{I}f you don’t ask, you know, the most fortunate Americans to bear a slightly larger burden of the privilege of being an American…
This folks, is our Treasury Secretary. Of course, it’s not like Geithner is serious about reform. Remember his argument that the debt ceiling just needs to be extended? I took him to task for that. We still have no real desire to make the spending cuts that are so desperately needed, especially since the current plan is clearly to find more ways tax the rich.
When the Budget Control Act of 2011 increased the debt ceiling last August, Congress, the administration, and outside analysts believed that this increase would allow federal borrowing under the limit well into 2013,” the center’s analysts wrote. “Due to unexpected circumstances … that belief appears increasingly likely to have been misguided.”
I’m sure Timmy will be a good American and do everything in his power to make sure that doesn’t happen until after the elections.
A quick little snippet coming from the AP — a new poll shows that more Americans would rather cut spending than raise taxes
56 percent to 31 percent, more embraced cuts in government services than higher taxes as the best medicine for the budget, according to the survey, which was conducted Feb. 16 to 20.
Thankfully, a majority of Americans have more sense than our Administration these days
The Wall Street Journal reported today that in Obama’s budget, the corporate tax rate on dividend taxes would triple. What kind of tax rates are we looking at? 44.8% (currently 15%).
President Obama’s 2013 budget is the gift that keeps on giving—to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.
Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today’s 15% rate.
Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.
To whom does this high tax rate apply? Millionaires and billionaires, of course. Remember them — the ones classified by the IRS who earn $200K/year? AKA “the wealthy”.
The WSJ goes on to show how both retirees (who received most of their income from divideds) and stock holders (the burden of extra taxes will be shared by all shareholders, regardless of income).
Of course, the real problem with such a budget item is that increasing the tax rate in order to increase tax revenue flat out doesn’t work. IRS data from 1990-2009 clearly shows that when the dividend tax rate was reduced to 15% in 2003, tax revenue skyrocketed. Someone at the White House forgot ignored the data.
Additionally, reports from the UK released today show that the newly implemented tax rate did not generate the kind of revenue it expected (it dropped). As I have written on this topic before, the reaction by Britons upper income earners is not surprising:
Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate.
One can only conclude that Obama’s dividend proposal is aimed to further drive a wedge between the “millionaires and billionaires” and the middle class. It makes it look like he’s doing something to those rich corporations. In reality, he knows that his electorate likely won’t realize how this policy would hurt many, many Americans. Let’s hope, for the sake of our economy, that such a devastating proposal will not come to fruition.
One idea might be a “pocketbook protection” plan, which would work as follows: If the average price of gas exceeds $4 a gallon, an additional, automatic payroll tax cut of 1 percent would kick in, as much as $50 per month, per person. The cut would stay in place for at least 90 days; it would disappear when the price fell below $4.00 per gallon.
There are three advantages to this approach. First, because the plan is of limited duration and is capped at $50 a month, its cost is relatively modest — about $5 billion a month, or $20 billion total, assuming the usual four-month gas-price surge. Second, because it isn’t a reduction in gas taxes, it doesn’t weaken any incentives for fuel conservation or efficiency: All workers get $50 to soften the blow of higher gas prices, but the less fuel they use, the more money they save. And third, the relief provides the greatest relative help to lower-income workers who need gas to commute and feel the price pinch the hardest.
Ripple Effect
Admittedly, by decoupling the tax relief from gas-tax collections, the pocketbook protection plan does give some benefit to workers who don’t drive. But any such windfall is modest, and even these non-drivers will need help dealing with the ripple effect of rising gas prices on the costs of other goods and services that are transportation-dependent.
The plan could be almost entirely paid for with a modest, no-loopholes surcharge on corporate taxes on profit derived from the higher gas prices. The administration would be able to avoid pejorative terms such as “windfall” or “excess” profit tax, because the tax is neither confiscatory nor punitive. With higher gas prices, oil companies will make record profit — and a partial surcharge will still leave that profit at record high levels. In other words, the plan isn’t vulnerable to suggestions of creeping, soak-the-rich redistribution. It would leave in place all incentives for oil companies to increase production, do more research and development, and explore alternative fuels. But a modest surcharge would help fund at least a partial pocketbook protection program to make sure the cost of the oil companies’ gain isn’t excessive pain for the rest of us.
So, instead of helping to lower gas prices via domestic oil projects like the Keystone Pipeline (which would also give jobs to Americans), one suggestion is to cut the payroll tax when gas prices are high (underfunding Social Security), and pay for it by a surcharge on corporate taxes. All in the name of “political peril”. Not economic peril — Obama’s political peril.
There are plenty of reasons for the high prices, and lots of reasons to expect a big price surge in the spring, said Tom Kloza, chief oil analyst for Oil Price Information Service.
“Early February crude oil prices are higher than they’ve ever been on similar calendar dates through the years, and the price of crude sets the standard for gasoline prices,” Kloza said.
In addition, several refineries have been mothballed in recent months, he said, and some of those refineries “represented the key to a smooth spring transition from winter-to-spring gasoline.” The annual change in gasoline formulas is mandated by pollution-fighting regulations.
However, one overlooked fact regarding the Keystone XL Pipeline is that its rejection by President Obama has directly affected rise of gas prices in recent weeks. Although the pipeline (and ANWR, and other major oil projects) have multi-year lead times, the very fact of a project of this magnitude moving ahead has an immediate effect on the markets by changing the traders’ expectations of future supply. Having more oil available in the marketplace contributes to lower prices for consumers. So when the project was tabled, the markets reacted accordingly.
This administration has once again shown to its hostility toward domestic oil while pandering to the environmentalist electorate. The rejection of such an important project — with the capacity to offer significant work for Americans — only hurts our economy further.
The American Recovery and Reinvestment Act (ARRA) stimulus bill was signed exactly by President Barack Obama on February 17th, 2009. We were told how this would help Americans go back to work while creating more jobs. Yep.
During the State of the Union, we heard President Obama talk repeatedly about fairness and taxes as he painted a picture of income inequality. The problem is that income inequality really is a myth, yet it is being perpetuated: the gap between rich and poor has never been higher.
The data used most frequently to substantiate this claim is a Congressional Budget Office (CBO) report from October 2011. However, the glaring problem with this report is that it only covers the period from 1979 to 2007 — ending right before the Great Recession. Convenient?
So in November, Ron Schmidt of the University of Rochester School of Business Administration, did an analysis of the CBO data and compared it to IRS data during the same time period — but through the year 2009, the latest year for which IRS data was available. He found something very, very different. In a reported summary,
According to IRS data, which extend through 2009, the average nominal Adjusted Gross Income (AGI) for filers with AGI of at least $500,000 declined by 17.8 percent from 2007 to 2009, and their average after-tax income declined by 19.9 percent. For those with AGI of less than $500,000, AGI declined by only 2.6 percent, and after-tax income declined by only 1.5 percent. These numbers certainly do not indicate an increase in income inequality.
In fact, there has been a marked decline in income inequality over the last decade. From 2000 to 2009, average AGI declined by 15.0 percent and average after-tax income declined by 11.0 percent for returns with AGI of at least $500,000. (Filers with an AGI of at least $500,000 represent 0.5 percent of all returns in both years, so this comparison is similar in spirit to the CBO report, which looks at the top 1 percent of households.) For all other returns, there were increases of 14.6 percent for average AGI and 17.3 percent for average after-tax income.
It revealed that income inequality is not only not at an all-time high, but also, due to the nature of economic and business cycles, it is relatively the same as it was twenty-five years ago.
The repeated calls for fairness last night reminds one of Margaret Thatcher’s famous speech in front of the House of Commons where she lambasted her opposition for suggesting that the gap between rich and poor had widened. The Prime Minister People responded that “people on all levels of income are better off than they were in 1979. The honorable gentleman is saying that he would rather that the poor were poorer, provided that the rich were less rich. That way one will never create the wealth for better social services, as we have. What a policy. Yes, he would rather have the poor poorer, provided that the rich were less rich. That is the Liberal policy”.
Liberal policy indeed is alive and well in America today. Thankfully, income inequality is not.
Though Obama may be pretending to draw a line in the sand between himself and the Republicans, he is really drawing a line for voters: Them vs The Rich Guy (millionaires and billionaires, anyone?) Setting up the narrative in the State of the Union allows Obama to pander to the electorate during this campaign season and relentlessly go after those who have proven to be successful as a source of increased tax revenue to cover his spending problem.
Yes, there is something terribly wrong with taxation in the hedge fund industry — but it is not the perceived evil that the defeated Baucus/Grassley bill was attempting to “fix”. According to them, the problem was that the hedge fund operators get part of their compensation from (relatively low-tax) capital gains income.
However, the proposed changes to “carried interest loopholes” is for political gain only, creating a problem that isn’t there, in order to solve some mythical inequality. However, all it does shift the benefit of the capital gains lost by the operators to the investors. That fixes nothing.
Instead, the real problem is that the Internal Revenue Code (IRC), as strictly enforced by the IRS, requires generally that hedge fund investors pay taxes on huge amounts of “income” that does not exist. This is derived from rules that require investors to pay tax on investment income while denying them an offset for the expenses that were incurred to generate that income.
It is simply not uncommon for hedge fund investors to pay tax rates of 70-100% or more on the hedge fund income they earn.
Yes, you read that correctly. 100% or more. In fact, in my practice I see a few clients every year forced to pay more taxes on an investment than that investment earned. True, it is a small percentage of people affected in any given year, but this does not mitigate the blatant unfairness. How does this injustice take place?
It follows from what is the most inequitable provision of the current tax code, namely, the severe limitation on the ability to deduct the necessary expenses incurred by a hedge fund operator in order to earn income: investment fees and expenses, accountant’s fees, legal fees for collecting a settlement, etc.
The tax code requires those expenses — which include virtually all operation expenses of private equity hedge funds, including fees to the operators — to be listed under the category of “miscellaneous deductions”.
However, these deductions may not be claimed until and unless they reach 2% of the taxpayer’s entire income. The upshot of this is that most taxpayers do not get to benefit from these deductions. To add further insult to injury, that even if investors have expenses which exceed the threshold, these expenses become addbacks for the dreaded alternative minimum tax (“AMT”).
This taxpayer abuse then certainly discourages investment and is a major source of inequity in the code. If Congress were ultimately concerned with reforming the hedge fund industry, this problem — the inability to deduct necessary expenses incurred while earning income — would be the right one for Congress to fix. Trying to interfere with and fix who gets the capital gain rate in a “carried interest” transaction was a worthless and meaningless endeavor.
It’s the last time Congress passed a budget. 1000 days later, we are operating without any plan. Oh, the delicious irony that it is today… I can’t wait to hear about it during the State of the Union tonight, right? Just like last year’s State of the Union; the budget Obama tried to pass shortly thereafter, modeled on the ideas espoused during his speech, failed 97-0. It was so outrageous, not one Senator of either party would put his name to it.
Senate Majority Leader Harry Reid (D-NV) said it would be “foolish” to have a budget.
“There’s no need to have a Democratic budget in my opinion,” Reid said in a May interview with the Los Angeles Times. “It would be foolish for us to do a budget at this stage.”
The breakdown in the Senate came after Sen. Kent Conrad (D-ND), chairman of the Budget Committee, failed to get a consensus among panel Democrats last year on any plan that was proposed to the caucus.
The previous Democrat-led Congress had ample time to do so. With President Obama in theWhite House, Senate Majority Leader Harry Reid and former Speaker Nancy Pelosi had the power to implement any budget they chose. Unfortunately, they punted on their responsibilities, choosing to pass legislation creating a national energy tax and an unpopular health-care law instead.
The last time the Senate passed a budget was on April 29, 2009.
Since that date, the federal government has spent $9.4 trillion, adding $4.1 trillion in debt.
As of January 20, the outstanding public debt stands at $15,240,174,635,409.
Interest payments on the debt are now more than $200 billion per year.
President Obama proposed a FY2012 budget last year, and the Senate voted it down 97–0. (And that budget was no prize—according to the Congressional Budget Office, that proposal never had an annual deficit of less than $748 billion, would double the national debt in 10 years and would see annual interest payments approach $1 trillion per year.)
The Senate rejected House Budget Committee Chairman Paul Ryan’s (R–WI) budget by 57–40 in May 2011, with no Democrats voting for it.
In FY2011, Washington spent $3.6 trillion. Compare that to the last time the budget was balanced in 2001, when Washington spent $1.8 trillion ($2.1 trillion when you adjust for inflation).
Entitlement spending will more than double by 2050. That includes spending on Medicare, Medicaid and the Obamacare subsidy program, and Social Security. Total spending on federal health care programs will triple.
Taxes paid per household have risen dramatically, hitting $18,400 in 2010 (compared with $11,295 in 1965). If the 2001 and 2003 tax cuts expire and more middle-class Americans are required to pay the alternative minimum tax (AMT), taxes will reach unprecedented levels.
Federal spending per household is skyrocketing. Since 1965, spending per household has grown by nearly 162 percent, from $11,431 in 1965 to $29,401 in 2010. From 2010 to 2021, it is projected to rise to $35,773, a 22 percent increase.
So there you have it. We stopped having a budget with a Democrat in the White House, a Democrat-controlled Senate, and with a Democrat-controlled House of Representatives. 1000 days ago. So how come they aren’t talking about it?
Update: The Hill is reporting that some Republicans will be sporting “1000 days” buttons to mark the 1000 days of ineptitude
For over a decade, The Wall Street Journal and The Heritage Foundation, Washington’s preeminent think tank, have tracked the march of economic freedom around the world with the influential Index of Economic Freedom. Since 1995, the Index has brought Smith’s theories about liberty, prosperity and economic freedom to life by creating 10 benchmarks that gauge the economic success of 184 countries around the world. With its user-friendly format, readers can see how 18th century theories on prosperity and economic freedom are realities in the 21st century.
The Index covers 10 freedoms – from property rights to entrepreneurship – in 184 countries.
