Tax Policy

[Crafty_Dog]

WSJ 
By ARTHUR LAFFER

It is tempting to dismiss the role played by incentives in economics, but the persistence of poverty in the inner city and elsewhere is difficult to explain with any other view of human behavior. Poor people, like everyone else, respond to incentives. The dilemma is how to introduce market incentives while still maintaining a generous system of helping those in need.

The first step is to consider the role played by disincentives, whether they are disincentives to work because government benefits fall away as income rises, or disincentives that make employers reluctant to hire entry-level workers likely to come from the ranks of the young unemployed.

More than three decades ago, I began enumerating a myriad of government "needs tested" programs that diminished welfare benefits as their recipients earned more income. The loss of government benefits made earning more income less attractive to many low-income families, an effect similar to that of raising marginal tax rates.

In the intervening years, alas, very little has changed. Gary Alexander, secretary of public welfare for the State of Pennsylvania, made that quite clear in a July presentation to the American Enterprise Institute entitled "Welfare's Failure and the Solution," an analysis of the welfare benefits plus wages of a single mother of two young children living in Pennsylvania.

Mr. Alexander reports that a single mother of two in the Keystone State earning no wages will obtain welfare benefits—such as food stamps, child care and Medicaid services—worth more than $45,000 annually. If the woman begins earning wages, her total annual income, including the value of her welfare benefits, will rise as well—up to about $9,000 in wages. But the next $5,000 in wages will not increase her total income, because she will lose some Medicaid and other benefits. In short, she faces the equivalent of a 100% marginal tax.

From about $14,000 to $29,000 of gross wages, she will also lose government benefits such that her total annual income will rise only about $5,000—an effective marginal tax rate of 67%. At $29,000 of wages, the woman will realize a little less than $57,000 in net income plus benefits. Once she earns more than $29,000 in wages her housing subsidies and food subsidies drop way down. With wages above $43,000, her child-care subsidies disappear, and once her wages top $57,000 her family will no longer qualify for the Children's Health Insurance Program.

What this means is that her total income—welfare benefits plus wages, minus taxes—won't reach $57,000 until her gross wage income rises to $69,000. In other words, the money earned by her between $29,000 and $69,000 faces a marginal tax rate, on average, of 100%. She receives no net benefit from her labor. Now if that doesn't motivate you to get up and go to work, I don't know what will.

This example is particular to a single mother in Pennsylvania with two children, but the principles apply generally across the country. People with low incomes who receive various forms of welfare subsidies in any number of states—with and without children, whether married or not—face enormous disincentives in trying to improve their lives by working. And these barriers to self-improvement through work have been rising over time.

According to the most recent Census Bureau data, the percentage of the American population in 2011 living below the poverty line was 15%, tied for a 50-year high and well above the 11.4% in the late 1970s when I began calling attention to "needs tested" disincentives to work.

Using employment as a share of total population for especially vulnerable demographics, the consequences of poorly thought-out policies are stark.

Consider the predicament of teenagers 16 to 19 years old, whose employment-to-population ratio has been 26%—about one in four young people employed—for the past three years. In the period 1975-2002, the ratio was in a healthier 40%-50% range. For African-Americans 16 to 19 years old, the employment-to-population ratio for the past four years has been in the anemic 14.5% to 16.5% range. Minimum-wage laws ostensibly intended to help the young and poor may have put a bit more money in the pockets of those who found work, but study after study indicates that governmental minimum-wage interventions discourage employers from hiring.

How to counter these disincentives? My preferred solution is to enact a form of enterprise zone where marginal tax rates would be greatly lowered for both employers and employees in areas with high poverty. For starters, employer and employee payroll taxes could be eliminated for people who both live and work in the enterprise zones. There would be scant revenue loss to the U.S. Treasury because few people are working in these areas anyway.

Second, tax rates on corporate profits and personal income could also be reduced in the enterprise zones for businesses and employees whose principal residence is in the enterprise zone. Potential workers need employers after all. Once these residents see that their pay will not be whittled away by payroll and income taxes, they will not be so disinclined to sacrifice the government benefits that would recede as their income increases.

Developing business and life skills through on-the-job training is crucial for populations suffering generational poverty. To help make youth employment in the country's poorest areas more attractive, enterprise zones should eliminate job-killing state and federal minimum wage requirements for workers under 21. (The "youth minimum wage" provision allows payment of $4.25 an hour to workers under age 20 instead of the federal $7.25 minimum wage, but the rate expires after 90 days.)

After being unemployed for a number of years, poor, unskilled youths often become unemployable. And, after being unemployable for a number of years, many of them quite understandably become hostile to the world, and society has to spend fortunes protecting itself from them. It is a dispiriting Catch-22.

In the spirit of the late, great New York Rep. Jack Kemp, the time is right to take up the cause of a bipartisan pro-growth agenda for America's pockets of poverty.

Mr. Laffer, chairman of Laffer Associates and the Laffer Center for Supply-Side Economics, is co-author, with Stephen Moore, of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).

[DougMacG]

Prof. Laffer analyzes the problem superbly IMO, recognizing that the disincentives are on both sides, the employer and the potential employee. 

It is astounding to know that a small family in ordinary circumstances makes $45,000 (after taxes) without working at all.  You could stop the search for the disincentives right there but that isn't the worst of it.  He gives a specific example where a single mother of two faces marginal tax rates of 67 - 100% as they try to better themselves above that level.  The massive disincentive to improve one's lot ought to catch the attention of everyone who cares about either side of the problem, revenues to the government or the human side of getting people onto a more productive track.  It is the dilemma of these programs that should concern everyone involved, yet seldom is it written or spoken, especially in terms this precise.  (Maybe David Gregory will confront Dick Durbin with this tomorrow, or Steve Kroft will follow up with the President about real failure and solutions.)

Laffer skips one other key component: it is about risk, not just money.  A potential new job especially with a new company involves very high risk.  What if you don't like the work?  What if you aren't good at it?  What if the company goes under? What if the company does fine and you like the job but they let you go for all the wrong reasons?  The answer is that you just gave up your food, housing or healthcare subsidy for a high risk and a very low return.  It isn't happening.  Recipients of section 8 for example know you don't give up your qualification in a program, once you land it.  Far more likely under these perverse disincentives if you are conscientious and responsible is that you learn to live within the guidelines that are housing your family and keep reported income within the requirements. and stay on the program.  If not for yourself, you do it for the children.

If 67% is too high for the Phil Mickelson family, how does a 67-100% rate work for an unworking single mom of two?  We know the empirical answer, people are migrating onto these programs, not off of them.  Baseline thinking acknowledges that and understates it.  People don't need a calculator to see the impact of a marginal tax rate over 50%, sometimes approaching 100%.  They know it isn't worth it.

I have mixed feelings about enterprise zones.  I don't like creating uneven rules for taxation, but he is correct to point out we have virtually no current revenues there to lose and everything to gain. 

A smaller idea is to just waive many of these things, certain taxes and payroll regulations, in the start up of a new business.  Give them a moment to get going before throwing the book at them on most things.  No withholding and limited payroll compliance requirements in the first calendar year of a new business, especially where they are hiring someone who wasn't previously working.  Let the business get started, build a product, perform a service and get some revenues coming in before they have to pay taxes and staff and house a payroll department, human resources, accountants and attorneys. 

With all the compliance requirements, only a rich person can start a business and those very few are the ones we chase away. 

Government will get plenty of forms and revenues from new businesses in the long run if they first launch and survive the startup.

[Crafty_Dog]

Calvin Coolidge for President
Silent Cal was an "economic general" who cut taxes and produced a run of surpluses. .
By ROBERT MERRY

'Debt takes its Toll.' Thus does Amity Shlaes begin her biography of Calvin Coolidge, the laconic, flinty-faced New Englander who became America's 30th president upon the death of Warren Harding in 1923 and then captured the office in his own right in 1924. Ms. Shlaes, the author of a best-selling history of the Great Depression, "The Forgotten Man" (2007), issues her debt admonition in the course of introducing Oliver Coolidge, a brother of Silent Cal's great-grandfather, who went to jail in 1849 because he couldn't pay a $29.48 debt to a neighbor. She then glides briskly from Oliver's plight to the problem of government debt, particularly when it reaches proportions that threaten the public fisc and undermine national confidence. "There have been times," Ms. Shlaes writes in the introduction to "Coolidge," "when debt pinned down the United States as it once pinned down Oliver.''

Coolidge
By Amity Shlaes
Harper, 565 pages, $35

Calvin Coolidge lived in such a time—as do we. At the end of World War I, the national debt stood at $27 billion, nine times its level before the war. But Coolidge, and Harding as well, slashed the country's credit obligation to just $17.65 billion. They did it by cutting taxes, generating economic growth and, in the process, flooding federal coffers with surplus dollars. This accomplishment merits attention today, with the national debt exceeding $16 trillion—more than 70% of gross domestic product. If that number hits 90%, some economists warn, it will squeeze the national economy inexorably.

And if that crisis hits, the country will face a binary choice. It can return to a free-market system of lower taxes, smaller government and the curtailment of the Federal Reserve's promiscuous fiat monetary policies—in short, abandoning Keynesian sensibilities and the trend toward European-style social democratic governance. Or it can opt for what energy-industry executive Jay Zawatsky has called "increasing financial repression"—further federal spending and intrusion into the economy, rising tax rates on the wealthy, ever greater federal debt financed by Fed money creation and, eventually, rising inflation.

To understand the first option, it is necessary to understand the 1920s. And we can't understand the 1920s without peering into the life and politics of Calvin Coolidge—"principally a man of work," as Ms. Shlaes describes him, "a minimalist president, an economic general of budgeting and tax cuts." Her biography is thus both timely and important.

Coolidge was born in 1872 in Plymouth Notch, Vt., where folks frowned on showy talk and artifice. Its physical and cultural center was the country store, run by Calvin's father, John, who also farmed and served in the Vermont legislature. Young red-haired Calvin was a quiet lad—and painfully shy. He "found it agonizing to meet even the adults who entered his parents' front rooms,'' Ms. Shlaes writes. But in that austere environment he learned the skills needed "for the eternal combat with the landscape." Life was harsh in that place and time: His mother died when Calvin was 12, his sister six years later.

At the Black River Academy, a boarding school in Ludlow, Vt., young Calvin posted mediocre grades initially and demonstrated little skill for athletics or the arts of social advancement. He loved to read, and legend had it that he devoured every book in the school library. By graduation he had managed to boost his marks to a respectable level, demonstrating a characteristic trait: He was a slow starter, disoriented in new situations but increasingly impressive as he gained comfort with his surroundings.

The pattern repeated itself at Amherst College. "I think I must be very home-sick,'' he wrote his father after his arrival on campus, "my hand trembles so I can't write so any one can read it.'' But over time he advanced academically and socially. "I am confident," he later wrote home, "I have gained a power of grappling with problems that will stand by me all my life.'' By graduation he had opted for a legal career, with an inclination toward politics.

After an apprenticeship, he joined a law firm in Northampton, Mass., where locals warmed to his terseness of expression (they didn't like being billed for long-winded advice) and his skill settling disputes without litigation. Small-town legal work didn't make him rich, but it gave him a base for political pursuits. In 1898, at age 26, he became a city councilman and thereafter interspersed his legal practice with ever-higher electoral positions—city solicitor, clerk of courts, state representative, Northampton mayor, state senator, Senate president, lieutenant governor. In 1918, at age 46, he was elected Massachusetts governor.

Along the way he gained a wife, Grace Goodhue, a pert and lovely graduate of the University of Vermont. A Coolidge exchange with Grace's father reflects the spare mode of New England expression: "Up here on some law business, Mr. Coolidge?'' "Come to see about marrying Grace.''

When the couple married in 1905, the wife of one friend observed, "I don't see how that sulky red-haired little man ever won that pretty, charming woman.'' Living simply, the Coolidges avoided debt, renting their home to avoid even the burden of a mortgage. "Coolidge,'' writes Ms. Shlaes, "did not like to be beholden to bankers or anyone else.''

As a politician, Coolidge came under the sway of the Republican progressive movement, personified with dramatic flair by Theodore Roosevelt. In the state Senate, Coolidge voted for women's suffrage, a state income tax, a minimum wage for female workers and salary increases for teachers. Like Roosevelt, he calculated that Republicans could thwart Democratic inroads on such causes by pre-empting them.

But Coolidge soon began to question progressivism, including Roosevelt's resolve to regulate railroad rates through his Hepburn Act. He saw that railroads, though rich and powerful, operated on the margin. As Ms. Shlaes explains: "The blow Roosevelt had struck to reduce the power of the railroads might be crippling them instead.'' And by undermining the profitability of cross-country shipping, the act undermined U.S. trade with China and Japan.

Coolidge was struck by the radicalism of some labor leaders when, as a state senator, he helped broker an employment agreement between woolen workers and their managers. In a letter he wrote that the leaders of the Industrial Workers of the World, the famed Wobblies, were "socialists and anarchists'' bent on destroying "all authority, whether of any church or government.''

As Massachusetts governor in 1919, Coolidge gained widespread fame when Boston policemen went on strike, unleashing looting, property destruction and street thuggery. A crippling general strike loomed, and violence was on the rise. A watchful nation feared spreading lawlessness. After trying a conciliatory approach, Coolidge turned implacably decisive. Working through the police chief, he fired the striking policemen and moved to restore order by calling in steel-helmeted state guardsmen. "There is no right to strike against the public safety,'' he declared, "by anybody, anywhere, any time.''

Ms. Shlaes's story, constructed as a kind of chronological diary, has a disjointed quality, as descriptions of powerful events that generate mounting reader interest get interrupted by less consequential matters that break the narrative. This is not a biography for those in search of gripping drama. But the research is exhaustive, and the political and economic analysis sound. These aspects come to the fore especially in the concluding sections of the book, as the White House comes into view.

In 1920, Coolidge emerged as the running mate to Republican presidential candidate Warren Harding, an intellectually lethargic man who nonetheless understood the need to remake the GOP into a more conservative party and move the country in a new direction. President Woodrow Wilson's postwar economy was in free fall, and the country needed a new economic philosophy to get beyond the Wilson mess.

Harding's watchword was "normalcy''—meaning, as Ms. Shlaes describes it, "low taxes, tariffs, less central government, and stability.'' He won in a landslide, a clear repudiation of Wilson's progressive policies, and quickly moved, at the counsel of Treasury Secretary Andrew Mellon, to cut taxes and restore the economy. The aim, says Ms. Shlaes: "to retire debt, not to expand it.''

The new direction was well-established by August 1923, when Harding died unexpectedly at age 57, most likely from congestive heart failure. But Mellon believed the new president could generate continuing economic growth through greater application of a "scientific taxation'' concept—"supply side'' economics, in today's parlance—designed to generate economic activity, and federal revenue, by reducing top marginal tax rates. In Coolidge's time, as today, the concept stirred widespread skepticism.

Coolidge sent to Congress a "scientific taxation" bill that he hoped to get passed before he faced the voters in 1924—proposing to lower the top tax rate to 30% or even 25% from 50% (it had been 77% when Harding took office). The party establishment in Congress watered it down, leaving the top tax rate at 43.5% and directing most of the tax relief to middle-income Americans. Though disappointed, Coolidge signed the bill with a resolve to revisit the matter after his election, in which he defeated Democratic candidate John W. Davis by a decisive margin.

He eventually got the top rate down to 25%. The GDP soared, increasing by 25% during the Harding-Coolidge years. The result, coupled with fiscal austerity, was a nation flush with tax receipts—surpluses of $100 million in 1925, $375 million in 1926 and nearly $600 million the next year.

The Coolidge years represent the country's most distilled experiment in supply-side economics—and the doctrine's most conspicuous success. That success is the central Coolidge legacy, brought home with telling authority in Ms. Shlaes's work. This book's time is propitious. As the nation faces a looming economic crisis wrought in large measure by mounting public debt, the Coolidge experiment offers insights into what an alternative course might look like. Ms. Shlaes has given us a detailed examination of that alternative course.


Mr. Merry, editor of the National Interest, is the author of "Where They Stand: The American Presidents in the Eyes of Voters and Historians."

[DougMacG]

"Coolidge
By Amity Shlaes
Harper, 565 pages

Amity Shlaes built a great credibility IMO with her extensive research and journalism, breaking against conventional thought on the economics of the Great Depression: http://www.amazon.com/Forgotten-Man-History-Great-Depression/dp/0060936428

The Coolidge story can be added the list of other supply side economic successes in our short, federal income tax history.  Along with evidence that the Kennedy tax rate cuts lifted all vessels, Reagan's tax rate cuts doubled revenues inside a decade, Clinton-Gingrich capital gains rate reductions balanced the budget, and the 50 month hiring surge and 44% revenue surge after the Bush tax rate cuts, this I think closes the argument against the challenge that marginal tax are not as closely tied to economic performance as some of us claimed.   

Abject failure of current policies, opposite of supply side, makes the same case.

[bigdog]

http://www.theatlantic.com/business/archive/2013/02/how-the-100-year-old-income-tax-unleashed-the-modern-us-economy/273470/

From the article:
"Progressive politicians embraced the income tax as way to raise money for the federal government without burdening the average household with the high living costs imposed by duties. Anyone who believed in free trade, who wanted to end protectionism and allow American markets to develop without obstruction, had to offer some revenue that didn't come from tariffs. Ratification of the Sixteenth Amendment let reformers finally welcome an alternative source of tax revenue: American incomes."

[G M]

http://www.theatlantic.com/business/archive/2013/02/how-the-100-year-old-income-tax-unleashed-the-modern-us-economy/273470/

From the article:
"Progressive politicians embraced the income tax as way to raise money for the federal government without burdening the average household with the high living costs imposed by duties. Anyone who believed in free trade, who wanted to end protectionism and allow American markets to develop without obstruction, had to offer some revenue that didn't come from tariffs. Ratification of the Sixteenth Amendment let reformers finally welcome an alternative source of tax revenue: American incomes."

Is that the pre-collapse or post-collapse America the income tax was to have created?

[Crafty_Dog]

http://scottgrannis.blogspot.com/2012/11/how-federal-largesse-traps-poor.html

[DougMacG]

http://scottgrannis.blogspot.com/2012/11/how-federal-largesse-traps-poor.html

Excellent work by Scott  G on a very important topic.

[Crafty_Dog]

http://enews.earthlink.net/article/top?guid=20130303/cda94938-e315-42b3-b339-7a0b8d742782

Tax bills for rich families approach 30-year high
By STEPHEN OHLEMACHER
From Associated Press
March 03, 2013 7:38 AM EST
WASHINGTON (AP) — The poor rich.

With Washington gridlocked again over whether to raise their taxes, it turns out wealthy families already are paying some of their biggest federal tax bills in decades even as the rest of the population continues to pay at historically low rates.

President Barack Obama and Democratic leaders in Congress say the wealthy must pay their fair share if the federal government is ever going to fix its finances and reduce the budget deficit to a manageable level.

A new analysis, however, shows that average tax bills for high-income families rarely have been higher since the Congressional Budget Office began tracking the data in 1979. It's middle- and low-income families who aren't paying as much as they used to.

For 2013, families with incomes in the top 20 percent of the nation will pay an average of 27.2 percent of their income in federal taxes, according to projections by the Tax Policy Center, a research organization based in Washington. The top 1 percent of households, those with incomes averaging $1.4 million, will pay an average of 35.5 percent.

Those tax rates, which include income, payroll, corporate and estate taxes, are among the highest since 1979.

The average family in the bottom 20 percent of households won't pay any federal taxes. Instead, many families in this group will get payments from the federal government by claiming more in credits than they owe in taxes, including payroll taxes. That will give them a negative tax rate.

"My sense is that high-income people feel abused by being targeted always for more taxes," said Roberton Williams, a fellow at the Tax Policy Center. "You can understand why they feel that way."

Last week, Senate Democrats were unable to advance their proposal to raise taxes on some wealthy families for the second time this year as part of a package to avoid automatic spending cuts. The bill failed Thursday when Republicans blocked it. A competing Republican bill that included no tax increases also failed, and the automatic spending cuts began taking effect Friday.

The issue, however, isn't going away.

Obama and Democratic leaders in Congress insist that any future deal to reduce government borrowing must include a mix of spending cuts and more tax revenue.

"I am prepared to do hard things and to push my Democratic friends to do hard things," Obama said Friday. "But what I can't do is ask middle-class families, ask seniors, ask students to bear the entire burden of deficit reduction when we know we've got a bunch of tax loopholes that are benefiting the well-off and the well-connected, aren't contributing to growth, aren't contributing to our economy. It's not fair. It's not right."

The Democrats' bill included the "Buffett Rule," named after billionaire investor Warren Buffett. It gradually would phase in a requirement that people making more than $1 million a year pay at least 30 percent of their income in federal taxes.

The rule targets millionaires who make most of their money from investments — capital gains and qualified dividends, which have a top tax rate of 20 percent.

"It's fairness," said Sen. Claire McCaskill, D-Mo. "We're not raising taxes with the Buffett rule as much as we are correcting an inequity in terms of, one guy can be working at one end of the hall and because he's working with hedge funds, he gets taxed at 20 percent. Another guy at the other end of the hall is on a salary at an insurance company and he has to pay (39.6 percent). That's just not fair."

On average, households making more than $1 million this year will pay 37.2 percent of their income in federal taxes, according to the Tax Policy Center. But there are exceptions.

For example, the Internal Revenue Service tracks tax returns for the 400 highest-paid filers each year. Those taxpayers made an average of $202 million in 2009, the latest year available. Their average federal income tax rate: 19.9 percent.

That's still higher than the tax rate paid by most middle-income families, but not by much.

The middle 20 percent of U.S. households — those making an average of $46,600 — will pay an average of 13.8 percent of their income in federal taxes for this year, according to the Tax Policy Center. Over the past three decades, the average federal tax rate for this group has been about 16 percent.

The Associated Press analyzed two sets of data to compare tax burdens over time.

The CBO produces data from 1979 to 2009; the center has overlapping data from 2004 through 2013. Both get tax data from the IRS, but they use slightly different methodologies to calculate federal tax burdens.

Still, their numbers track closely enough to make some general observations. For example, it is clear that for 2013, average tax bills for the wealthy will be among the highest since 1979. It also is clear that federal taxes for middle- and low-income households will stay well below their averages for the same period.

Liberals and many Democrats say rich families can afford to pay higher taxes because their incomes have grown much more than incomes for middle- and low-income families.

Average after-tax incomes for the top 1 percent of households more than doubled from 1979 to 2009, increasing by 155 percent, according to the CBO. Average incomes for those in the middle increased by just 32 percent during the same period while those at the bottom saw their incomes go up by 45 percent.

"You've got to think about the context," said Chuck Marr, director of federal tax policy for the Center on Budget and Policy Priorities, a liberal think tank. "We just had three decades in the United States where we had a tremendous increase in inequality."

The growing disparity in income is a big reason why tax bills for the rich are approaching 30-year highs, Williams said. As the rich get richer, a greater share of their income is taxed at the top rate, he said.

High-income families also have been targeted by tax increases this year, including a new tax law passed by Congress on Jan. 1 as well as tax increases in the president's health care law.

The new tax law made the federal income tax more progressive, increasing the top tax rate from 35 percent to 39.6 percent, on taxable income above $400,000 for individuals and $450,000 for married couples filing jointly. Lower tax rates on income below those amounts were made permanent. Also, tax breaks for low-income families first enacted as part of Obama's 2009 stimulus package were extended through 2017.

[DougMacG]

That is pretty good reporting by the AP and pretty good analysis by the not always non-partisan TPC.  Still the problem is understated:

"Last week, Senate Democrats were unable to advance their proposal to raise taxes on some wealthy families for the second time this year as part of a package to avoid automatic spending cuts."

No.  They were trying to raise taxes on the rich for the 3rd, 4th or 5th time this year.  More Obamacare taxes just went into effect, plus one might include state taxes like in Calif and Minn if one is really trying to measure the combined effects of failed policies.

"For example, the Internal Revenue Service tracks tax returns for the 400 highest-paid filers each year. Those taxpayers made an average of $202 million in 2009, the latest year available. Their average federal income tax rate: 19.9 percent."

My apologies to civility on the board but it is such a God damned lie for informed people to write so inaccurately.  In order for a top income return to pay at the 15% rate, now 20% rate, they are including long term capital gains which by definition over our entire lifetimes includes an inflation component which is not income in any sense at all.  Also much of those gains were corporate and therefore quadruple taxed while they point out how 'small' one component out of four can be.

Then for the middle and lower income taxpayers they include FICA to make comparisons which I did not think was part of the federal income tax.  But lower income workers get a nice return an social security and medicare payments while higher income people do not.

Other than that, good news that someone is pointing out that we are heading back to the Jimmy Carter days as the alarmists among us have warned.

[Crafty_Dog]

Laffer and Moore: The Red-State Path to Prosperity

By ARTHUR B. LAFFER
AND STEPHEN MOORE

You can tell a lot about prosperity in America by observing the places people are moving to and where they are packing up and moving from. New Census Bureau data on metropolitan areas indicate that the South and the Sunbelt regions continue to grow, while the Northeast and Midwest continue to shrink.

Among the 10 fastest-growing metro areas last year were Raleigh, Austin, Las Vegas, Orlando, Charlotte, Phoenix, Houston, San Antonio and Dallas. All of these are in low-tax, business-friendly red states. Blue-state areas such as Cleveland, Detroit, Buffalo, Providence and Rochester were among the biggest population losers.
 
Art Laffer, chairman of Laffer Associates, on how blue states with high taxes are struggling to compete for businesses and workers. Photo credit: Associated Press.
.
Americans for Prosperity president Tim Phillips on Republican opposition in some states to income tax cuts. Photos: Getty Images
..This migration isn't accidental. Workers and business owners are responding to clear economic incentives. Red states in the Southeast and Sunbelt are following the Reagan model by reducing tax rates and easing regulations. They also offer right-to-work laws as an enticement for businesses to come and set up shop. Meanwhile, the blue states of the Northeast, joined by California, Minnesota and Illinois, are implementing the Obama model of raising taxes on businesses and the wealthy to fund government "investments" and union power.

The contrast sets up a wonderful natural laboratory to test rival economic ideas.

Consider the South. We predict that within a decade five or six states in Dixie could entirely eliminate their income taxes. This would mean that the region stretching from Florida through Texas and Louisiana could become a vast state income-tax free zone.

Three of these states—Florida, Texas and Tennessee—already impose no income tax. Louisiana and North Carolina, both with bold Republican governors and legislatures, are moving quickly ahead with plans to eliminate theirs. Just to the west, Kansas and Oklahoma are also devising plans to replace their income taxes with more growth-friendly expanded sales taxes and energy extraction taxes. Utah, while not a Southern state, leads the tax-cutting pack under Republican Gov. Gary Herbert.

Much of this is the result of GOP victories in the 2010 and 2012 elections. Today 10 of the 12 governors in the Southern states are Republican, and in nine of those states the Republicans control both chambers of the legislature.

Meanwhile, the Northeast is bluer than ever. Consider Massachusetts, where only four of the 40 state senators and just 29 of the 160 House members are Republicans. In the past two elections, the GOP was crushed in Connecticut, New York, Rhode Island and Illinois. And in 2012, Democrats gained a supermajority in both houses of the California legislature for the first time since 1883. Not surprisingly, California, Illinois, New York, Oregon, Minnesota, Hawaii, Connecticut, Maryland and Massachusetts have all raised income taxes in recent years.

But it isn't just higher taxes that make these so-called progressive states less attractive to business. Red states Texas, Oklahoma, Wyoming, West Virginia, Montana and North Dakota (and a few blue states like Ohio and Pennsylvania) are getting rich from oil and gas drilling. Meanwhile, bluer-than-blue New York has extended its moratorium on the technological advance behind the boom, hydraulic fracturing, citing overblown environmental hazards, and Vermont has outlawed it altogether. California's regulations prohibit nearly all new drilling of any kind.

Moreover, the entire Northeast and West Coast is anti-right-to-work, meaning that workers employed in unionized workplaces may be required to join the union and pay dues that might go toward political causes they disagree with. Most of these blue states also have super-minimum wage laws that price low-income workers out of the job market.

All the empirical evidence shows that raising a state's tax burden weakens its tax base. Still, too many blue-state lawmakers believe that a primary purpose of government is to redistribute income from rich to poor, even if those policies make everyone, including the poor, less well off. The obsession with "fairness" puts growth secondary.

Meanwhile, in the South, watch for a zero-income-tax domino effect. Georgia can hardly sustain a 6% income tax if businesses can skip across the border into neighboring states like Florida, Tennessee or South Carolina. Oklahoma Gov. Mary Fallin has told her legislature that the Sooner State will face high economic hurdles in the future if it is an income-tax sandwich between Texas and Kansas. Last year, Tennessee Gov. Bill Haslam signed into law legislation repealing the state gift tax and phasing out the state estate tax. Next on the docket? Repealing the state's tax on "unearned income"—income from sources other than wages such as rent and investments.

Increasingly, under Republican leadership, the pro-growth movement is spreading north. Over the past two years, Michigan and Indiana passed right-to-work legislation, and the latter phased out its estate tax. Ohio Gov. John Kasich turned a $6 billion deficit into a budget surplus with no tax increases. Wisconsin Gov. Scott Walker made a number of positive budget and collective-bargaining reforms and wants tax cuts this year. Kansas Gov. Sam Brownback signed into law legislation slashing the state's highest personal income-tax rate to 4.9% from 6.45%, and says his ultimate goal is to eliminate the income tax.

In short, red states of the South and other areas of the country are moving forward with pro-growth tax reform, while California and the blue states of the Northeast are doubling down on Obamanomics and European progressivism. Who will come out on top? Our money is on the red states and those wisely following their lead.

Mr. Laffer is chairman of Laffer Associates. Mr. Moore is a member of the Journal's editorial board.

[DougMacG]

First this on the previous post - people are leaving failed liberal states and going to the freer, lower tax, supply side states for economic reasons.  Unfortunately they are not leaving their failed political ideas behind.  Case in point: Colorado.  Leading us to this:

http://www.politico.com/story/2013/03/buzzkill-cash-strapped-states-eye-pot-tax-89412.html
Cash-starved states eye pot tax     3/28/13

The legalization argument went something like this, make it legal, drive the price down and liberty will replace crime across the fruited plain.

Enter the tax man.  Pass these bills and your private transactions are no longer legal - or private.  I wonder if this is what the libertarian, just leave me alone, recreational users had in mind.

Half the states already tax it even while it is illegal:http://www.ksrevenue.org/perstaxtypesdrug.html  In 10 years under the stamp act in MN, fewer than 20 people bought the stamps and I doubt if the reasons were for tax law compliance.

[Crafty_Dog]

When I ran for Congress in 1992, I said the same thing:

Why We Support a Revenue-Neutral Carbon Tax
Coupled with the elimination of costly energy subsidies, it would encourage competition..
By GEORGE P. SHULTZ
AND GARY S. BECKER

Americans like to compete on a level playing field. All the players should have an equal opportunity to win based on their competitive merits, not on some artificial imbalance that gives someone or some group a special advantage.

We think this idea should be applied to energy producers. They all should bear the full costs of the use of the energy they provide. Most of these costs are included in what it takes to produce the energy in the first place, but they vary greatly in the price imposed on society by the pollution they emit and its impact on human health and well-being, the air we breathe and the climate we create. We should identify these costs and see that they are attributed to the form of energy that causes them.

At the same time, we should seek out the many forms of subsidy that run through the entire energy enterprise and eliminate them. In their place we propose a measure that could go a long way toward leveling the playing field: a revenue-neutral tax on carbon, a major pollutant. A carbon tax would encourage producers and consumers to shift toward energy sources that emit less carbon—such as toward gas-fired power plants and away from coal-fired plants—and generate greater demand for electric and flex-fuel cars and lesser demand for conventional gasoline-powered cars.

We argue for revenue neutrality on the grounds that this tax should be exclusively for the purpose of leveling the playing field, not for financing some other government programs or for expanding the government sector. And revenue neutrality means that it will not have fiscal drag on economic growth.

The imposition of such a tax raises questions about how it should be levied and what measures should be used to see that the revenues collected are refunded to the public so that the tax is clearly revenue-neutral.

The tax might be imposed at a variety of stages in the production and distribution of energy. You can make an argument for imposing it at the point most visible to the population at large, which would be the point of consumption such as gasoline stations and electricity bills. An administratively more efficient way of imposing the tax, however, would be to collect it at the level of production, which would reduce greatly the number of collection points.

Revenue neutrality comes from distribution of the proceeds, which could be done in many ways. On the grounds of ease of administration and visibility, we advocate having the tax collected and distributed by an existing unit of government, either the Internal Revenue Service or the Social Security Administration. In either case, we think the principle of transparency should be observed. Funds collected should go into an identified fund and the amounts flowing in and out should be clearly visible. This flow of funds should not be included in the unified budget, so as to keep the money from being spent on general government purposes, as happened to the earlier excess of inflows over outflows in the Social Security system.

In the case of administration by the IRS, an annual distribution could be made to every taxpayer and recipient of the Earned Income Tax Credit. In the case of the SSA, the distribution could be made, in terms proportionate to the dollars involved, to everyone either paying into the system or receiving benefits from it. In any case, checks to recipients should be identified as "Your carbon dividend."

The right level of the tax for the United States deserves careful study, but the principle of a lower starting rate with scheduled increases to an identified level has proven to be a good one in the five-year experience of a similar carbon tax in British Columbia. This gives time for producers and consumers to get accustomed to a carbon tax, and to discover how they can respond efficiently.

The tax should also further increase over time if the apparent severity of the climate effects is growing and, alternatively, the tax should fall over time if the severity appears to be decreasing. Finally, to equalize the present and future burdens, the carbon tax rate should rise over time approximately at the real interest rate (say, the real return on 10-year Treasurys), so that the present value of the burden would be the same to future consumers and producers as it is to present ones.

A revenue-neutral carbon tax should be supplemented by a reasonable and sustained support for research and development in the energy area. However, we would eliminate any program (loan guarantees, etc.) that tempts the government to get into commercial activities. Clearly, a revenue-neutral carbon tax would benefit all Americans by eliminating the need for costly energy subsidies while promoting a level playing field for energy producers.

Mr. Shultz is former secretary of labor, director of the Office of Management and Budget, secretary of the Treasury and secretary of state. Mr. Becker, a 1992 Nobel laureate in economics, is a professor of economics at the University of Chicago. Both are senior fellows at Stanford University's Hoover Institution.

[Crafty_Dog]

An abiding lesson of the Obama Presidency is that no tax increase is ever enough. So it's not surprising that the President's new budget includes an increase in the death tax only three months after the last increase.

In January Mr. Obama and Republicans agreed to tax estates at 40% with an exemption of $5 million ($10 million for couples). That was an increase from 35% and a $5 million exemption. Now only weeks later he's again looking for more, as his budget proposes to raise the rate to 45% and reduce the exemption to $3.5 million.

Mr. Obama's budget justifies this bait and switch by claiming that in the fiscal-cliff talks "Republicans insisted" on the 40% estate tax rate, which it also claims is a giveaway "averaging $1 million per estate to the very wealthiest Americans." That's the familiar soak-the-rich disguise for a tax increase, and note well that the White House proposal doesn't index its $3.5 million exemption for inflation.

This means that over time much smaller estates would be hit with a rate that would confiscate nearly half of a lifetime of savings or business success. That's exactly how a death tax that was originally sold in 1916 as hitting only billionaires like the Rockefellers gradually began to apply to middle-class families who own, say, a successful auto-repair shop or invested wisely during the stock market booms of the 1980s and 1990s.

The White House claims this tax increase would raise an extra $79 billion over a decade, but everyone knows the wealthy would change their behavior to shelter more of their estates. Mr. Obama's favorite billionaire, Warren Buffett, plans to shelter his fortune as a tax-exempt foundation, even as he argues for higher death taxes on everyone else.

Republicans are unlikely to go along with this death tax grab, but it once again reveals the disdain that Mr. Obama has for a lifetime of thrift and industry.

[Crafty_Dog]

WSJ

by ARTHUR B. LAFFER
Reinvigorating the economy should be priority No. 1 for federal and state leaders. After enjoying an average growth rate above 3.5% per year between 1960 and 1999, Americans have had to make do with less than one-half that pace since 2000.

The consequences are already dramatic and will become even more so over time. Overall we are 20% poorer today than we would be had the pre-2000 growth rate persisted. All other things being equal, less national income also means federal and state fiscal problems are more intractable.

At the state level, there are reforms that can alleviate the problems associated with declining sales-tax bases and, at the same time, allow the states to move closer to a pro-growth tax system. One such reform would be to have Internet sellers collect the sales taxes that are owed by in-state consumers when they purchase goods over the Web.

So-called e-fairness legislation addresses the inequitable treatment of retailers based on whether they are located in-state (either a traditional brick-and-mortar store or an Internet retailer with a physical presence in the state) or out of state (again as a brick-and-mortar establishment or on the Internet).

In-state retailers collect sales taxes at the time of purchase. When residents purchase from retailers out of state (including over the Internet) they are supposed to report these purchases and pay the sales taxes owed—which are typically referred to as a "use tax." As you can imagine, few people do.

The result is to narrow a state's sales-tax base. It also leads to several inefficiencies that, on net, diminish potential job and economic growth.

Exempting Internet purchases from the sales tax naturally encourages consumers to buy goods over the Web; worse, the exemption incentivizes consumers to use in-state retailers as a showroom before they do so. This increases in-state retailers' overall costs and reduces their overall productivity.

The exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes.

Therefore—as with any pro-growth tax reform—the sales tax base in the states should be broadened by treating Internet retailers similarly to in-state retailers, and the marginal income-tax rate should be reduced such that the total static revenue collected by the state government is held constant.

One difficulty in imposing an Internet sales tax is the existence of dozens, if not hundreds, of sales-tax jurisdictions in many states, often with the tax rates and tax classification of the same goods varying by jurisdiction. It is overly burdensome to task companies with remitting sales taxes to more than 9,500 such tax jurisdictions. Instead, each state should set up a single sales-tax system, making compliance as easy as possible for today's modern sellers.

Addressing e-fairness from a pro-growth perspective creates several benefits for the economy. A gross inequity is addressed—all retailers would be treated equally under state law. It also provides states with the opportunity to make their tax systems more efficient and better aligned toward economic growth, as well as improve the productivity of local retailers.

The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation's fiscal problems. Properly addressing the problem of e-fairness on the state level is a small, but important, step toward achieving this goal.

Mr. Laffer is the chairman of Laffer Associates.

[DougMacG]

Arthur Laffer is usually right and always worth reading.  That said, I have mixed feelings about this one.

From the conclusion:  "The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation's fiscal problems."

Yes.

"The exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes."

This I find less convincing.

"It is overly burdensome to task companies with remitting sales taxes to more than 9,500 such tax jurisdictions."

Yes.  Tracking the sales tax to 50 states is burdensome enough for the casual seller or buyer, but it is my county, not my state that is paying a sales tax for the Minnesota Twins stadium for example, and my zip code overlaps the neighboring county that does not pay that tax. 

The "use tax" is bad joke.  For example, Minneapolis has such high property taxes (and extra sales tax) that it has no hope of ever having certain types of large stores locate within the city limits.  But if you go outside the city to buy things and carry them in, you are 'required' to track those purchases and send in the tax, or be in violation of the law.  The compliance rate is zero, leaving otherwise law abiding citizens in perpetual violation of an overly burdensome law.

[DougMacG]

In general should we be broadening the base and lowering the rate of most of our taxes ?  Yes. 

Does the 'internet sales tax' do that?  No.  This is just more taxes on more transactions.  Why give that away without the winning the accompanying lower of the rates?  It is a continuous and permanent transfer of more and more private sector resources over to the public sector. 

Why are the Feds getting involved with state and local tax collections anyway?

We already tried to kill off the supply side of the economy.  Now we are trying to kill off demand.  We hit the savers.  We hit the employers.  It's time to hit the consumers a little harder. 

The policy of the Fannie Mae, government-knows-best Left has gone from risking economic failure to guaranteeing it.

[Crafty_Dog]

Red Jahncke: The Federal Revenue Surge Won't Last
Large capital gains were taken as the low tax rates enacted by Bush neared their expiration date.
By RED JAHNCKE

There were many happy faces in Washington on Friday with the Treasury Department's announcement of robust tax revenues for April. Individual income-tax receipts surged to $240 billion for the month, taking the total for 2013 to $483 billion. This is far greater than the $393 in tax revenues the federal government collected for the first four months of 2012. The increase far surpassed the Congressional Budget Office projections in February.

The influx surprised the CBO and many other observers, but it shouldn't have. Neither should the dramatic drop that is likely to follow, though policy makers will be tempted to behave as if the revenue flood will continue.

Much of the increase in 2013 receipts is due to final tax payments for 2012 deriving from a rush to realize long-term capital gains before the 15% "Bush" tax rate on such gains expired at the end of 2012—and before the new 23.8% rate on long-term capital gains for higher-income taxpayers took effect on Jan. 1. How do we know this? Because virtually the same tax change occurred during the Reagan years, when the long-term capital gains tax rate jumped eight points, to 28% in 1987, when the Tax Reform Act took effect, from 20% in 1986.

Here are the 1980s data expressed in current dollars: In 1985, before any talk of the Tax Reform Act, individual taxpayers reported about $310 billion in long-term capital gains. In 1986, with the Tax Reform Act signed into law but not yet in effect, reported long-term capital gains ballooned to $580 billion. The following year, with the act's 28% rate in place, reported gains plunged to $250 billion. Tax revenues naturally followed—long-term capital gains tax revenue doubled to $90 billion in 1986, or 14.7% of total individual incomes taxes, before falling off again in 1987.

After these gyrations, long-term capital gains did not hit the 1986 peak again for a decade. This tax revenue pattern was replicated in many states whose tax systems peg off the federal system.

The pattern is likely to repeat today. Late last year, fear of a virtually certain steep impending tax increase gave investors every incentive to realize all available gains beforehand, raiding the gains that might have been reported in future years.  We don't know how many gains were taken late last year or, therefore, how much of recently reported income-tax revenues came from capital gains. But clearly they were substantial.  Such was the incentive to beat the impending tax hike that investors seem to have grabbed every available gain.

If 2012 resembles 1986 as a banner year for capital gains, then 2013 will look a lot like 1987, when there were hardly any to be had. Of course, the longer-term horizon depends on the performance of the stock market. It's hitting new all-time highs just now. Just as it was in 1987 before the famous crash.

The danger is that lawmakers and planners on the federal and state levels will mistake the current tax-revenue influx as a surge to a new, long-lasting plateau. It isn't.

Mr. Jahncke is president of the Townsend Group, a management consulting firm in Greenwich, Conn.

[G M]

The light at the end of the tunnel is an oncoming train.

Plan accordingly.

[Crafty_Dog]

President Obama named one of his budget functionaries, Danny Werfel, as the new acting Internal Revenue Service commissioner Thursday. Given that Mr. Werfel has spent the last year planning the sequester across the executive branch, he's more qualified to inflict more political abuse than prevent it. Allow us to propose a better candidate: National Taxpayer Advocate Nina Olson.

Ms. Olson is the ombudsman for the public inside the IRS. Her office parachutes in to aid individuals and businesses when the tax men are jerking them around, as well as making recommendations to Congress about modernizing the IRS and the tax code. She has held the post since 2001.

Ms. Olson seems to view the job as a moral calling, which is much-needed. The integrity of the tax system must be paramount when people are required to hand over giant chunks of their income to government. It usually falls to Ms. Olson to admonish the IRS that its chronic dysfunctions are—to borrow one of her favorite words—"unconscionable."

To take one example, Ms. Olson has been warning about tax-related identity theft since 2004, yet these crimes in which crooks fraudulently obtain someone else's refund have exploded to about half a million every year. The Taxpayer Advocate's identity theft caseload has increased 650% since 2008.

Ms. Olson's solution is for the IRS to create a single "traffic cop" to ensure innocent people get the money they're owed. Last year the IRS did the opposite and diffused accountability over 21 departments, using a "transfer matrix" to bounce victims from one to the next. "We see a lot of what I call the 'not my job' syndrome," Ms. Olson told the Journal of Accountancy in January, when fixing a problem is obvious "yet there's no one in the IRS who will accept responsibility."

Ms. Olson has also wielded a power called Taxpayer Advocate Directives that mandate changes in IRS procedure unless overruled by senior leadership. Four such directives had been issued until 2012 when Ms. Olson doubled the number, with plans to issue more.

She is trying to correct IRS misconduct such as a 2009 voluntary disclosure amnesty that was supposed to let taxpayers with overseas bank accounts amend their returns for errors and settle with a flat penalty. But the IRS merely announced the program on the Web, without the force of law. It then issued a memo telling examiners to treat those coming forward as criminal tax evaders, even for honest mistakes.

Ms. Olson tried to shut down this bait-and-switch violation of due process, but the IRS bureaucracy has responded by ignoring her directives while appealing to the chief IRS counsel to strip her of this authority.

A hundred years after the 16th Amendment created a four-page income tax return in 1913, Ms. Olson has also argued that the complexity of the modern code is the most serious problem for taxpayers. She often notes that tax credits and deductions this year will total $1.09 trillion while individual income tax revenue is about $1.36 trillion, which implies Congress could cut rates by 44% and still raise the same revenue.

That is not President Obama's version of tax reform, but perhaps he'll set aside his liberal preferences in favor of what is now his political interest to clean out the stables at 1111 Constitution Avenue.

[Crafty_Dog]

 The Autocrat Accountants
Once government is ensnared in every aspect of life, a bureaucracy grows increasingly capricious.
By Mark Steyn

Left-wing groups had their 501(c)(4) applications approved in weeks, right-wing groups were delayed for months and years and ordered to cough up everything from donor lists to Facebook posts, and those right-wing groups that were approved had their IRS files leaked to left-wing groups like ProPublica. The agency’s commissioner, a slippery weasel called Steven Miller, conceded before Congress that this was “horrible customer service” — which it was in the sense that your call is important to him and may be monitored by George Soros for quality control.
Advertisement

A civil “civil service” requires small government. Once government is ensnared in every aspect of life a bureaucracy grows increasingly capricious. The U.S. tax code ought to be an abomination to any free society, but the American people have become reconciled to it because of a complex web of so-called exemptions that massively empower the vast shadow state of the permanent bureaucracy. Under a simple tax system, your income is a legitimate tax issue. Under the IRS, everything is a legitimate tax issue: The books you read, the friends you recommend them to. There are no correct answers, only approved answers. Drew Ryun applied for permanent non-profit status for a group called “Media Trackers” in July 2011. Fifteen months later, he’d heard nothing. So he applied again under the eco-friendly name of “Greenhouse Solutions,” and was approved in three weeks.

The president and the IRS commissioner are unable to name any individual who took the decision to target only conservative groups. It just kinda sorta happened, and, once it had, it growed like Topsy. But the lady who headed that office, Sarah Hall Ingram, is now in charge of the IRS office for Obamacare. Many countries around the world have introduced government health systems since 1945, but, as I wrote here last year, “only in America does ‘health’ ‘care’ ‘reform’ begin with the hiring of 16,500 new IRS agents tasked with determining whether your insurance policy merits a fine.” So now not only are your books and Facebook posts legitimate tax issues but so is your hernia, and your prostate, and your erectile dysfunction. Next time round, the IRS will be able to leak your incontinence pads to George Soros.

Big Government is erecting a panopticon state — one that sees everything, and regulates everything. It’s great “customer service,” except that you can never get out of the store.

— Mark Steyn, a National Review columnist, is the author of After America: Get Ready for Armageddon. © 2013 Mark Steyn

[DougMacG]

A company that pays $16 million a day in taxes isn't doing enough, causing children to starve etc.  Good grief.  Thomas Sowell is a person who puts my thoughts to words better than I could ever hope to.  In this case it is Carl Levin making the Obama-style, Dem-fascism case.  We need to defeat their way of thinking, not just bring down individuals in scandals and elections.

Thomas Sowell
The Bullying Pulpit

We have truly entered the world of "Alice in Wonderland" when the CEO of a company that pays $16 million a day in taxes is hauled up before a Congressional subcommittee to be denounced on nationwide television for not paying more.

Apple CEO Tim Cook was denounced for contributing to "a worrisome federal deficit," according to Senator Carl Levin — one of the big-spending liberals in Congress who has had a lot more to do with creating that deficit than any private citizen has.

Because of "gimmicks" used by businesses to reduce their taxes, Senator Levin said, "children across the country won't get early education from Head Start. Needy seniors will go without meals. Fighter jets sit idle on tarmacs because our military lacks the funding to keep pilots trained."

The federal government already has ample powers to punish people who have broken the tax laws. It does not need additional powers to bully people who haven't.

What is a tax "loophole"? It is a provision in the law that allows an individual or an organization to pay less taxes than they would be required to pay otherwise. Since Congress puts these provisions in the law, it is a little much when members of Congress denounce people who use those provisions to reduce their taxes.

If such provisions are bad, then members of Congress should blame themselves and repeal the provisions. Yet words like "gimmicks" and "loopholes" suggest that people are doing something wrong when they don't pay any more taxes than the law requires.

Are people who are buying a home, who deduct the interest they pay on their mortgages when filing their tax returns, using a "gimmick" or a "loophole"? Or are only other people's deductions to be depicted as somehow wrong, while our own are OK?

Supreme Court Justice Oliver Wendell Holmes pointed out long ago that "the very meaning of a line in the law is that you intentionally may go as close to it as you can if you do not pass it."

If the line in tax laws was drawn in the wrong place, Congress can always draw it somewhere else. But, if you buy the argument used by people like Senator Levin, then a state trooper can pull you over on a highway for driving 64 miles per hour in a 65 mile per hour zone, because you are driving too close to the line.

The real danger to us all is when government not only exercises the powers that we have voted to give it, but exercises additional powers that we have never voted to give it. That is when "public servants" become public masters. That is when government itself has stepped over the line.

Government's power to bully people who have broken no law is dangerous to all of us. When Attorney General Eric Holder's Justice Department started keeping track of phone calls going to Fox News Channel reporter James Rosen (and his parents) that was firing a shot across the bow of Fox News — and of any other reporters or networks that dared to criticize the Obama administration.

When the Internal Revenue Service started demanding to know who was donating to conservative organizations that had applied for tax-exempt status, what purpose could that have other than to intimidate people who might otherwise donate to organizations that oppose this administration's political agenda?

The government's power to bully has been used to extract billions of dollars from banks, based on threats to file lawsuits that would automatically cause regulatory agencies to suspend banks' rights to make various ordinary business decisions, until such indefinite time as those lawsuits end. Shakedown artists inside and outside of government have played this lucrative game.

Someone once said, "any government that is powerful enough to protect citizens against predators is also powerful enough to become a predator itself." And dictatorial in the process.

No American government can take away all our freedoms at one time. But a slow and steady erosion of freedom can accomplish the same thing on the installment plan. We have already gone too far down that road. F.A. Hayek called it "the road to serfdom."

How far we continue down that road depends on whether we keep our eye on the ball — freedom — or allow ourselves to be distracted by predatory demagogues like Senator Carl Levin.

[DougMacG]

Mark Steyn on the radio, in for Rush today, made a profound point IMO.  Paraphrasing, if the tax rate is 25%, what part of your income does the IRS control?  The answer is 100%.  They control the 25% that they take of course and they control the rest too.  You have to report to them, keep accounting of it all for them and justify to them all of the part that you keep too.  He brought this point over to health care.  I will paraphrase even worse but you will have to account to them everything you do in health care, your broken leg, your prescriptions, your surgery, your decisions, coverage, payments, etc.

Here is a similar point in a Mark Steyn column: http://www.ocregister.com/articles/irs-508961-government-tax.html  (The guy is pretty funny.)

"A civil "civil service" requires small government. Once government is ensnared in every aspect of life, a bureaucracy grows increasingly capricious. The U.S. tax code ought to be an abomination to any free society, but the American people have become reconciled to it because of a complex web of so-called exemptions that massively empower the vast shadow state of the permanent bureaucracy. Under a simple tax system, your income is a legitimate tax issue. Under the IRS, everything is a legitimate tax issue: The books you read, the friends you recommend them to. There are no correct answers, only approved answers. Drew Ryun applied for permanent nonprofit status for a group called "Media Trackers" in July 2011. Fifteen months later, he'd heard nothing. So he applied again under the eco-friendly name of "Greenhouse Solutions," and was approved in three weeks."

"The president and the IRS commissioner are unable to name any individual who took the decision to target only conservative groups. It just kinda sorta happened, and, once it had, it growed like Topsy. But the lady who headed that office, Sarah Hall Ingram, is now in charge of the IRS office for Obamacare. Many countries around the world have introduced government health systems since 1945, but, as I wrote here last year, "only in America does 'health' 'care' 'reform' begin with the hiring of 16,500 new IRS agents tasked with determining whether your insurance policy merits a fine." So now not only are your books and Facebook posts legitimate tax issues but so is your hernia, and your prostate and your erectile dysfunction. Next time round, the IRS will be able to leak your incontinence pads to George Soros.  Big Government is erecting a panopticon state – one that sees everything, and regulates everything. It's great "customer service," except that you can never get out of the store."

[DougMacG]

On American Thinker today:
http://www.americanthinker.com/2013/05/how_to_junk_the_irs.html

In a nutshell, he replaces FICA and the income tax with an expanded FICA.  Easy to calculate, easy to collect.  Remove the cap so it is taxed al the way up, levy 11% on the employee and 11% on the employer.  it would not have to be flat, could be tiered (but that creates other problems).  No deductions, exceptions or special rules (for the most part).

The plan is not fully thought through on capital gains.  I say adjust long term gains for inflation and then tax them the same.  I am not endorsing this plan (yet) but I endorse the idea that total reform is needed, simplicity and lower rates need to be at the heart of it, and that any idea ('FAIR' tax/consumption tax) that assumes the tax rate on income can ever go to zero in our lifetime is naive.

Comments?

[DougMacG]

[ccp]

Doug,

Do you think Rove Bushes and the rest of the Rep elite party are hip to this?   It is a tall task in a country with half who don't pay taxes but this might have the momentum if played right.   But the "leaders" on the right are not as clever and directed as the politburo.   

[DougMacG]

Doug,  Do you think Rove Bushes and the rest of the Rep elite party are hip to this?   It is a tall task in a country with half who don't pay taxes but this might have the momentum if played right.   But the "leaders" on the right are not as clever and directed as the politburo.  

A true flat tax is not going to fly, but a 2 or 3 tiered tax system with only 2 or 3 deductions allowed would accomplish the nearly the same thing.  Ted Cruz and others are working on this idea.  

Reducing a 26 volume tax code to a single page will mostly dis-empower the IRS, no matter what rates we choose.

Since the peak of the last economic expansion, liberals have been winning the 'fairness' argument by bringing everyone down. Tomorrow's leaders will need to move the polls toward the policies of economic growth, not follow the current polls.

Rove is not against reform, he is against the nomination of inexperienced, unvetted candidates who run for high offices and blow crucial races.  The tea party and Rove types focused on winning elections can learn from each other and work together.  Republican should have tied or taken the Senate last time around.  All the Republican presidential candidates had big tax reform ideas in their platforms, written by the advisers from among the party elites.  We need better candidates with better messaging to win more votes.  The success of people like Cruz, Rubio and Rand Paul and others needs to spread to more like-minded candidates winning more races.

Rubio won by a swing state by a million votes and Rove was one of his earliest backers - and he was running against a moderate, sitting governor in his own party.  But Rubio came to the Senate race from his position as Florida Speaker of the House, not as an unvetted newcomer or outsider.

[ccp]

"Reducing a 26 volume tax code to a single page will mostly dis-empower the IRS, no matter what rates we choose"

Also will dis-empower some of the political corruption in DC.

Of course we would still have state taxes, county taxes, and so forth....

[DougMacG]

The Stones are famously tax-averse... "The whole business thing is predicated a lot on the tax laws," says Keith Richards, Marlboro in one hand, vodka and juice in the other. "It's why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out. No taxes at all."

Fortune Magazine, Sept. 30, 2002,  WSJ 06/10/2013

[DougMacG]

"Reducing a 26 volume tax code to a single page will mostly dis-empower the IRS, no matter what rates we choose"
Also will dis-empower some of the political corruption in DC.
Of course we would still have state taxes, county taxes, and so forth....

That's right.  Eliminating preferences and pursuing 'equal protection' brings all special interests down to just free speech power like everyone else.  There is no point in a zero federal income tax because a) it will never happen (again), and b) the states and everyone else will just tax the hell out of your income anyway.  The real gain from a fair tax, national sales etc would have been to not have to calculate your income.  In all but a few states, you have to do that anyway.

The focus of the new federal tax system must be to tax all income, but do it wider, lower, flatter, and simpler.  The reason to do it is to re-empower the American private sector to grow wealth for all who join in.

[DougMacG]

The obamacare tanning bed tax will put all tanning bed businesses out of business.  There is one exception.  If such beds are offered as part of a gym or fitness center at no extra charge, no tax will be imposed.   Of course they did not want the huge conglomerate 'health' clubs to jump on the anti-Obamacare bandwagon.  So indoor tanning is bad for you if you pay for it, not so much if part of a larger fitness program.  Good grief.   

-------
"...the absurd has become the accepted norm..." 

http://www.washingtonpost.com/opinions/kathleen-parker-irs-taxing-of-tanning-beds-and-other-obamacare-absurdities/2013/06/11/42b8e99e-d2cf-11e2-8cbe-1bcbee06f8f8_story.html
-------

How about just a tax rate and a tax, instead of a 10,000 bill, just one of many, replacing the market, picking winners and losers.

[Crafty_Dog]

 

Dear Marc F.,

The power to tax is the power to destroy - and now the ability to track what you purchase.  Legislation recently passed through the U.S. Senate would force small Internet businesses to become sales tax collectors for nearly 10,000 tax jurisdictions.  If passed, the National Internet Tax Mandate would raise taxes on all Americans, as a state sales tax on all goods purchased online would be implemented.

But that’s not all it does.  You see, every state taxes different things.  Some tax food; others don’t.  Some tax medicines; others don’t.

Do you see the invasion of privacy that is coming?

Government bureaucrats are not only going to know you made an online purchase, but they will also have to know WHAT you purchased.  It’s the only way they could make this scheme work.

But it also has other huge problems:

*** All Americans would see their taxes go up, as big-spending governors of BOTH parties work to implement a state sales tax on ALL goods purchased online.

*** In order to enforce the law, state tax agencies would get to monitor your records.  This means each time you buy ammo online, the government sees the receipt!

*** New and higher taxes would destroy small web-businesses, crush economic growth, and set the stage for massive new regulations that threaten the very existence of the Internet.

Marc F., you and I have to mobilize NOW to stop this madness.

I need you to call your Representative today!  Let your Representative know you won't put up with this egregious attack on taxpayers and small business owners.

Already, C4L’s efforts have made a huge difference.

Despite passing in the Senate, the bill appears to have stalled in the House.

But “stalled” does not mean “defeated.”

In fact, I'm already getting word that some in the GOP leadership will be more than happy to help this Obama-backed bill – or one like it - sail into law.

Now is the time to turn the pressure up and finish this fight in victory!

Greedy state officials from all over the country are eager to get more of your money and are busy bending the ears of Congress.

They want to start taxing EVERYTHING you purchase online - clothing, books, software, ammunition – and you can be sure state agencies will see a copy of every transaction.

Forcing small businesses to comply with nearly 10,000 tax jurisdictions in the United States will result in a crippling amount of red tape for them to navigate.

Not to mention the sheer cost associated with complying.

You and I both know, under the guise of "national security,” establishment bureaucrats are already feverishly looking for new ways to trace, track, and register all Americans' activity - and this bill will help move them one step closer to doing just that.

What you read.  What you buy.  What videos you watch.  What you write about THEM.

Where will it end?

We MUST stop this bill now, so call your Representative today.

Tell your Representative how bad this bill – or any attempt to tax the Internet - is for the economy and the American taxpayer.  Ask to speak directly to the Legislative Assistant in charge of this issue.

Will you stand by while the big taxers impose yet another tax on hardworking Americans?

Will you allow establishment insiders to destroy entrepreneurship and innovation online?

Or will you help me FIGHT BACK and stop the establishment from trampling on taxpayers and small businesses yet again?

In Liberty,

Deb Wells
Senior Director of State Operations
Campaign for Liberty

P.S.  We must act now if we are going to stop this terrible legislation from passing the U.S. House.

If this bill is passed, it will hurt the American taxpayer, business owners, and YOUR INTERNET PRIVACY!

That’s why I am asking you to call and email your Representative.

Make sure to ask to speak to the Legislative Assistant on this issue directly when you call!

Tell your Representative how bad this bill – or any attempt to tax the Internet - is for the economy and the American taxpayer. 

[DougMacG]

The two ranking members of the Senate Finance Committee are starting a project of writing a new tax code and replacing the current 72,000 page monstrosity.  They have put their peers on notice that they have one month to report back on what deductions, exemptions and special treatments are worth keeping and why.  Otherwise we start from scratch, blank slate.  This is great news except for the fact that Max Baucus (D-MT) is lame duck, not running for reelection and not supported by his own party and Orrin Hatch serves in the minority party with no power and no chance of moving good legislation forward.  Still, this is a very positive development compared to the status quo of no one talking about the problem or a solution since the last Republican Presidential losers' debate of winter, 2012.

http://online.wsj.com/article/SB10001424127887324328204578572472718625916.html?mod=WSJ_Opinion_MIDDLESecond
http://online.wsj.com/article/SB10001424127887323873904578573481723514850.html?mod=WSJ_Opinion_MIDDLESecond

[DougMacG]

Colorado makes a distinction between medical and recreational use.  For taxation there will be 3 categories, medical with zero tax, recreational taxed to the hilt, and old fashioned black market, just like it used to be.

http://denver.cbslocal.com/2013/07/10/taxes-on-recreational-pot-sales-could-top-35-percent/

DENVER (CBS4)- The taxes on recreational marijuana might go a lot higher than first thought. Smokers buying at shops in Denver may pay up to 35 percent in taxes.

Colorado voters will be asked to approve two state taxes totaling 25 percent on all retail marijuana sales in the November election. They may be asked to approve an additional city tax for Denver.  Denver Mayor Michael Hancock wants to add an additional five to 10 percent city tax on top of that.  Hancock said the money is needed to pay the costs of regulating the drug.

[DougMacG]

A rare politician who is actually an economist, Phil Gramm shares good wisdom about the criteria required to make tax reform successful.

Phil Gramm: A GOP Game Plan for Tax Reform  WSJ July 10, 2013
If the special deals that create crony capitalism are allowed to survive, Republican efforts will have failed.

Thanks to the efforts of Democrat Sen. Max Baucus and Republican Rep. Dave Camp, Congress will take up tax reform this year. Before the debate begins, however, Republicans need to set out the principles that represent our values. In my 24 years in the House and Senate, I never wrote a bill that represented a 100% statement of my values, but I always found it important to know where the North Star was as I tried to navigate through the swamp.

First, under no circumstances should Republicans agree to make the tax system even more progressive than it already is, or to increase the number of people who do not pay income taxes. In 1980, the top 1% and 5% of income earners in America paid 19.1% and 36.9% of total federal income taxes. Today, the top 1% and 5% pay 37.4% and 59.1%. Meanwhile, 41.6% of American earners now pay no federal income taxes.

The more progressive the tax system becomes the more unstable the country's public finances get. High-income Americans earn a large share of their income in bonuses, dividends and capital gains, all of which are highly sensitive to the business cycle. This means wide swings in tax collections that play havoc with government budgets. The removal of large numbers of people from the tax rolls makes the political system more unstable. Individuals and households that pay no income taxes have a diminished stake in limited government.

Second, government should collect the minimum revenues needed to support and protect a free society and do so in a way that is, as far as possible, neutral in its effect on individual behavior. In its purest form, this means no individual deductions, credits or tax expenditures. No matter how committed Americans may be individually to charitable giving or home ownership, the government should not promote those values through special provisions in the tax code.

Third, Republicans should require all similarly structured firms be treated the same. If sweat equity is taxed as a capital gain for a mechanic who opens a garage with a financial partner, it should be treated the same for a hedge fund or private-equity manager who shares in the gains of his investors.

Fourth, business subsidies and credits should be eliminated. Ending subsidies to fund lower tax rates improves the efficiency of capital allocation. The sine qua non of tax reform is a more efficient allocation of investment capital. If the tax breaks that create crony capitalism are allowed to survive, then tax reform failed.

Fifth, all costs of production should be equally deductible when they are actually incurred, and all income should be recognized at the time it is actually earned and taxed only once. President Obama's repeated proposal to force large Subchapter S corporations and limited liability entities to be taxed as C corporations is a movement in the wrong direction. Revenues flowing from those changes would come almost exclusively from the double taxation of corporate income: first on corporate profits, and again when individuals pay taxes on dividends and capital gains.

Other things being equal, the efficiency of a nation's corporate tax system can be measured by the lack of special-interest provisions in the code and how low the tax rate is. But things are never equal—and a fixation with achieving a given corporate tax rate is dangerous. That's because you can, within limits, make the tax rate whatever you want it to be by changing the definition of what is a deductible business expense.

For example, by limiting or eliminating the deductibility of interest cost—a perfectly legitimate cost of doing business—the "savings" could be used to lower the corporate tax rate. But such changes would further distort the cost of capital relative to the cost of labor and almost certainly be detrimental.

Similarly, you could eliminate the deductibility of wages and other costs of doing business and simply tax gross receipts instead of net profit. The tax rate would be low, but would economic efficiency be increased? No.

Sixth, tax reform should move toward the elimination of taxes on the foreign earnings of American companies, whose profits are already taxed abroad. Other countries recognize that the competitiveness of their companies would be severely damaged if they had to pay higher taxes than their competitors in foreign markets and do not impose domestic taxes on foreign earnings.

By attempting to tax foreign earnings when they are repatriated, the United States has incentivized companies not to repatriate earnings. As a result, U.S. companies hold huge hoards of cash abroad while domestic investment lags.

Since America is now the worst place in the world to earn corporate profits, we might be better off ending all business subsidies and using the savings to eliminate the dual taxation of corporate income and the taxation on foreign earnings—and to lower the corporate tax rate as much as is consistent with revenue neutrality, using static scoring. We could then write a provision into the law that if the improved code collects more taxes than the static revenue estimates, the rate would automatically be lowered over time by the amount of over-performance, down to 25%.

Some final advice: Compromise is fine if it moves you in the right direction. But don't compromise on things that will only make rational reform harder in the future. If you can improve the tax code and help the economy now, do it. But remember, the Obama administration too shall pass, and a poor deal now will make a good one harder to achieve in the future.

Mr. Gramm, a former Republican senator from Texas, is a senior partner of US Policy Metrics and a visiting scholar at the American Enterprise Institute.

[Crafty_Dog]

A Special Tax Misery for Americans Living Abroad
The Foreign Account Tax Compliance Act encourages you to surrender your citizenship—or your sanity.
By COLLEEN GRAFFY

London

Beware the sledgehammer used to crack the nut. In this case, the nut is the U.S. government's laudable goal of catching tax evaders. The sledgehammer is the overreaching effect of legislation that is alienating other countries and resulting in millions of U.S. citizens abroad being forced to either painfully reconsider their nationality, or face a lifetime of onerous bureaucracy, expense and privacy invasion.

The legislation is Fatca, the Foreign Account Tax Compliance Act. To appreciate its breathtaking scope along with America's unique "citizen-based" tax practices, imagine this: You were born in California, moved to New York for education or work, fell in love, married and had children. Even though you have faithfully paid taxes in New York and haven't lived in California for 25 years, suppose California law required that you also file your taxes there because you were born there. Though you may never have held a bank account in California, you must report all of your financial holdings to the state of California. Are you a signatory on your spouse's account? Then you must declare his bank accounts too. Your children, now adults, have never been west of the Mississippi. But they too must file their taxes in both California and New York and report any bank accounts they or their spouses may have because they are considered Californians by virtue of one parent's birthplace.

Extrapolate that example to the six million U.S. citizens living around the globe. Many, if not most, don't know about these requirements. Yet they face fines, penalties and interest for not complying—even if they owe no U.S. taxes, own no U.S. property, have no U.S. bank account and haven't lived there in years—if ever.

A particularly alarming aspect of Fatca is that it seeks to co-opt foreign banks as long-arm enforcement agencies of the Internal Revenue Service—even when it might contravene that country's own privacy or data-protection laws. If financial institutions don't report U.S. citizens holding accounts with them, these institutions face a 30% withholding tax on securities transactions that originate in the U.S.

Given this threat, why allow an American, or even suspected American, to bank with you? The reporting costs, and the consequences of a mistake, are too onerous. It isn't always obvious who's a U.S. citizen, either. Many, like the very British mayor of London, Boris Johnson, are "accidental Americans." He was born in New York, where his father worked for the U.N. And unless Mr. Johnson has actively renounced his citizenship, which requires an appointment at a U.S. Embassy, forms and fees, he is still an American citizen.

Mr. Johnson repudiated his American citizenship in a newspaper column once, but it's far from clear that this would satisfy U.S. authorities. Mr. Johnson, have you filed your taxes and reported all your U.K. bank accounts to the U.S. Department of Treasury yet?

Foreign financial institutions trying to avoid these new requirements have two alternatives: to drop American clients, or don't invest in the U.S. Neither scenario benefits America. And yet it's hard to believe that Chinese financial institutions will acquiesce in reporting their clients' account information to the U.S. Imagine the howls down the halls of Congress if China informed U.S. banks that they must report to China all of the bank accounts held by Chinese citizens in the U.S. or face penalties.

This infringement on the sovereignty of other nations has not gone down well abroad and has only served to reinforce the most negative stereotypes of America. To address this, the U.S. Treasury has been negotiating "Inter-Governmental Agreements" (IGAs) that promise reciprocity in return for compliance. But in a letter to Treasury Secretary Jacob Lew, Rep. Bill Posey—a member of the House Financial Services Committee from Florida—alleged that Treasury had exceeded its authority in promising reciprocal financial reporting to foreign nations. If Rep. Posey is wrong, U.S. banks will face enormous reporting requirements and costs. If he is right, the U.S. government will face enormous international embarrassment after having coaxed nations into signing IGAs.

The core injustice in America's tax policy is that it is based on citizenship rather than residency. This novel approach is practiced by only two countries in the world: the U.S. and Eritrea. Ironically, then-U.S. Ambassador to the U.N. Susan Rice condemned this practice by Eritrea in 2011 as "the extortion of a 'diaspora tax' from people of Eritrean descent living overseas." Many would describe U.S. practice in similar terms.

Dual citizens like me who live bi-continental lives are aware that there is no upside in our tax position. We are required to file in both countries, we pay taxes where the taxes are highest, and we can take none of the tax advantages either country has to offer.

But for many others, whose lives are only in one country—and that one country is not the U.S.—this type of taxation is particularly destructive. It forces honest people with affection for their ties to America to either keep quiet about their heritage, or spend potentially thousands of dollars a year to prove that they owe no U.S. taxes. Or, as is increasingly occurring, it forces them to give up their U.S. citizenship. The result is that the U.S. is turning millions of "good will" ambassadors into "bad will" ambassadors. Can any of this be good for America?

Ms. Graffy is a law professor with Pepperdine University in Malibu, Calif., based in London as director of Pepperdine's London Law Campus.

[Crafty_Dog]

Good to see Dr. Carson still engaged , , ,

CARSON: Proportional taxation works because it’s fair to everyone
The biblical model emphasizes service rather than envy
By Ben S. Carson

Wednesday, July 17, 2013s

Many of the Founding Fathers fled to America because of the promise of freedom of speech and freedom of expression. In England and other monarchies, one could be imprisoned or killed for voicing opinions that differed from those of the rulers. If indeed we are willing to easily ignore government persecution of those who voice disagreement with its policies, then we are rapidly moving backward instead of forward in the quest for the freedom that was part of America’s promise.

We hear a lot in Washington these days about “fairness.” But there is nothing fair about targeting people or groups that disagree with the policies of the executive branch of government. There is nothing fair about a tax code filled with loopholes that can be exploited by those who can pay high-priced tax lawyers and accountants to find them. There is certainly nothing fair about a tax code that is so complex that it is virtually impossible to comply with every aspect of the thousands of pages of rules and regulations. Because of the complexity of this code, the government can target virtually anyone and find a mistake in their tax documents, which can be used to extort money or worse. We are talking of nothing less than the precursor of a totalitarian government.

We now have every reason to call for tax reform. We need to strike while the iron is hot or everyone will soon adopt a laissez-faire attitude, and the corruption will continue unabated. Many alternative forms of taxation are used throughout the world, but the model that appeals most to me is based on biblical tithing. Under that system, everyone was required to pay one-tenth of their income to the designated authorities of the theocracy. You were not excused if you experienced a crop failure, nor were you asked to pay triple tithes if you had a bumper crop. Under this system, the man with the bumper crop obviously would pay a lot more in tithes than the man who experienced the crop failure.

If we bring this concept forward to modern times and use the 10 percent model — although it could be any percentage — a Wall Street wizard who makes $10 billion a year would have to pay $1 billion, whereas a schoolteacher who makes $50,000 a year would have to contribute $5,000. Some would say this system would not be fair because it doesn’t hurt the billionaire as much as it hurts the teacher. The problem with this line of reasoning is that no one can be completely objective in determining exactly how much each person should be hurt.

Proportionality eliminates this dilemma and simplifies things to the point where we don’t need complex agencies such as the IRS. Instead of trying to decide how much we need to hurt the billionaire, we should be grateful that his contributions are building roads and keeping bridges in good repair proportionately as much as the contributions of hundreds of teachers. Of course, the teachers are making other important contributions to society, and we recognize this by giving everybody the same rights regardless of their financial status. This kind of system can work only if we eliminate loopholes and make it truly fair.

The other big plus for this proportional system of taxation is that everyone is included. We need to abandon the idea that some people are too needy and pitiful to be required to make contributions. I believe this is insulting to the poor, who may not have much money but certainly can possess dignity and self-respect. I can remember as a child getting my first paycheck and being proud and happy to make a contribution to my own well-being and that of the larger society.

Furthermore, if everyone is included in the tax base, it forces the government to be more frugal with the taxpayers’ money. Officials must answer to everyone, especially when they propose tax hikes. It is relatively easy to point the finger at a small group (the rich) and say, “Let’s get them.” This type of attitude takes advantage of some of the more undesirable human traits, such as jealousy and envy. It plays into the politics of division, which does nothing to strengthen our nation but can be helpful to those interested only in political power.

America has been and continues to be the most generous nation on earth. We love to help the less fortunate, and I hope we always care for our fellow man. We need to look for ways in which we can work together and reject all the forces that want to pull us apart. When we talk about “liberty and justice for all,” let’s make sure we mean it.

Ben S. Carson is professor emeritus of neurosurgery at Johns Hopkins University.

Read more: http://www.washingtontimes.com/news/2013/jul/17/proportional-taxation-works-because-its-fair-to-ev/#ixzz2Zh6h0M4e
Follow us: @washtimes on Twitter

[DougMacG]

Midway through year five he discovers or admits that having the highest tax rates in the developed world is a bad thing for the economy?  Say it isn't so!  If it is so, why does he have to offer a grand bargain to get what the opposition has said we needed all along?  What a complete, economic moron.  And duplicitous politician.

http://www.reuters.com/article/2013/07/30/us-usa-obama-idUSBRE96T0F820130730

"Obama wants to cut the corporate tax rate of 35 percent down to 28 percent and give manufacturers a preferred rate of 25 percent."
-------------

And then he will spend the money on infrastructure?!  Who knew that lowering tax rates down from punitive levels will generate new revenues??  It kind of defeats the whole purpose of the Pelosi-Reid-Obama, post-2007 economic nightmare.  It makes me think we lost 10 trillion dollars, 10 million workers and one decade of our nation's history we will never get back for no reason. 

What next?  Will they discover that punitive individual tax rates, raised just this year, are killing jobs, industries and cities too?

[G M]

I hope all those youthful Obama supporters are enjoying their parent's basements and part time McJobs.

[Crafty_Dog]

Calling Foul on the Marketplace Fairness Act
The cross-state sales tax legislation is a grave threat to online businesses like mine.

 
    By
    RICK SMITH
    CONNECT

Proponents of the Marketplace Fairness Act—which would enable states to collect sales tax on Internet vendors—have had very little difficulty getting the word out about why this legislation should become law. Well-connected big-box retailers, venture-funded tax service companies and Amazon.com certainly have the budgets to run an excellent PR campaign for passage of this bill. Lost in this lobbying shuffle are a large number of businesses who will be severely hurt or even put out of business by this ill-conceived bill.

I'm the owner of Chefsresource.com, an online retailer of gourmet kitchen items for the past 14 years. We're a family-run business with a fairly small number of core employees who handle all aspects of our online business. We're located in California and collect sales tax for our California shipments.

The biggest concerns I have are about compliance costs and the audit possibilities under the MFA. Right now, I am in the middle of my second California sales-tax audit. Even under the best of circumstances, audits are stressful, invasive, time consuming and costly. A good auditor is thorough and just doing his job, but the hard expense of extra accounting assistance and, more important, the demands on my time are a real challenge and take away from my ability to grow my business. The MFA would require companies like mine to collect sales tax in states where we have no physical presence, opening us up to the risk of audit by as many as 45 sales-tax states each year.

I truly cannot see how our business could possibly handle audits by scores of different states and tax jurisdictions at any one time. Even a few audits per year would be more than we can handle, and the personal financial responsibility for any audit deficiencies is frightening to me. The only safe-harbor provision in the MFA is that companies would not be held responsible if an error is made by the government-certified software provided "free" under the proposed law.


But software glitches are only a small portion of the possible audit issues. For instance, how would this new remote auditing power be enforced? Will they come to my office like my local auditor does? Of course not. Will we be compelled to attend audits in different states? This is not addressed in the bill or directly addressed in the states' simplification standards document.

The myth of free software solving everything is especially infuriating to business owners who understand the business processes involved. To quote McKane Davis, president of Scrapbook.com and one of the founders of eMainStreet Alliance, a grass-roots group of online small businesses opposed to the MFA: "The software is free like a puppy is free." Every state is allowed to offer its own choice of software. The software might be custom-written by the state, or might be licensed from a tax-software provider. It's not possible to integrate numerous, incompatible "free" solutions into our business. The only solution is to pay a provider.

Unfortunately, even paid solutions will not fully accommodate our fairly standard business requirements. There is far more to sales-tax collection than figuring out the correct amount due in the shopping cart. Avalara, a leading sales-tax compliance service can certainly handle that small aspect of the big picture. But they don't currently work with our order-processing software, which handles phone orders, returns, sales-tax reports and more. Our Amazon sales cannot be handled through this paid service either. Amazon sales-tax collection would have to be handled through Amazon itself—for a fee of course.

The small-business exemption excluding companies with remote sales of less than $1 million sounds generous but is far too low. Assuming 5% net margins (Amazon's is closer to 1%), that's $50,000 a year in net profits. Compliance costs will wipe out a large chunk of those profits. The definition of "small" also will be a disincentive against growth; many people will shrink their businesses to avoid the issue or simply shut down.

Moreover, a much larger number of businesses will be affected by the MFA than is commonly known. Remote sellers under the act most visibly include online retailers and catalog sellers. But the act will also apply to remote vendors, manufacturers and distributors who supply retailers. Many of our suppliers, for example, would not qualify for the small-business exemption and will face the same 45-state audit risk we do. Some of our suppliers also sell direct to consumers. They will be hit in the same way all remote retailers will. Their costs will need to be passed on, which will likely lead to higher wholesale and retail prices.

I strongly support the Supreme Court's 1992 decision in Quill Corp. v. North Dakota that no state may require retailers to collect sales taxes from online buyers unless the retailer has a physical presence in the taxing state. Physical location is the key, and any attempt by other states to pass their tax-collection burden on to me is a grave threat to my business. The MFA is flawed legislation that doesn't bring true simplification to the process.

Mr. Smith is the founder and president of Chefsresource.com and a member of the eMainStreet Alliance.

[DougMacG]

On the previous, isn't it just like liberalism and our media to allow a huge new tax to be called 'marketplace fairness'.
-------------
George Will writes today on the beginning of a new effort at tax reform:

"Since the 1986 simplification, the code has been re-complicated more than 15,000 times at the behest of Americans who simultaneously praise the principle of simplification.  All other taxes could be abolished if we could tax the nation’s cognitive dissonance"

http://www.washingtonpost.com/opinions/george-will-taming-the-tax-code-beast/2013/08/09/230783ce-011b-11e3-9a3e-916de805f65d_story.html

Taming the tax code beast

By George F. Will, Published: August 9

“Colleagues,” said the June 27 letter to 98 U.S. senators, “now it is your turn.” The letter’s authors are Max Baucus (D-Mont.) and Orrin Hatch (R-Utah), the chairman and ranking Republican, respectively, on the tax-writing Finance Committee. From their combined 71 years on Capitol Hill they know that their colleagues will tiptoe gingerly, if at all, onto the hazardous terrain of tax reform.

Together with Chairman Dave Camp (R-Mich.) of the House Ways and Means Committee, Baucus and Hatch propose a “blank slate” approach, erasing all deductions and credits — currently worth more than $1 trillion a year — and requiring legislators to justify reviving them. Hence the Baucus-Hatch letter, in response to which almost 70 senators sent more than 1,000 pages of suggestions. Although some often were short on specificity, the submissions were given encrypted identification numbers and locked in a safe, as befits dangerous documents.

Every complexity in the 4 million-word tax code was created at the behest of a muscular interest group that tenaciously defends it. Which is why tax simplification would be political reform: Writing lucrative wrinkles into the code is one of the primary ways the political class confers favors. Furthermore, “targeted” tax cuts serve bossy government’s behavior modification agenda: Do what we want you to do and you can keep more of your money. Simplification would reduce the opportunities for the political class to throw its weight around. Hence the flinch from simplification.

In 1986, however, Congress did not flinch. In the past 40 years, Finance, the Senate’s most important committee, has had formidable chairmen — Russell Long, Bob Dole, Bob Packwood, Lloyd Bentsen, Pat Moynihan and Baucus. And in 1986 there were additional serious reformers, including Sen. Bill Bradley and Rep. Dick Gephardt.

Of the three biggest tax preferences, unions, especially, oppose taxing as compensation — which it obviously is — employer-paid health insurance (a $260 billion benefit), and Democrats oppose ending the $80 billion deduction for state and local taxes. It encourages high government spending.

The third preference, the mortgage-interest deduction, is a $70 billion benefit that goes disproportionately to affluent homeowners. But Australia, Canada and the United Kingdom, which have no mortgage-interest deduction, have homeownership rates comparable to America’s. Every congressional district, however, has real estate brokers benefiting from the bankers who benefit by providing mortgages.

Baucus is proud to have been mentored by the greatest Montanan, Mike Mansfield, a Democrat who for 16 of his 24 Senate years was majority leader. Today, the main impediment to tax reform, aside from Baucus’s risk-averse colleagues, is Majority Leader Harry Reid, who, Baucus insists, emphatically but implausibly, is a friend. Reid, who is as petty as Mansfield was grand, deplores partisanship but resents Democrats such as Baucus who practice bipartisanship. Reid says he did not even read the Baucus-Hatch letter, and insists tax reform “can’t be revenue neutral; it can’t be even close to neutral.”

Each year 6.1 billion hours are spent complying with the tax code. This is equal to the work time of 3 million full-time workers, making tax compliance one of America’s largest industries. Is there time for Congress to reduce this waste of time?

“It’s early,” says Baucus equably. Actually, it is late in this legislative year, and elections are next year. But, says Baucus serenely, 1986 was an election year in a president’s second term . He seems unperturbed about the possibility that Camp might be distracted by seeking Michigan’s open Senate seat. Baucus still hopes to bring Congress to an “all join hands and jump together” moment, “a tipping point where there is a sense of inevitability.”

Inevitably, however, the tax code has reached a critical mass of complexity that renders it almost unreformable. This illustrates the crisis of the regulatory state: Interest groups fasten themselves onto the government and immobilize it.

At the 2004 Republican convention, George W. Bush vowed to “simplify” the tax code’s “complicated mess.” The convention roared approval. Next, he promised new complexities — tax benefits for “opportunity zones” in depressed areas, a tax credit to encourage businesses to offer health savings accounts. Another roar of approval.

Since the 1986 simplification, the code has been re-complicated more than 15,000 times at the behest of Americans who simultaneously praise the principle of simplification. All other taxes could be abolished if we could tax the nation’s cognitive dissonance.

[Crafty_Dog]

Overseas Americans: Time to Say 'Bye' to Uncle Sam?
Chased by the U.S. Government, Thousands Are Severing Ties With America. Here's What You Need to Know


    By
    LAURA SAUNDERS
    and
    LIAM PLEVEN
    CONNECT

Here is a sign that life is getting complicated for U.S. taxpayers with assets abroad: More of them are deciding they are better off cutting official ties with America.

In the first half of 2013, 1,809 people renounced their American citizenship or permanent-resident status, according to a tally by Andrew Mitchel, a tax lawyer who tracks U.S. data. At that pace, the 2013 total would double the previous high of 1,781 renunciations in 2011.

Daniel Kuettel, a Colorado native who lives near Zurich, says he gave up his U.S. citizenship in October because he feared he wouldn't be able to get a mortgage now that some Swiss banks are cutting ties with American clients.

"It was a really difficult decision. I had to think about what was best for me and my family, to reduce the risk," says Mr. Kuettel, a 41-year-old software developer. He says his income was below the limit the U.S. allows overseas taxpayers to exempt and he owed no U.S. taxes.
'Bye' to Uncle Sam?


    Will Renouncers' Names Be Public?

The increase in renunciations is one sign that ordinary Americans who have lived and worked abroad for years, as well as green-card holders in the U.S. and overseas, believe they are at growing risk because of the intensifying government pursuit of undeclared foreign assets.

The crackdown started in the wake of the 2001 terrorist attacks, and it gathered force after Swiss banking giant UBS AG UBSN.VX +0.94% agreed in 2009 to pay $780 million to settle charges it had helped U.S. taxpayers hide assets.

Since then, more than 80 U.S. taxpayers have been criminally charged, and Switzerland's oldest bank, Wegelin & Co., closed down after pleading guilty to helping U.S. taxpayers hide more than $1.2 billion abroad.

On Friday, a prominent Swiss lawyer pleaded guilty in U.S. court to helping U.S. taxpayers hide millions of dollars abroad.

U.S. officials are enforcing rules established by Congress—some widely ignored for years, and others added more recently—that threaten stiff penalties and even prison for failure to comply. The crackdown has brought more than $6 billion in taxes and penalties into U.S. coffers, and experts say another $5 billion is in the pipeline. A representative for the IRS declined to comment.


As required by law, the IRS compiles a list of those who renounce their citizenship, and the names are published in the Federal Register.

Much of the money comes from well-heeled taxpayers. The top 10% of taxpayers who went through one of the Internal Revenue Service's limited-amnesty programs had account balances over $4 million, the U.S. Government Accountability Office estimated in a March report. The programs are one way for taxpayers who have missed past filings to come into compliance.

But many U.S. taxpayers who aren't wealthy also are finding it harder to attend to routine financial matters abroad, because some foreign institutions don't want to face the cost of complying with U.S. requirements.

Amid the crackdown, some face stiff U.S. tax bills and crippling fines over undeclared assets. Paying lawyers and accountants to help meet the various reporting and filing requirements routinely costs at least $1,000 a year, and often much more, experts say.

Other people say they are considering whether to renounce but are reluctant to take such a drastic step. Renouncing can cause additional complications, including another steep bill because of an exit tax the U.S. imposes on those who meet certain income or asset thresholds.

Although the U.S. State Department doesn't keep official statistics, it estimates that 7.2 million U.S. citizens live abroad. And the U.S. Department of Homeland Security estimates there were 13.3 million green-card holders living here as of Jan. 1, 2012.

Despite the campaign against undeclared accounts, U.S. taxpayers filed only 825,000 foreign-account reports last year—meaning that millions of people likely aren't complying with the law.

"It's clear that compliance is dismal, and also why the IRS is being aggressive in its enforcement efforts," says Jeffrey Neiman, a former federal prosecutor now practicing law in Ft. Lauderdale, Fla.

So many people could be affected by the crackdown that mass-market tax preparer H&R Block has expanded services for taxpayers with international ties. In May, the company launched a tax-preparation service via the Internet that is targeted at expatriates and highlights the firm's ability to help taxpayers with unfiled prior-year returns.

U.S. laws and rules provide few options for people who are in a showdown with Uncle Sam. Here is some of what U.S. taxpayers need to know:

Understand what is different about the U.S. Unlike almost all other countries, the U.S. taxes citizens and permanent residents on all income, wherever it is earned in the world. So a U.S. taxpayer living in India could owe U.S. levies on income from a British investment.

The U.S. tax code does allow taxpayers living overseas an exemption for wages earned abroad of up to about $100,000, plus a housing allowance, but taxpayers must file a return to claim the benefits.

Tax treaties might help U.S. citizens or green-card holders who live abroad avoid double taxation, but there can be gaps, experts say. For example, treaties typically don't provide an offset for foreign sales or value-added taxes. And if the tax rate is lower abroad than in the U.S., the U.S. taxpayer could owe the difference to Uncle Sam.

The U.S. also has an expansive definition of who is a citizen. It includes people born on U.S. soil as well as people born to U.S. citizens living abroad.

Kevin Packman, a partner with law firm Holland & Knight in Miami, has a Canadian client who was born in the U.S. to Canadian parents but moved to Canada as an infant. "She had no idea she was a U.S. citizen until she was nearly 50," he says. Experts say there are many similar "accidental citizens."

Know what has changed. While U.S. taxes on world-wide income have existed for decades, experts say laws regarding such income were seldom enforced.

That changed after the attacks of Sept. 11, 2001, in part because of concerns about terrorism. In 2004, Congress imposed severe penalties—up to $100,000 or 50% of the account, whichever is greater, per year—on U.S. taxpayers who choose not to tell the IRS about foreign financial accounts totaling $10,000 or more.

Critics point out that this penalty is for not filing a form, not for evading taxes. Bryan Skarlatos, a New York partner with law firm Kostelanetz & Fink who has handled hundreds of offshore accounts cases, says the total includes more than a dozen in which the tax and interest owed on offshore accounts was less than $20,000. Yet the IRS assessed penalties of more than $1 million, he says. The IRS declined to comment.

U.S. officials ramped up their campaign after the 2009 settlement with UBS. As part of the deal, the Swiss bank turned over the names of more than 4,000 U.S. taxpayers with secret accounts. Other banks have since made payments to the U.S. and named names.

In 2010, Congress passed the Foreign Account Tax Compliance Act, known as Fatca, which requires further disclosures by U.S. taxpayers with offshore accounts. The law also requires foreign financial institutions to report information to the IRS about U.S. account holders or face steep costs for not doing so.

Important Fatca provisions have been postponed until July 1, 2014, but the law has a long reach. For example, it could require a foreign-based trust to report information to the IRS about a beneficiary who holds a green card, even if that person gets no money from the trust and doesn't know it exists, says Dean Berry, a partner with law firm Cadwalader, Wickersham & Taft.

Accidental tax cheats may be able to avoid large penalties. The IRS has a limited-amnesty program that offers protection from criminal prosecution, typically in exchange for stiff penalties.

Taxpayers deemed less culpable—for instance, because they inherited money in a foreign account they didn't touch—can face lesser penalties. But the exceptions are often narrowly defined.

There are other options. People who have already entered the IRS's limited-amnesty program sometimes choose to opt out. That leaves them vulnerable to a regular IRS audit, though the penalties are often lower.

But there are risks: Outside the program, there is less protection from prosecution and penalties can be higher, although experts say both outcomes are rare.

Advisers often recommend that taxpayers whose violations were unintentional and haven't entered the limited-amnesty program should consider making "quiet disclosures" instead. That means catching up with back returns as well as filing them in the future.

The IRS hasn't officially sanctioned such filings, and going this route may not offer protection against prosecution. But experts say the IRS seldom challenges quiet disclosures. In practice, says Mr. Skarlatos, the IRS almost never looks back more than six to eight years.

Taxpayers need to be able to show their violations weren't willful, however. Experts say the evidence could include never having filed a U.S. return if you live abroad, having the undisclosed account in the country where you live, rather than a tax haven, or not having lived in the U.S. for many years. It also helps to have little to no income earned in the U.S. and not to hold the undisclosed account within a trust or foundation.

Expatriation can have stiff costs of its own. People who renounce often have to certify they have complied with U.S. tax laws for the past five years. That means expatriation is a bad strategy for cleaning up past problems.

In addition, U.S. citizens and some green-card holders who formally expatriate are treated as though they sold their property on the day before they renounce. There are few exceptions, says Stow Lovejoy, another lawyer with Kostelanetz & Fink in New York.

Such people owe an exit tax if their net worth is $2 million or more or their average annual income tax for the past five years is greater than $155,000. The exit tax is due on net gains, above an exclusion of $668,000. Deferred income in IRAs and some other tax-deferred accounts becomes taxable at ordinary rates, up to 39.6%, according to Mr. Lovejoy.

Expatriation can also bring severe estate-tax consequences. The U.S. heirs of people who paid an exit tax often owe a 40% tax on assets they inherit from the expatriate, whether the assets are in the U.S. or not. Unlike with typical estates, there usually isn't a $5.25 million exemption.

In addition, law requires that the names of people who surrender their citizenship be published by the government, which some consider embarrassing.

At the same time, there are important exceptions to the exit tax. For example, people who have been dual citizens from birth can be exempt. For more information, see the instructions to IRS Form 8854.

Green-card holders might have other options. People with permanent-resident status who turn in their green cards are subject to the exit tax if they have held the card in at least eight of the previous 15 years. As with citizens who renounce, their names are also required to be published.

However, under complex treaty provisions the U.S. has with some countries, years when a green-card holder lives abroad might not be included in the eight-year tally. So careful planning can help some holders stay under this threshold.

Cushion the blow of U.S. taxes and disclosure with planning. Although the U.S. rules are strict, there is room to maneuver.

Cadwalader's Mr. Berry points out that a wealthy person who plans to expatriate might be able to use the U.S. gift-tax exemption of $5.25 million per individual to shift assets into a trust in order to reduce total assets enough to avoid the exit tax.

If trust assets are used to purchase a life-insurance policy, then U.S. heirs could inherit cash from the expatriate who isn't subject to the special inheritance tax, he adds.

In some cases, a wealthy family may choose to have one family member expatriate and hold assets for the benefit of the rest of the family. Using a "foreign grantor trust," the non-U.S. person could hold assets and make taxfree gifts to other family members who are U.S. citizens or green-card holders. However, the non-U.S. person is often required to have authority to revoke the trust and keep the assets, giving that person enormous power.

Write to Laura Saunders at laura.saunders@wsj.com and Liam Pleven at liam.pleven@wsj.com

[ccp]

If we could be sure the vast majority of the people who renounce US citizenship for tax reasons were to vote Democrat Obama would be pushing to grant them all amnesty.

Isn't that what the amnesty for illegals is all about?

If one is living in India and investing in Britain then why should they have the privilege of being a US citizen without paying taxes?

What happens to someone from the US who goes to Costa Rica and retires.   Does that person still pay income tax to the US?   I would think so if they are still a US citizen.

[DougMacG]

A very insightful read, written by someone who actually knows how to create jobs.

"The government keeps telling the very people whose jobs it destroys that if we only tax the rich more, everything will be better."

http://online.wsj.com/article/SB10001424127887324110404578630461045403872.html

T.J. Rodgers: Targeting the Wealthy Kills Jobs
My investment in my company helps maintain 3,470 permanent positions. What's not 'fair' about that?

One of the signature themes of the Obama administration is that the American dream is under attack due to "income disparity." The words divide the country into haves and have-nots, suggesting a national condition that needs to be corrected—presumably by "progressive" taxation as a mechanism for income redistribution. The American dream has traditionally been one of individual success that is rewarded and admired. But we are now urged to become a zero-sum society in which those achieving the American dream are envied and even resented.

The American dream is not politically affiliated. The last time it was alive and well was the period from Ronald Reagan's second term in office through Bill Clinton's second term in office. In those 16 years, we enjoyed continuous low taxes, low government spending and economic prosperity.

Since 2000, the economy has staggered under the record government spending and deficits of two presidents, George W. Bush and Barack Obama. The result of that spending spree has been lower real wages and higher and more-persistent unemployment. The Federal Reserve has pushed interest rates to near-zero, and, for the first time ever in the U.S., that Depression-era medicine has not worked—a scary situation reminiscent of Japan's decade-plus economic demise.

According to the latest 2012 IRS income-tax data, the top 1% of American taxpayers earned 20% of all income and paid 36% of all taxes. The top 5% earned 36% of all income and paid 58% of all taxes. Will even higher taxes help the economy? My experience in Silicon Valley tells me that high and so-called progressive taxes are a major cause of the country's current economic problems, not the solution.

In Silicon Valley, the rich commonly reinvest their wealth close to home. For example, I have reinvested most of my net worth in 8.5% of the shares of my own company.

Since its 1982 founding, Cypress Semiconductor has been a net creator of jobs and wealth. We have returned $2.2 billion more to the economy through stock buybacks, share dividends and spinouts than we have taken out in total lifetime investments. That figure doesn't count the $4 billion in wages the company has paid or the taxes paid on those wages. Currently, my investment helps maintain 3,479 permanent, high-paying jobs with good health-care benefits that are now threatened by more taxes.

A couple of years ago, I decided to invest in my hometown of Oshkosh, Wis., by building a $1.2 million lakefront restaurant. That restaurant now permanently employs 65 people at an investment of $18,000 per job, a figure consistent with U.S. small businesses. If progressive taxation in the name of "fairness" had taken my "extra" $1.2 million and spent it on a government stimulus program, would 65 jobs have been created?

According to recent Congressional Budget Office statistics on the Obama administration's 2009 stimulus program, each job created has cost between $500,000 and $4 million. Thus, my $1.2 million, taxed and respent on a government project of uncertain duration, would have created about one job, possibly two, and not the 65 sustainable jobs that my private investment did.

On the other end of the capital-intensity scale, Cypress Semiconductor required huge investments to create jobs in its chip-manufacturing plants. Between 1983 and 2003, those investments totaled $797 million and led to the creation of 4,033 jobs at an investment of $198,000 per job created. Thus, my own experience on the cost of job creation ranges from $18,000 to $198,000 per job, compared with $500,000 to $4 million per job created by the Obama stimulus program.

This data squares with the broad numbers showing that private investment is more efficient than government spending in creating jobs. In other words: Every dollar that is taxed away from private investment and spent by government produces fewer jobs than the jobs destroyed by the loss of private investment.

Yet the politics of envy, promoted most notably by President Obama himself, continuously stokes the idea that the wealthy are not paying their "fair share." This injured sense of unjust rewards was summed up on a radio show I heard the other day, when a caller said of the rich: "How much more do they need?"

How much more do I need? How many more jobs do you want?

Even European socialist democracies are starting to understand that tax-and-spend policies kill jobs. For example, both Italy and Spain have repealed their incentive programs for solar energy (along with their "green jobs") because the countries have calculated that for every job created by government investment in green energy, somewhere between 4.8 jobs (Italy) and 2.2 jobs (Spain) are lost because of the reciprocal cuts in private investment. I am aware of these figures because from 2002-11 I was a major investor in and chairman of SunPower, the world's second-largest solar-energy company, also based in Silicon Valley.

Silicon Valley is today's brightest example of the traditional American dream still at work. The investments for most startup companies must come from individuals who can wait 10 years to get a return on investment. Only very wealthy Americans can afford that.

Like many Silicon Valley entrepreneurs, I have reinvested in the next generation of entrepreneurs, in my case via the Sequoia Fund and Kleiner Perkins Caufield & Byers, two venture-capital firms that gave me a shot at the American dream. I also serve as a board member of their portfolio companies.

Does anybody really believe that moving investment decisions from Silicon Valley to Washington by raising taxes on venture capitalists and their investors would make Silicon Valley more productive? Consider the Solyndra debacle: It was obvious to most of us here that the solar-energy company had zero chance of survival. That's why the company had to be government-funded near the end; no real investors were willing to step up.

During the 2012 presidential campaign, President Obama insulted America's entrepreneurs by telling them: "You didn't build that." Progressive taxation is just another tool used by government to take over an ever-larger part of the U.S. economy. The horrible irony is that the government keeps telling the very people whose jobs it destroys that if we only tax the rich more, everything will be better.

Mr. Rodgers is the founder and CEO of Cypress Semiconductor

[DougMacG]

Medical Device Tax - is not mentioned in the first 5 paragraphs of this story about a large number of medical device manufacturers shedding jobs, Boston Scientific, Medtronics, St. Jude Medical, and that's just the local effect here. http://www.startribune.com/business/228996501.html   Keep reading.

It cost Boston Scientific 15% of its global workforce.  Who knew?

The good news, more enrollees for Obamacare, and more Democratic voters.  It is truly a win-win when your world and your math is upside down.

"In January, Boston Scientific announced it was cutting 900 to 1,000 jobs from its global workforce in an effort to manage the effects of the United States’ new medical device tax while investing in new products and geographical markets. Those cuts brought the total number of reductions in an earlier restructuring program to 2,400 jobs, or about 10 percent of the company’s global workforce." (Not counting these further reductions.)

"...the reductions add to a wave of cuts by Minnesota’s largest medical technology companies. In May, Medtronic Inc. announced it was eliminating 2,000 jobs worldwide, including 500 in Minnesota. Medtronic officials said at the time they were “growing in some areas and making changes in others.” A year earlier, Medtronic cut 1,000 jobs."

Only a rules for radicals, glibness administration would subject pacemakers and implantable cardioverter defibrillators to a 'sin' tax - in the name of making healthcare more "affordable".

[DougMacG]

The most significant election result Tuesday may have been Colorado's overwhelming rejection of Amendment 66, which would have blown up the state's 4.63% flat income tax and opened the door to much bigger government.
Related Video

Editorial page writer Allysia Finley on the Rocky Mountain's state rejection of a tax hike to fund education programs.

The initiative was this year's main priority for progressives nationwide and was supported by $1 million each from New York Mayor Mike Bloomberg and the Gates Foundation. Those billionaires fell for the line that the new tax revenue would have funded education reform. But Colorado voters were smart enough to see that the measure's most fervent backers were the teachers unions that oppose reform and simply want more money. The measure won in only two counties, Denver and Boulder, and was crushed statewide 66% to 34%, though opponents were vastly outspent.

[DougMacG]

What happens when we tax something more?  We get less of it - small business in this case.

http://online.wsj.com/news/articles/SB10001424052702304465604579220413773642016

A Large New Tax on Small Business
The latest ObamaCare levy takes effect Jan. 1.
Dec. 29, 2013

ObamaCare includes so many taxes that it's hard to keep track, but one of the worst takes effect on Jan. 1. This beaut is a levy on health insurance premiums that targets the small business and individual markets.

At $8 billion in 2014 and $101 billion over the next decade, the insurance tax is larger than ObamaCare's taxes on medical devices and prescription drugs combined. The Internal Revenue Service classifies the tax as a "fee" but it functions like an excise tax on premiums. The IRS collects an annual flat amount specified by the Affordable Care Act to be allocated among the insurers according to market share.

But not all markets. IRS regulations published in November excluded "any entity that is a self-insured employer to the extent that such employer self-insures its employees' health risks." Since about four of five employers with more than 500 workers and most union-negotiated health plans are self-insured, they are spared from the tax. So is insurance on behalf of "government entities," such as original Medicare (but not privately run Medicare Advantage).

This political selectivity means the most gold-plated public, private and labor plans are exempt and the tax burden falls on the saps who work for small businesses, the self-employed and individuals—i.e., the people who can least afford it.

The White House tells business that the tab will be picked up by deep-pocketed insurers, which is good for a laugh. The Congressional Budget Office reports the tax will be "largely passed through to consumers in the form of higher premiums" and "would ultimately raise insurance premiums by a corresponding amount." The Joint Tax Committee and private economists, such as former CBO director Doug Holtz-Eakin, say the tax will boost insurance costs about 2% to 2.5%. The consultant Oliver Wyman estimates the take will rise to as much as $500 per covered worker by decade's end.
(More at the link!)

[G M]

Plowhorse!

[DougMacG]

Plowhorse!

Yes, like a heard on liberal radio last evening, nothing jolts an economy forward like a tax increase!

There is more:

http://www.thenewamerican.com/usnews/congress/item/17273-new-u-s-tax-regime-is-devastating-experts-say

Monday, 30 December 2013 16:49
New U.S. Tax Regime is "Devastating," Experts Say
Written by  Alex Newman

New U.S. Tax Regime is "Devastating"; Experts Say

Already facing “pariah” status worldwide due to onerous IRS requirements, millions of Americans living and working abroad are preparing to deal with a deluge of even bigger problems in 2014, when a byzantine new tax regime starts going into effect. Known as the Foreign Account Tax Compliance Act, or FATCA, the deeply controversial and incredibly complex scheme is supposedly aimed at preventing tax evasion and gathering extra funds for the federal government. In reality, it will prove to be devastating, experts say — especially for middle-class Americans overseas and the U.S. economy.
...
About a dozen national governments have inked unconstitutional “agreements” with the Obama administration so far, laying the foundation for a global tax-information sharing regime. International bureaucrats working fiendishly for planetary taxation are celebrating, along with some attorneys and accountants hoping to profit, but serious concerns about the pseudo-treaties are growing.

[DougMacG]

No kidding

http://www.telegraph.co.uk/news/worldnews/francois-hollande/10546181/Francois-Hollande-concedes-taxes-too-heavy-in-admission-that-annoys-all-sides-in-France.html

"the unpopular socialist president - weakened by tax increases, rising unemployment and a shrinking economy..."