that the best-off Americans pay more. It's only fair, he says.

"There are a lot of wealthy, successful Americans who agree with me because they want to give something back," he said in a speech in Roanoke, Va., that set off dueling campaign ads. "Look, if you've been successful, you didn't get there on your own."

His Republican opponent, Mitt Romney, counters that the deficit can be reduced without raising taxes if Washington is tough on spending. He thinks raising taxes on the best-off would be unwise and unfair. "President Obama attacks success, and therefore under President Obama we have less success," he said.

Enlarge Image

Close.The contrasting comments underscore philosophical differences over the roles of the individual and society. But the most tangible disagreement is on taxing the rich.

"Who's right: Obama or Romney? Both. Or neither," says Joseph Thorndike, a tax historian. "When it comes to taxing the rich, there is no single, objectively correct answer. You can talk all you want about asking rich people to pay 'their fair' share,' but don't kid yourself. You're just trying to turn private opinions into public policy."

"I'm struck" he adds, "how the facts can be used selectively by either side."

Academic tomes have been written about revamping the tax code so it finances the government while doing less damage to economic growth. But, countless congressional hearings later, the U.S. is no closer to a consensus on "fair share" than when the income tax was born 100 years ago.

The top marginal income-tax rate, the most visible metric, has gone from 7% in 1913 to 92% in the 1950s to 28% with the Tax Reform Act of 1986 to 39.6% in the Clinton years to today's 35%. Mr. Obama wants to raise that; Mr. Romney wants to cut it while eliminating loopholes and deductions to make up the lost revenue.

Over the past three decades, Americans—including most of the rich—have paid less of their incomes to Washington. Top earners have received more of the income and paid more of the taxes; a growing number at the bottom have paid less or, in some cases, nothing.

Whether that is fair is a question of politics and values. Facts can inform the debate. Here are a few salient ones:

The top 5%, top 1% and top 0.1% of Americans have been getting a bigger slice of all the income and paying a growing share of federal taxes.

To measure the tax burden over time, Congressional Budget Office economists look beyond income-tax returns. They add federal income, payroll, excise and corporate taxes and calculate them as a percentage of income, broadly defined to include wages plus the value of government- and employer-provided benefits.

 .From Ronald Reagan to Barack Obama, the tax code has been tweaked and the economy has had its ups and downs, and the share of federal taxes paid by the top 5% and the top 1% has risen faster than their share of income:

In the 1980s, the top 5% averaged 22.6% of income and paid 28.5% of taxes.

In the 1990s, the top 5% averaged 25.3% of income and paid 34.3% of taxes

In the 2000s, the top 5% averaged 28.4% of the income and paid 40.3% of the taxes.

That doesn't mean that the best-off are living on less. The top 1% averaged income of $1,530,773 this year (up $174,083 from 2004, when the data series begins) and paid federal taxes of all sorts of $422,915 (up $20,704 from 2004), according to estimates by the Tax Policy Center, a number-crunching joint venture of the Brookings Institution and Urban Institute.

Average tax rates have come down for everyone. On average, the tax bite on the rich is bigger—except for those whose income mainly comes from capital gains and dividends.

Across the earnings spectrum, Americans' share of income that went to taxes fell in the 1980s, rose in the 1990s and fell again in the 2000s. This year, taxes and other receipts will cover only two-thirds of federal spending; the government will borrow the rest.

For those in the top 1%, whose incomes are more volatile than others, the average tax bite in 2007 was 28.9%, below the 1995 Clinton-era peak (35.3%) but higher than the 1986 Reagan-era trough (24.6%.)

Most Americans, though, have seen the share of their income that goes to taxes fall steadily. For earners in the middle, the tax bite eased from 18.9% in 1979 to 16.6% in 1999 to 14% in 2007 even before the recession and recession-fighting tax cuts.

Taxing Terms
Average tax rate: Percentage of the income of an individual or group that is paid in taxes
Capital gains: Profits from the sale of stock or other assets
Marginal tax rate: Tax on each additional dollar of income
Payroll tax: The 15.3% tax on wages, split between employer and employee, that helps finance Social Security and Medicare
.The rich do, on average, pay more of their income in taxes than the middle class. So do the super-rich—on average.

The annual Internal Revenue Service scorecard of the top 400 taxpayers—who reported average incomes of $200 million—showed they paid 19.9% of their adjusted gross income in federal income taxes in 2009, well above the rate paid by the middle class. Those with incomes between $100,000 and $200,000, for instance, paid about 12%. (The IRS tally for the top 400 counts only income reported on tax returns, and only income taxes. Neither the IRS nor CBO calculates figures for the 1% using the broader definitions of income and taxes.)

The fortunate 400, though, paid a lower rate than the not-quite-so-rich, those with incomes over $1.5 million. The main reason: More than 60% of the top 400's income was from dividends or capital gains in 2009, and those are taxed at a top rate of 15%, lower than many pay on wages.

The share of taxes paid by the bottom 40% of the population has been shrinking along with their share of income.

In 2007, the bottom 40% received 14.9% of the income (including the value of government benefits) and paid 5.9% of all federal taxes. In 1979, they had a bigger share (17.4%) of the income and paid more (9.5%) of the taxes.

 
David Wessel
.A growing number of Americans don't pay any income tax. They don't make enough or live on Social Security or are getting tax breaks targeted at low-wage workers.

In 2011, according to the Tax Policy Center, about 46% of households didn't pay any U.S. income taxes, a proportion swollen because so many have seen paychecks shrink or evaporate. But even in the better years of the mid-2000s, roughly 40% of households didn't pay any federal income tax.

Many did get hit by the payroll tax, which helps finance Social Security and Medicare. But about one-fifth of households didn't pay either federal income or payroll taxes; many did pay state and local taxes.

The tax system narrows the gap between economic winners and losers, but not enough to stop the gap from widening.

Because the tax code takes more from the top than from the bottom ("progressive," in tax jargon), it significantly reduces inequality.

Comparing income before and after taxes, CBO says the tax system cut the share of income going to the top 20% by about seven percentage points in 2007, most of that coming from the top 1%. Everyone else's share of income increased. But the market and social forces widening the inequality gap have been so strong, though, that after-tax inequality by CBO's measure still is higher than at any time in the past 30 years.

Over the past 30 years, the weight of federal taxes has shifted from the income tax to the payroll tax, which is less progressive. As a result, CBO says, "the extent to which taxes lessened the dispersion of household income" has been reduced. Academic analyses that zero in on the growing share of income going to the top 0.1% reinforce that.

So where does that leave the question of "fairness?" "It's not resolvable scientifically," says Mr. Thorndike, the historian. "It's only resolvable by a show of hands."

[Crafty_Dog]

Desperately Seeking Middle-Class Taxes

What Obama's critique of Ryan tells us about Obama's budget plans..


Democrats in Charlotte are pounding away at the savage budget cuts that Mitt Romney and Paul Ryan supposedly favor and their phantom plan for "raising taxes on the middle class," as President Obama puts it. The truth is the opposite, but table that for a moment. The President seems not to realize his critique is really a scorching if implicit indictment of his own time in office.
 
Think about his logic like this: Mr. Ryan's House budget details a long-range plan to equalize spending and tax revenues without—ahem—raising tax rates. But if such fiscal restraint is as deep and draconian as Mr. Obama claims, then as a matter of arithmetic the White House must favor a tax increase of an equal size, or something close to it, in order to pay for the amount of government he wants to sustain.
 

The nearby chart dramatizes this reality. It shows the accumulation of outstanding debt as a share of the economy in the modern era. This is debt held by the public—the kind the country has to pay back to bond investors, and not the IOUs that one part of the government owes to another part. These debt projections are highly speculative, and faster economic growth would do a great deal to mitigate them. But we offer them to help readers compare the Ryan and Obama budget visions.
 

For reference, the top line shows the Congressional Budget Office's "alternative fiscal scenario," which it considers the most realistic prediction if current tax and spending policies continue. In that model, debt grows two times as large as GDP by 2037 and the economy crashes. Not good.
 
Barely better is Mr. Obama's 2013 budget, which is the second line from the top. The White House purports to "stabilize" the deficit and therefore the debt boom over the next decade. After four consecutive $1 trillion-plus deficits and a more than 70% leap in publicly held debt since Mr. Obama's inauguration, that's a pretty modest goal.
 
But even discounting the usual accounting gimmicks that the White House uses to show this "stability," check out the fine print. There, the document concedes that beyond 2022 "the fiscal position gradually deteriorates" and the deficit "continues to rise for the next 75 years, and the publicly held debt is also projected to rise persistently relative to GDP." In other words, Mr. Obama's budget does not change the spending and debt trajectory.
 
Even in this best-case scenario by Mr. Obama's own lights, debt soon exceeds the 112.7% debt-to-GDP high-water mark in 1945, incurred to win a war for civilization across the world. The U.S. would now be taking on a larger liability—well above the 90% ratio that most economists consider the general boundary between safety and crisis—simply because the political class refused to modernize the entitlement state that drives the debt.
 
Mr. Ryan's budget, as shown by the third line, would gradually reduce debt by 36% relative to the status quo by the end of the decade, by 59% in 2030 and 80% less by 2040. No question that requires reforms that by conventional political standards are large. But that's because they're commensurate with the magnitude of the fiscal problem.
 
Mr. Ryan's major contribution has been to expose the illusion that Mr. Obama's re-election campaign rests on: pretending that raising taxes on a few thousand "millionaires and billionaires" can fund an ever-growing government.

The shaded wedge represents the smallest possible tax increase Mr. Obama would need to achieve the same fiscal balance as Mr. Ryan—except that, in his budget, spending would be at a quarter of the economy and climbing fast. And that's by the White House's own most optimistic projections. The reality will be far messier.
 
Every time Mr. Obama warns about Mr. Ryan "gutting" this or that "investment," what he's not saying but is unavoidably implying is that taxes must be far higher to finance this spending. Assuming he can read the budget tables, he knows the government has made promises it cannot mathematically keep—but he hopes nobody notices.
 
***

Mr. Ryan had an instructive colloquy with Tim Geithner on this point in February. The Budget Chairman noted that the Administration doesn't "have a plan to make good" on the promises the political class has made to voters. The Treasury Secretary replied that "As I said, we're not disagreeing in that sense. I made it absolutely clear that what our budget does is get our deficit down to a sustainable path over the budget window."
 






Enlarge Image




Associated Press/Carolyn Kaster
Timothy Geithner and Paul Ryan.
.
Mr. Ryan: "And then it takes off." Mr. Geithner: "Let's ask ourselves why they take off again. Why do they do that?" Mr. Ryan: "Because we have 10,000 people retiring every day and health-care costs going up."
 
Mr. Geithner: "That's right. . . . We're not coming before you to say we have a definitive solution to our long-term problem. What we do know is that we don't like yours."
 
The only omission in Mr. Geithner's remarkable candor is that Democrats do have a plan, kind of. As debt continues to build, at some point U.S. creditors will lose confidence in the Treasury's ability to repay. Then Democrats and even some Republicans will impose a European-style value-added tax or another money machine to appease the bond markets.
 
What voters should know is that this taxing big bang won't only hit the affluent. Far from it. For evidence, consult a recent study by Eric Toder, Jim Nunns and Joseph Rosenberg of the Tax Policy Center. We know this Brookings-Urban Institute shop has credibility with liberals, because it is the source of the fiction that the Romney-Ryan team wants to boost middle-class taxes.
 
The researchers looked at how high income-tax rates would have to rise in the top two or even three tax brackets to lower debt to sustainable levels under something akin to CBO's alternative fiscal scenario. They conclude that even if the top rates hit 100%, the budget "cannot achieve the debt-reduction targets in some or any of the target years." Though conceding that near-total confiscation is "completely unrealistic," they report the results anyway "to indicate the infeasibility of achieving a high debt-reduction target simply by increasing top individual income tax rates." And this is from economists who favor higher taxes.
 
***

Another way of putting it is that the rich aren't nearly rich enough to finance Mr. Obama's spending ambitions. Sooner rather than later, Washington will come for the middle class, because that's where the real money is.
 
Another thing Mr. Obama likes to say is that Messrs. Romney and Ryan "know their economic plan is not popular." Perhaps he can read minds, but at least they have a plan they're willing to put before voters. The President knows that voters won't like his, which is why he isn't honest about it.

[Crafty_Dog]

http://www.ftportfolios.com/blogs/EconBlog/2012/9/12/will-tax-hikes-bring-back-the-990s-boom

[Crafty_Dog]

http://reason.com/archives/2012/09/24/obamas-fact-challenged-tax-claim

[JDN]

Same article......


"It would be a shame if voters fall for Mr. Obama’s misleading claim that their taxes are at a 50-year low. But who can blame the voters, or, for that matter, the fact-checkers, if even Mr. Obama’s opponent, Mitt Romney, buys into the idea. In the same “60 Minutes” program, Mr. Romney said taxes would remain essentially unchanged if he won. “I don’t want a reduction in revenue coming into the government,” Mr. Romney said."

[DougMacG]

“I don’t want a reduction in revenue coming into the government,”

No.  We are going to grow revenues by taxing at a lower rate on a higher level of income.

This might be rocket science or voodoo if it was not already tried and proven to be possible by Coolidge, Kennedy, Reagan, Clinton/Gingrich and G.W. Bush.

Conversely, the six years since 2006 has proven that increasing the expectation and uncertainty of future tax rates on investment made by "the wealthiest among us" certainly damaged working people with a doubling of unemployment more than it hurt the rich.

[Crafty_Dog]

I would add what I regard as a very important point.

The tax code is a major and perhaps the principal tool of fascism, which I am defining as the private means of production being directed by the state.  When deductions, credits, etc are granted or taken away, investment is directed to or away from favored and disfavored sectors.

By diminishing deductions, credits, etc we diminish government interference with free markets and by so doing increase economic growth and efficiency and diminish corruption of the political process by special interests.

[JDN]

I would add what I regard as a very important point.

The tax code is a major and perhaps the principal tool of fascism, which I am defining as the private means of production being directed by the state.  When deductions, credits, etc are granted or taken away, investment is directed to or away from favored and disfavored sectors.

By diminishing deductions, credits, etc we diminish government interference with free markets and by so doing increase economic growth and efficiency and diminish corruption of the political process by special interests.(emphasis added)

WE AGREE!   

Time to go to work.

[Crafty_Dog]

http://www.cato.org/publications/commentary/irs-has-gone-rogue

The IRS Has Gone Rogue
 
by Michael F. Cannon and Jonathan H. Adler








This article appeared in National Review (Online) on September 26, 2012.


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A president who says “I haven’t raised taxes” has authorized his Internal Revenue Service issue a “final rule” that will illegally tax some 12 million individuals, plus large employers, in as many as 40 states beginning in 2014. Oklahoma’s attorney general has asked a federal court to block this rule. Members of Congress have introduced legislation in both the House and the Senate to quash it.

At first glance, it might not seem that the IRS is up to anything nefarious. The rule in question concerns the Patient Protection and Affordable Care Act’s tax credits, not the law’s tax increases. The tax credits are intended to offset the cost of insurance premiums for low- and middle-income workers.

For many Americans, however, those tax credits are like an anchor disguised as a life vest. The mere fact that a taxpayer is eligible for a tax credit can trigger tax liabilities against both the taxpayer (under the act’s “individual mandate”) and her employer (under the “employer mandate”). In 2016, these tax credits will trigger a tax of $2,085 on many families of four earning as little as $24,000. An employer with 100 workers could face a tax of $140,000 if even one of his workers is eligible for a tax credit.

So it is significant that the PPACA explicitly and repeatedly restricts eligibility for tax credits to people who purchase health insurance “through an Exchange [i.e., government agency] established by the state” in which they live. That means that under the statute Congress enacted, a state can block those hefty taxes simply by declining to create an exchange. The PPACA directs the federal government to create an exchange in any state that declines to create one itself, and Health and Human Services secretary Kathleen Sebelius estimates she may have to do so in as many as 30 states. (Some experts put the number closer to 40.) However, because the statute withholds tax credits in federal exchanges, the creation of a federal exchange does not trigger tax liabilities. By our count, as many as 12 million low- and middle-income Americans would be exempt from those taxes, including 250,000 Oklahomans.

It is here that the IRS has gone rogue. The agency has announced that, despite the clear statutory language restricting tax credits to exchanges established by states, it will issue tax credits through federal exchanges. One can see why Oklahoma and the rest might be upset: By offering tax credits in states that opt not to create exchanges, the IRS is imposing taxes where Congress did not authorize them. This IRS rule will tax those 12 million low- and middle-income Americans, including 250,000 Oklahomans, contrary to the express language of the PPACA.

Defenders of the rule claim that Congress intended the tax credits to be available in all exchanges. But is that true?

It may come as a surprise to supporters of the PPACA, as it did to us, but all the evidence that has surfaced to date shows that Congress restricted and, yes, intended to restrict tax credits to state-created exchanges. What the IRS is doing is illegal.

We examine the evidence in our forthcoming Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.” Here are a few highlights, including some material that is not included in our article.

1. The text of the PPACA is unambiguous.

The Supreme Court explainedin Connecticut National Bank v. Germain that when a court is trying to divine congressional intent, the most important factor is the text of the statute:

 
In interpreting a statute a court should always turn first to one cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there... When the words of a statute are unambiguous, then, this first canon is also the last: judicial inquiry is complete.

Using that canon as its guide, the Congressional Research Service writes this about the text of the PPACA’s tax-credit provisions:

 
A strictly textual analysis of the plain meaning of the provision would likely lead to the conclusion that the IRS’s authority to issue the premium tax credits is limited only to situations in which the taxpayer is enrolled in a state-established exchange.

Not convinced? You’re not alone. The CRS explained that courts might uphold the IRS rule if they were “willing to engage in a searching statutory interpretation involving text, context, legislative purpose, and legislative history.” So let’s look at context, legislative purpose, and legislative history.


By offering tax credits in states that opt not to create exchanges, the IRS is imposing taxes where Congress did not authorize them.

2. Every health-care overhaul advanced by Senate Democrats denied premium assistance to residents of non-compliant states.

The PPACA’s language restricting tax credits to state-created exchanges came almost verbatim from a bill reported by the Senate Finance Committee.

Senate Democrats’ other leading health-care bill emerged from the Health, Education, Labor, and Pensions Committee. The HELP bill allowed premium assistance through federal exchanges (called “gateways”) in certain circumstances. But if a state refused to assist with implementation, the HELP bill denied premium-assistance subsidies to that state’s residents. And if a state fell out of compliance, the HELP bill explicitly revoked these subsidies from residents who were already receiving them.

Harsh? Perhaps. But this legislative history shows that denying premium assistance to residents of non-compliant states was not some beyond-the-pale idea that Congress could not possibly have intended, but was instead the dominant approach in the Senate; every bill Senate Democrats advanced contained this feature. The HELP bill also suggests a legislative purpose behind the language: to encourage states to implement the law.

3. During Senate consideration, the PPACA’s lead author admitted that the bill made tax credits conditional on state compliance.

Finance Committee chairman Max Baucus (D., Mont.) was the chief sponsor and lead author of the Finance bill. He shepherded it through committee consideration and through negotiations with Obama-administration officials and congressional leaders, and he can reasonably claim to be the man most responsible for the relevant language of the PPACA.



Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What's Holding Back Health Care and How to Free It. Jonathan H. Adler is the inaugural Johan Verheij Memorial Professor of Law and Director of the Center for Business Law & Regulation at the Case Western Reserve University School of Law.

More by Michael F. Cannon
 During a September 23, 2009, committee markup of his bill, Baucus acknowledged that restricting tax credits to policies purchased through state-created exchanges was the reason the Finance Committee had jurisdiction to direct states to establish exchanges, making this language an essential part of the bill. (Again, the Finance bill’s language restricting premium assistance to state-created exchanges was adopted without substantive change in the PPACA.) The admission came amid a debate over the committee’s jurisdiction. Baucus had ruled an amendment dealing with medical malpractice out of order on the grounds that the Finance Committee did not have jurisdiction to legislate in that area. Sensing a double standard, Senator John Ensign (R., Nev.) challenged Baucus. The Finance Committee, Ensign said, did not have jurisdiction to direct states to change their laws regarding health-insurance coverage or to establish exchanges — such matters fall within the jurisdiction of the HELP Committee — yet the Baucus bill did both. If the Finance Committee could not consider a medical-malpractice amendment, Ensign asked, then how could it direct states to create exchanges? For Baucus’s response, we go to the tape:





Baucus responded that the Finance Committee had jurisdiction because his bill offered tax credits to individuals on the condition that their states complied with the bill’s health-insurance provisions: “Taxes are in the jurisdiction of this committee”; “An exchange is essentially [where individuals can access] tax credits”: “There are conditions to participate in the exchange.” To place “conditions” on tax credits, of course, presumes a scenario in which they are not available.

It is worth mentioning that this is the only bit of context or legislative history that anyone has found that directly addresses the question of whether the PPACA authorizes tax credits in federal exchanges. And it highlights an additional legislative purpose that is important enough to count separately.

4. Restricting tax credits to state-created exchanges was an essential feature of the bill.

The conditional nature of the tax credits is what gave the Finance Committee a jurisdictional hook to legislate in this area. The need for that hook may have disappeared when the bill reached the Senate floor. But the language restricting tax credits to state-run exchanges did not.

5. House Democrats knew the Senate bill empowered states to block residents from “receiv[ing] any benefit.”

By early January 2010, Democrats were trying to iron out a compromise between the House and Senate bills that could clear both chambers. On January 11, eleven House Democrats from the Texas delegation sent a letter to President Obama, House Speaker Nancy Pelosi (D., Calif.), and House Majority Leader Steny Hoyer (D., Md.). They demanded “a single, national health insurance exchange, as adopted by the House,” rather than the Senate bill’s “weak, state-based health insurance exchanges.” The Senate bill “relies” on states to implement exchanges, they warned, even though “a number of states opposed to health reform have already expressed an interest in obstruction.”

To emphasize the dangers of the Senate bill, they noted that Texas officials had recently turned down health-care subsidies that Congress had made available under another law. As a result, they wrote, not a single Texas resident “has yet received any benefit” from that law. “The Senate approach,” they wrote, “would produce the same result — millions of people will be left no better off than before Congress acted.”

The Texas Democrats made no explicit mention of how the Senate bill restricted tax credits to states that created their own exchanges, yet they clearly saw a difference between state-created and federal exchanges under the Senate bill — a difference that would leave people in recalcitrant states without the assistance that residents of compliant states would receive.

So far, we’ve got the following context pointing to the conclusion that the IRS’s decision to offer tax credits through federal exchanges violates congressional intent: (1) the unambiguous text of the statute, (2) evidence that making tax credits conditional on state compliance was the dominant approach in the Senate, (3) an affirmation by the law’s primary author that the Finance bill’s language was deliberate and (4) essential, and (5) evidence that House Democrats understood the Senate bill would withhold benefits from non-compliant states. But even if we didn’t have items (2) through (5)...

6. By enacting the PPACA, supporters revealed that their true intent was to enact whatever the Senate bill contained.

On January 19, 2010 — eight days after the Texas Democrats’ letter — Massachusetts voters elected Republican Scott Brown to the Senate, in part because of his pledge to be the 41st vote Senate Republicans needed to filibuster any compromise health-care bill. On that day, Massachusetts voters killed the House bill and its approach to exchanges, leaving House Democrats with only two options: Either they could pass the Senate bill and hope to obtain limited amendments through the “reconciliation” process, or they would fail to pass a bill at all. When House Democrats approved the PPACA, they revealed that their intent was to restrict tax credits to state-created exchanges, because they preferred that option to failure. They decided that whatever the Senate bill’s approach to premium assistance, it was better than no premium assistance at all.

If federal courts do enough searching, they will surely find lots of PPACA supporters who wanted subsidies in federal exchanges, just as lots of them wanted a “public option.” But those possibilities died the day Massachusetts voters sent Scott Brown to the Senate. No matter what else PPACA supporters may have wanted to enact, their approval of the Senate language reveals they intended to restrict tax credits to state-created exchanges. If offering premium assistance through federal exchanges had been their intent, they would have put the House bill up for a vote in the Senate, rather than the other way around.

The text, context, legislative purpose, and legislative history of the PPACA all demonstrate that Congress did not intend to offer tax credits — nor to tax the aforementioned individuals and employers to help cover that cost — in states that declined to create exchanges. Evidence that the IRS’s disputed final rule violates the law and congressional intent has been mounting ever since we brought attention to this issue last year. It has continued to mount even since we wrote in June, “The IRS doesn’t have a leg to stand on here.” This mounting evidence has forced supporters of the rule to change their story a number of times, yet their new and improved defenses of the rule are inadequate and even self-contradictory. The IRS has gone rogue, taxing individuals and employers without statutory authority, and it deserves a swift rebuke from the federal courts.

[DougMacG]

http://www.nationalreview.com/articles/329760/obama-s-advisers-favor-romney-s-tax-reform-alan-reynolds

Obama’s Advisers Favor Romney’s Tax Reform
But the president wants to do almost the exact opposite of what his advisers recommend.

By Alan Reynolds      October 9, 2012    National Review

President Obama and the press keep saying Governor Romney’s goal of revenue-neutral tax reform is vague on specifics and arithmetically impossible, citing a flawed study from the Tax Policy Center that has been debunked by several economists, including Harvey Rosen of Princeton University.

Here is what the director of the Tax Policy Center, Donald Marron, had to say about a tax reform proposal that is nearly identical to Romney’s:

    President Obama’s National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center’s Debt Reduction Task Force (on which I served) both endorsed this strategy [of lower marginal tax rates on a broader base] in their recent deficit reduction proposals. The fiscal commission’s “Illustrative Tax Plan” would scale back and redesign many of the largest tax preferences (e.g., mortgage interest, employer health insurance, and retirement saving), eliminate many others (e.g., state and local interest), and use the resulting revenue to

    •     Cut individual tax rates, bringing today’s six brackets (10, 15, 25, 28, 33, and 35 percent) down to three (12, 22, and 28 percent);

    •     Repeal the alternative minimum tax (AMT), the personal exemption phase-out (PEP), and the phase-out of itemized deductions (Pease);

    •     Cut the corporate income tax rate from 35 to 28 percent.

How does that tax plan compare with Romney’s? Romney would:

•      Cut individual tax rates, bringing today’s six brackets (10, 15, 25, 28, 33, and 35 percent) down to 8, 12, 20, 22, 26, and 28 percent;

•     Repeal the alternative minimum tax (AMT), the personal-exemption phase-out (PEP), and the phase-out of itemized deductions (Pease);

•     Cut the corporate income-tax rate from 35 to 25 percent.

When it comes to tax policy, the main difference between Romney’s and Obama’s National Commission on Fiscal Responsibility and Reform and Bipartisan Policy Center’s Debt Reduction Task Force advisers is that Romney proposes 1) a slightly lower corporate tax rate, and 2) a much lower bottom rate of 8 percent rather than 12 percent. (The fact that there would be six rates rather than three is insignificant.)

Like most other news sources, The Economist (October 6) claims, “Mr. Romney has not specified which loopholes he would close.” On the contrary, Romney has been quite specific that he would prefer a firm dollar cap on total deductions. This is a much tougher plan than the president’s commission proposed, which cuts or caps some deductions but allows taxpayers to game the others. Romney’s plan is even tougher than a proposal from economist Martin Feldstein, which would limit deductions as a percentage of adjusted gross income (AGI). Romney instead proposes a very tight lid on the total of itemized deductions — during the first presidential debate, he suggested a cap no higher than $25,000 to $50,000.

Unlike the Obama plan, the Romney plan would collect huge revenues from many “millionaires and billionaires” such as Warren Buffet and Mitt Romney, who would be unaffected by higher tax rates on salaries but unable to follow their usual practice of deducting millions in charitable donations every year. Charitable donations have long been a nearly constant share of GDP regardless of tax rates, so the surest way to increase charitable donations is to increase GDP.

Aside from the fact that Romney has a stronger, less selective plan for limiting deductions, another key difference is that the President’s National Commission and Tax Force proposes a flatter, less progressive structure for individual income-tax rates. Because everyone who pays income tax gets the lowest rate on the first few thousand dollars of income, setting the lowest rate to 12 percent would indeed raise more revenues than an 8 to10 percent rate would (which is also why the 1986 Tax Reform has a minimum tax rate of 15 percent). That modest increase in the lowest tax rate is why the President’s National Commission and Tax Force can plausibly claim that their plan would raise more revenue than current law — or, as Marron puts it, “reduce the deficit by $80 billion in 2015 and more in later years.” Romney’s plan, on the other hand, just aspires to be revenue-neutral in a static sense (ignoring faster economic growth and reduced tax avoidance), but such minor details are properly left to Congress.

In marked contrast with the two groups of experts President Obama appointed to advise him on such matters (including Mr. Marron), the president proposes to do almost the exact opposite of what they advised. Obama would:

•      Raise the top two individual tax rates (including Obamacare taxes) to 39.8 and 43.4 percent, and raise top tax rates on dividends and capital gains to at least 30 percent (the Buffet Rule);

•      Retain the alternative minimum tax (AMT) and bring back rather than repeal the personal-exemption phase-out (PEP) and the phase-out of itemized deductions (Pease);

•      Consider cutting the corporate income-tax rate by an unspecified amount only in exchange for eliminating alleged, inexplicable deductions “for moving a plant overseas.”

Nobody who has taken a serious look at designing a more efficient tax policy has ever suggested, as the president does, that we should trade fewer deductions for much higher tax rates on the rewards for investment, education, and entrepreneurship. When it comes to tax policy, some of the president’s wisest critics include his own National Commission on Fiscal Responsibility and Reform and his Bipartisan Policy Center’s Debt Reduction Task Force.

— Alan Reynolds is a senior fellow with the Cato Institute and the author of a critical new study about “top 1 percent” incomes.

[Crafty_Dog]

Alan Reynolds IMHO is a very good supply side economist.  Quite typical of him to come up with something as to the point as this is.

[DougMacG]

What I call a false question is where the question and the answer demanded are  based on a false premise.

So it goes with tax reform.  In every debate including the next one we heard or will hear Romney Ryan pressed to name the loopholes and deductions they will close in order to offset a false $5 trillion in static revenue shortfall; the $5 trillion is an exaggerated number even with the false scoring premise.

Biden, Obama and a false inference in a Tax Policy Center study falsely and repeatedly claim Romney will raise taxes on the middle class right while Romney is explicitly proposing to lower their tax rate by 20%.

Who really believes that you stimulate investment by punishing it and confiscating it, and who really believes that an across the board tax reform program with lower marginal rates will not re-energize business investment and hiring in this faltering economy?

High tax rates cause investors to hide their money and lower tax rates result in growth and higher revenues.

In the chutzpah of it all, Obama and Biden and the Democratic congress in Obamacare just did raise 11 taxes on the middle class, while they falsely accuse their opponents.

I haven't followed all the corrections to the static scoring number because it is a false question, but the Romney idea is to eliminate deductions only for the high income taxpayers in order to get the marginal rate down.  This approach solves both problems, it keeps progressivity in place for political purposes and lowers the key determinant of economic disincentive, the rate of taxation you will pay on your next dollar of earning.

The moderator showed she has no grasp of supply side economics with the static scoring followup and the angry old man in the debate demanded to see the rest of the cuts to make up every penny of static loss while saying his opponents plan is something that it isn't.

Obama in his first debate said "it's math, uh, it's arithmetic".  Same guy already has a trillion dollar hole in his own math which assuming it got no worse for 10 years is a hole twice the size of what he is accusing.

Missing in the false math is DYNAMIC SCORING, a common sense idea that Romney and Ryan must believe is too wonkish for a debate and too complicated to put in a 30 second to 2 minute soundbite.  It means that people make changes their behavior according to the policies and incentives/disincentives presented.  We don't live in a static world.  If you don't believe policies have any effect, what the hell is economics the study of and why do we need elections?  Yet onward we trudge with static scoring questions again on a national stage with a liberal moderator pursuing economic ignorance.

The question should be asked backwards.  What policies get you to the 4% growth number of which Ryan repeatedly referred.  And what will federal revenues be in 10 years or over 10 years if you implement those policies and get that growth, with resurgent capital investment, employment, hiring and startups?

The answer is that if we really implemented all of the Romney campaign proposals, economic growth including revenues to the Treasury would be phenomenal.

526 economists signed on with the Romney plan.  It has such a chance to generate the growth that is so badly needed.  The status quo has no such possibility.  Growth is going from 2% to 1% to zero with no details whatsoever presented to tell us how we are going to grow "from the middle class outward".

Economic growth isn't all about tax policy.  Regulations have become even more stifling than tax rates and energy policy is number one on the 5 point plan.  $4 gas is a tax, and the government is only getting a part of it.

Robust economic growth is not only possible, but it is the only way that revenues can surge.  Revenues don't surge at all when you raise tax rates, the investment simply goes elsewhere or dries up.  Freeze or shrink the size of the pie but split it up differently, that is the Obama-Biden plan. WE TRIED THAT.  And we aren't going downward in spending under anyone's proposal so declining revenues mean fiscal and monetary collapse.  That would be more fair?!  To whom?

Revenues doubled in the decade of the 1980s.  Ryan was correct to point to the JFK cuts.  (And no he didn't say he was JFK, where did that come from, he was asked to point to where this had worked.)  Revenues surged after the Clinton-Gingrich capital gains rate cuts of the 1990s.

A 4th example: revenues to the Treasury grew 44% in 4 years following implementation of the 2003 tax rate cuts.  Revenue growth and employment growth ended with election of the Pelosi-Reid-Obama-Biden majorities in congress who were openly promising to return tax rates back to their previous levels.  It proves the supply siders right, both ways.

[DougMacG]

This is an extremely important piece IMO.  Very likely to become the framework for new tax reform.  I have tried to write tax simplification and reform that meets all the political and economic requirements and I can tell you it's not as easy as it looks.  Romney's plan moves us forward better than any other I have seen.  This WSJ Editorial explains it extremely well.
***

Romney's Tax Deduction Cap     WallStreet Journal Editorial, Oct 20, 2012, link below
An idea to finance reform and avoid political trench warfare.

The Obama campaign and the press corps keep demanding that Mitt Romney specify which tax deductions he'd eliminate, but the Republican has already proposed more tax-reform specificity than any candidate in memory. To wit, he's proposed a dollar limit on deductions for each tax filer.

During the first Presidential debate, Mr. Romney put it this way: "What are the various ways we could bring down deductions, for instance? One way, for instance, would be to have a single number. Make up a number—$25,000, $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people. That's one way one could do it."

In an October 1 interview with a Denver TV station, Mr. Romney mentioned a cap of $17,000 and said "higher income people might have a lower number." His campaign stresses that these dollar amounts are "just illustrative" and that there are other ways to reduce deductions that in any case would have to be negotiated with Congress.

But details aside, the tax cap is a big idea, and potentially a very good one. The proposal makes economic sense to the extent that it helps to pay for lower marginal tax rates. Lower rates with fewer deductions improve the incentive for investing and taking risks based on the best return on capital rather than favoring one kind of investment (say, housing) over another. This would help economic growth.

The idea may be even better politically. The historic challenge for tax reformers is defeating the most powerful lobbies in Washington that exist to preserve their special tax privileges. Among the biggest is the housing lobby that exists to preserve the mortgage-interest deduction—the Realtors, home builders, mortgage brokers and the whole Fannie Mae FNMA -0.73% gang.

But don't forget the life insurance lobby (which benefits from the tax exclusion on the equity buildup in policies), the tax-free municipal bond interest lobby, the charitable deduction lobby and more. Each one will fight to the death to preserve its carve-out, which means that reformers have to engage in political trench warfare to succeed.

This is one reason President Obama wants Mr. Romney to be more specific: The minute he proposed to limit the mortgage-interest deduction, the housing lobby would do the Obama campaign's bidding by running ads against Mr. Romney's plan. Mr. Romney is right not to fall for this sucker play.

By limiting the amount of deductions that any individual tax filer can take, Mr. Romney is avoiding this lobby-by-lobby warfare. He'd let individual taxpayers decide which deductions they want to take up to the limit. In effect, the deductions would compete with one another as taxpayers decided which one was most important to them.

The political left should have a hard time opposing this because reducing deductions would hit high-income taxpayers the hardest. Out of the 140 million tax returns in 2009, the last year such data are available, only 45 million itemized their deductions. The non-itemizers, who take the standard deduction ($11,900 for joint filers in 2012), would be held harmless by the Romney cap. Most of these are lower- or middle-income earners.

The nearby table shows that the dollar value of deductions rises with incomes. Filers who itemized and earned between $10,000 and $40,000 in 2009 had average itemized deductions of roughly $16,000. This means they would on average lose nothing under a Romney cap. The average deduction amount rose to about $22,000 for incomes between $75,000 and $100,000. Filers with $1 million in income had average deductions near $173,000, and those who earn $10 million or more had deductions of about $4.3 million.

Another benefit is that the Romney deduction cap would cost taxpayers more in states with the highest tax burdens. Think of California, Illinois, New Jersey and New York.

The current tax code allows filers to deduct state income tax, real-estate tax, and some sales taxes from federal tax. This rewards states for raising taxes. Under the Romney cap, many upper-middle-class filers wouldn't be able to write off all their state taxes. This would create political pressure to cut state taxes.

We realize the tax cap isn't perfect and carries some risks. The tax code would not become any simpler. Liberals would also pocket the limits on deductions for the wealthy and immediately try to raise rates again. But that political risk exists for any reform short of repealing the 16th Amendment. Our preference would be to eliminate all such deductions and lower rates as far as possible, but we shouldn't make a perfect reform the enemy of the much better.

By the way, Mr. Obama has also called for limiting tax deductions for high-income filers. His budgets have endorsed allowing them to take writeoffs at a rate of 28% instead of 35%. The big difference is that Mr. Romney wants to dedicate the revenue gain from capping deductions to cutting tax rates. Mr. Obama wants to use the money to pay for more spending.

The larger point is that Mr. Romney is serious about reform and has put on the table a serious idea for how to finance and achieve it. That's far more than Mr. Obama has proposed about anything in a second term.
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(Subscribe to the nation's best and largest newspaper, WSJ, at: subscribe.wsj.com/wsjiesubhomej/)

[Crafty_Dog]

Death Tax Resurrection
The estate levy will rise to 55% in 2013 if Congress does nothing..
 
For all the worry in Washington and Wall Street about the January tax cliff, almost no one is paying attention to the impending reincarnation of the death tax. This is one more tax increase that will live or die depending on who wins on November 6.

Thanks to the Bush-era tax cuts, this much-loathed levy fell to zero in 2010, but President Obama insisted on bringing it back and Republicans compromised with him after the 2010 election on a 35% rate and a $5 million exemption for 2011 and 2012. In 2013 the rate is scheduled to rise all the way back to 55% with a meager $1 million exemption—where it was in 2001. Americans who have worked a lifetime to accumulate $1 million of savings or other assets will be surprised to learn that Washington thinks they are plutocrats.

Mitt Romney wants to repeal this wealth grab once and for all, while Mr. Obama now proposes a 45% rate with a $3.5 million exemption. Even that is too low for some Democrats in Congress. The President declared in debate that killing the estate tax is another Romney tax cut for the rich. But new research on the fiscal and economic effect of the death tax underscores how wrong Mr. Obama is.

The revenue generated by the estate tax is too trivial to make even a dent in the $1.1 trillion deficit. In 2011 the tax raised a scant $7.4 billion and the best estimate for fiscal 2012 is about $11 billion. This is less than 0.5% of federal tax collections and is enough to run the federal government for one day. Adding to the folly is that fewer than half (44%) of estate tax returns have any tax liability. These families have to bear the compliance costs of the tax even though the government nets nothing.

It's worse than that because the nonpartisan Tax Foundation calculates that the death tax is a long-term revenue loser. "Tax revenue is likely to increase" upon repeal of the tax, the Foundation finds. At least three other recent studies agree. How is this possible?

First, repeal or even a substantial reduction would be coupled with elimination of a provision called the "step-up basis at death" for calculating capital gains. This "angel of death" policy means that heirs get to revalue the assets at the market price when the owner dies. Thus the appreciation of unsold assets until death escapes capital-gains tax.

If the death tax were abolished, the capital-gains tax would be applied to all unrealized gains from the sale of an asset. That's a fair and economically beneficial trade: There would be no grave-robber tax imposed at death, but all gains from a business or stocks or real estate would get taxed at the capital-gains rate (now 15%) when eventually sold by the heirs.

Abolishing the estate tax would also mean higher income-tax revenues. Under current law, billionaires like Warren Buffett and Bill Gates escape the tax by diverting their wealth into charitable foundations. But when income-generating assets are sheltered in this way, these foundations with a few exceptions don't pay tax on the future income from dividends, capital gains or interest. Eliminate the death tax and fewer people will shelter their money in foundations, meaning the money will continue to earn taxable income.

Most important, because the estate tax is a penalty on saving and capital investment, the economy grows more slowly over time. This is why so many industrialized nations, including Canada and Russia, have thrown out this tax as more trouble than it is worth.

Consider the perverse incentives of the tax. When a business owner begins to consider retirement with perhaps $10 million of lifetime wealth, he can reinvest the profits in the business (which means growth and more workers) or live lavishly in retirement and spend the money down to zero.

In the first case, he is smacked with federal and state death taxes that can take away half of the wealth. In the second instance, he pays no tax. A new study by the Joint Economic Committee Republican staff estimates that because of this disincentive to save and invest "the estate tax has cumulatively reduced the amount of capital stock in the U.S. economy by roughly $1.1 trillion."

The strongest case against the death tax is moral. The levy makes Uncle Sam up to a half-partner in the proceeds of successful businesses. That is on top of the property and income taxes and other assessments that owners pay year after year. Mr. Obama is so obsessed with redistributing income that he thinks it is unfair to leave behind a family business for the kids. What is truly unfair is when a family-owned enterprise has to be sold at auction to pay the death tax to the IRS.

Mitt Romney was right when he told a gathering in Van Meter, Iowa earlier this month that "we ought to kill the death tax. You paid for that farm once. You shouldn't have to pay for it again."

[DougMacG]

From the previous post, "we ought to kill the death tax. You paid for that farm once. You shouldn't have to pay for it again."

Great line!
-------------

Give some credit here to my congressman Erik Paulsen for pushing this.  The House has approved repeal of the medical device tax.  Now waiting for the Harry Reid led Senate to take up action - or to leave power.

Minnesota has 1270 medical device businesses.  Want to get less of something, tax it. 

Did anyone ever ask (David Gregory?) how this tax helps healthcare? Costs?  Or exports!?

http://paulsen.house.gov/innovationtaxrepeal

[DougMacG]

Payroll Taxes Are 'Regressive'? Time to Rethink That Idea  (WSJ 10/29/2012 excerpt)
Critics of how Medicare and Social Security are funded don't take into account benefit payouts. Suddenly, the taxes look progressive after all.

By KIP HAGOPIAN
AND LEE E. OHANIAN

Many of those who assert that the rich don't pay their fair share of the nation's bills often point to how Social Security and Medicare are funded. For example, columnist Paul Krugman wrote on his New York Times blog in 2010 that "the payroll tax is regressive, as are most state and local taxes, which largely offsets the progressivity of the income tax." And President Clinton's secretary of labor, Robert Reich, said in an October 2007 blog post, "payroll taxes take a much bigger portion of the paychecks of lower-income Americans than of higher-income [Americans]. Viewed as a whole, the current tax system is quite regressive."

On the contrary, studies show that the Social Security and Medicare programs, viewed as a whole, are anything but regressive.
[image] Getty Images

The payroll taxes that fund these programs are collected for the express purpose of providing income supplements and medical care during retirement. In the case of Social Security, earned income is taxed proportionately at 12.4% (split evenly between employee and employer) up to a cap that is currently set at $110,100. Those who assert that the Social Security tax is regressive note that the income cap results in a decline in taxes paid as a percentage of income as income rises above the cap. But this observation omits three critical facts.

First, the amount of one's Social Security income at retirement is also capped. Second, higher-income workers receive less of a benefit as a percentage of their contributions than do lower-income workers. The payouts to retirees are, and are intended to be, redistributive. Third, Social Security income is subject to the income tax—and the income tax is progressive.

...studies suggest that both of the payroll-tax systems are progressive, not regressive. Moreover, according to a July 2012 study by the Congressional Budget Office, entitled "The Distribution of Household Income and Federal Taxes, 2008 and 2009," the entire U.S. federal tax system (including the earned-income tax, the various capital income taxes, the two types of payroll taxes, the corporate tax, and the excise tax) is also progressive.

Those who assert that "the rich" do not pay their "fair share" seem to be ignoring these other facts: A study released in 2008 by the Organization for Economic Cooperation and Development reported the U.S. federal income tax system is the most progressive of any of the 24 countries of its member nations. And an October 2011 report by the Tax Foundation noted that in 2009 the top 1% of U.S. earners—who earned 17% of the income—paid 37% of the taxes. The top 5% earned 32% of the income and paid 59% of the taxes. The bottom 50% paid 2.3% of taxes, and the bottom quintile received money back in the form of refundable tax credits.

http://online.wsj.com/article/SB10000872396390443684104578063140488175464.html

Lee Ohanian is professor of economics at UCLA and a senior fellow at Stanford University's Hoover Institution.

[DougMacG]

Bill Clinton 'triangulated' one might recall.  He reformed welfare, cut capital gains taxes, grew the economy, balanced the budget, and came off like some kind of a genius after his first two years of pathetic economic growth out of downturn.

Obama should scale back Romney's plan and take it.  Offer to the R. House 10% instead of 20% rate cuts as an offset to closing down loopholes and deductions for the wealthiest.

He can do this now, since there is essentially no shifting of seats or power coming in January.  Doing it would avoid the fiscal cliff, avoid the recession, raise the debt ceiling in the compromise and settle the uncertainty that keeps the economy from moving 'forward'.

The main point of attacking the rich was to gain and hold power.  It worked.  Now he needs to set his legacy as something other than a complete economic disaster.

Democrats want greater progressivity in the tax code.  Conservatives more even taxation like the flat tax, fair tax or 9-9-9.  Romney's plan was to keep existing progressivity constant.  This was a split election.  Instead of fighting with the Republicans, he should make them an offer they can't refuse, and then take all the credit.
-----------
WSJ yesterday makes a similar point:
Romney's Tax Reform Marches On
It's Obama's second term, but get ready for the Romney-Simpson-Bowles plan.
http://online.wsj.com/article/SB10001424127887323894704578108911243293922.html?mod=WSJ_Opinion_BelowLEFTSecond

Lower rates would improve individual incentives; fewer loopholes would mean economic resources flowing to their most highly-valued uses. Even if tax reform were kept revenue neutral, it would spur faster growth and therefore higher revenues. And there would be less incentive for political corruption and trafficking in tax favors: a win-win-win.

Maybe Americans can benefit from the second-term "flexibility" Mr. Obama once promised Vladimir Putin.

[G M]

http://www.europac.net/commentaries/extend_and_pretend


Extend and Pretend

 By:
 Peter Schiff


Friday, November 9, 2012
 
Now that President Obama has been re-elected, the media is finally free to focus on something besides the clueless undecided voters in Ohio, Florida, and Colorado. The brightest and shiniest object that has attracted its attention is the "fiscal cliff" that we are expected to drive over at the end of the year unless Congress and the President can agree to turn the wheel or apply the brakes.

Fresh from his victory, the President took time today to let the nation know how he proposes to avoid the cliff: to raise taxes on those Americans who make more than $250,000 per year. He made clear than no one making less than that will be asked to pay any more. The two percent of taxpayers that the President is targeting earn 24.1% of all income and pay 43.6% (as of 2008) of all personal federal income taxes. Sounds like a fair share to me. But the four or five percent tax increases on those earners that are being proposed would only yield around $30 to $40 billion per year in added revenue, a drop in the federal bucket. Even if they were to double the amount that they pay our deficit would only be cut by about one third (even if those increases did not trigger an economic slowdown).

So what exactly is this looming menace, and why is it so dangerous? Stripped of its rhetorically charged language the fiscal cliff is simply a legal trigger that will trim the deficit in 2013 by automatically implementing spending cuts and tax increases. In other words, the government will spend less, and more of what it does spend will be paid for with taxes rather than debt. Isn't this exactly what both parties, and the public, more or less want? The fiscal cliff means that the federal budget deficit will be immediately cut in half, shrinking to approximately $641 billion in 2013 from the approximately $1.1 trillion in 2012. What is so terrible about that? I would argue that there is a greater danger in avoiding the cliff than driving over it.

If you recall, the cliff was created by a deal last year when Congress couldn't find ways to trim the deficit in exchange for raising the debt ceiling. When they failed to reach an agreement, Congress knew they had to raise the debt ceiling anyway. The resulting Budget Control Act of 2011, signed in August of that year, offered the pretense that they were dealing with our long-term fiscal crisis and not simply raising the debt ceiling with no strings attached. This was done not only to appease some House Republicans, who had threatened to vote against a debt ceiling increase, but to satisfy the bond rating agencies that had threatened a down-grade if Congress failed to act.

Now the focus turns to how Congress will dismantle the structure it created just 16 months ago. There can be little doubt that they will as economists are assuring politicians that driving over the fiscal cliff will immediately bring on a recession. The expiration of the Bush era tax cuts for all taxpayers will cost Americans an estimated $423 billion in 2013 alone. Hundreds of billions of across the board spending cuts, including the military, have been delineated. No politician would allow that to happen.
 
It is amazing that members of Congress can keep a straight face as they claim to want to address our long-term deficit problem while simultaneously working to avoid any substantive action. No doubt an agreement will be reached that will replace the looming fiscal cliff with another one farther down the road (which they can easily dismantle before we actually reach the precipice). Will the rating agencies buy this bill of goods a second time? If we lack the political courage to go over this fiscal cliff, why should anyone think we will be able to stomach going over the next one? Especially since each time we delay going over the cliff, we simply increase its future size, making it that much harder to actually go over it.

Many currently believe last year's S&P downgrade resulted from the same congressional dysfunction that resulted in the fiscal cliff agreement. The truth is that the downgrade would probably have been much greater, and more rating agencies would have likely joined S&P in taking action, had it not been for the fiscal cliff agreement. If further downgrades fail to be issued when the lame duck Congress inevitably comes up with another can kicking deal, then the agencies themselves could lose any remaining credibility. In my opinion, the only explanation for inaction by the rating agencies would be for fear of regulatory retaliation by a vindictive U.S government.

I do not think it is a coincidence that while the banks are suffering a regulatory backlash as a result of their perceived culpability for the mortgage crisis, the credit rating agencies have been relatively untouched. But the credit agencies played a key role in catalyzing the mortgage crisis by giving questionable ratings to the mortgage backed securities. My guess is the government simply does not want to open up that can of worms as similar mistakes are being made with respect to the agencies' ratings of government debt.
 
The truth is that regardless of what you call it, going over the fiscal cliff is not the problem, it is part of the solution. Our leaders should construct a cliff that is actually large enough to restore fiscal balance before a real disaster occurs. That disaster will take the form of a dollar and/or sovereign debt crisis that will make this fiscal cliff look like an ant hill.

[G M]

The numbers I can find put us at spending around 10 billion a day. So, with the new taxes Buraq wants.....


Anyone got better numbers?

[Crafty_Dog]

GM:

I challenge Schiff's numbers.  I have consistently been seeing the tax the rich numbers as projecting $80B, not his number of $40B, under static revenue assumptions.  Either number of course is a joke in the face of at $1.1T deficit.

One of the big problems with Schiff's logic is that static assumptions are not realistic.  People DO respond to changes in tax rate on the margins.  I think the supply siders are quite right on this point.  Indeed the contrary position is, in effect, a disagreement with the law of supply and demand itself; the argument is that lower prices for people's work (i.e. less money after tax increases) will not affect how much work they offer in reponse.  This is gibberish.  These tax increases seem likely to trigger a recession (or worse) This will decrease revenues to the government, and trigger increased entitlement spending that will overwhelm the fictitious "cuts" of the sequester.


The second big problem with Schiff's logic is the matter of the draconian cuts in military spending.   Most of us here regard this as profoundly unwise.

The third big prolbem with Schilff's logic is that it is oblivious to the fraudulent fictions of baseline budgeting.  The CUTS he mentions are a lie.  ACTUAL spending will still be increasing every year.

[DougMacG]

Crafty: "I have consistently been seeing the tax the rich numbers as projecting $80B, not his number of $40B, under static revenue assumptions.  Either number of course is a joke in the face of at $1.1T deficit."

Schiff wrote: "would only yield around $30 to $40 billion per year in added revenue, a drop in the federal bucket.
-------
$80B static with $30-40B 'yield', I think we are talking about the same thing.  A drop in the bucket either way, plus 50-60% of the 'new revenue' never materializes because investors alter their behavior to the new set of rules.  Not measured in that loss is the lost benefits (job gains etc) that would come from that lost prosperity.

[Crafty_Dog]

I get that, but perhaps the $80B number I have seen is the 1%ers tax PLUs the revenues from the other tax increases (e.g. the increase in the tax on dividends)?

[DougMacG]

I get that, but perhaps the $80B number I have seen is the 1%ers tax PLUs the revenues from the other tax increases (e.g. the increase in the tax on dividends)?

That could be.  What we know for sure is that quoting the static number is to quote a known falsehood.  The reaction to a major policy change will not be static.  See Romer and Romer:  emlab.berkeley.edu/~dromer/papers/RomerandRomerAERJune2010.pdf  http://www.forbes.com/sites/charleskadlec/2012/04/23/christina-romer-knows-tax-hikes-will-kill-the-recovery/

Robert Rubin had a piece today in the NY Times not worth posting.  He goes through the deduction and loophole closing possibilities and decides they aren't worth it.  Then comes back to favoring tax rate hikes on the rich that also close no gap and spur no growth.  http://www.nytimes.com/2012/11/13/opinion/rubin-deluding-ourselves-over-the-fiscal-cliff.html?_r=0

Broken record: We increase revenues significantly only with pro-growth policies.  We rejected that in the Presidential race and in the Senate, but not in the House.
The President is the so-called leader of the free world.  He needs to find where he has common ground with the House, get something positive passed or we all live with the consequences.

I would stay as far to the sideline as possible while this plays out.  There is a lot that still can go wrong.
-------------------
“Tax increases appear to have a very large, sustained, and highly significant negative impact on output.” - Former Chief Obama Economic Adviser Cristina Romer

From the Forbes link above:

A powerful analysis by  President Barack Obama’s first Chair of his Council of Economic Advisers (CEA) indicates the President’s proposed tax increases would kill the economic recovery and throw nearly 1 million Americans out of work.  Those are the extraordinary implications of academic research by Christina D. Romer, who chaired the CEA from January 28, 2009 – September 3, 2010.  In a paper entitled: “The Macrcoeconomic Effects of Tax Changes” published by the prestigious American Economic Review in June 2010 (during her tenure at the White House), she stated: “In short, tax increases appear to have a very large, sustained, and highly significant negative impact on output.”

[G M]

1. Obama is going to continue to gut the military, no matter what.

2. Republicans need to just vote "present" on any taxes, fiscal matters. Let Buraq wage his class war unfettered. I know assets are already fleeing this country. Why piss into the wind at this point?