Have a little economic fun!
If you haven’t seen this fun video on basic economics, take a 7:32 break and enjoy. It’s Hayek vs Keynes, cleverly rapped to give the fun overview of the battle of two influential economists. My link below includes the video and the lyrics. (Go Hayek!)
The Tax Foundation has a new report out regarding the consequences of not extending the Bush tax cuts:
Retired seniors could be among the hardest hit, since they rely most on investments and savings. Lawmakers have been warning for months about the income-tax consequences for working families, including penalties on marriage and a reduction in child tax credits. But those living off investment income would see not only their 401(k) and savings accounts taxed at higher income rates, but also dividends and capital gains skimmed deeper and deeper by the federal government.
Studies of IRS data put out by The Tax Foundation show seniors over 65 earn more from dividends and capital gains than any other age group — more than $77 billion in dividends and more than $150 billion in capital gains in 2008. That means for retired workers, every penny is that much more valuable. Investment income typically supplements Social Security or vice versa, and tax analysts say that if the Bush tax cuts expire, it could mean thousands of dollars less every golden year.
Here’s what happens to that income if tax rates increase to levels of almost a decade ago:
On the capital gains side, the hit would be somewhat modest. Currently, the lowest rate for long-term gains is 0 percent and the highest is 15 percent. If nothing is changed, the lowest rate rises to 10 percent, the highest to 20 percent. The change on the dividends side is far more drastic, since it used to be taxed as ordinary income. Barring congressional intervention, the lowest rate for qualified dividends goes from 0 to 15 percent and the highest goes from 15 to 39.6 percent. Even those in the middle-class brackets could expect to see their rate rise to close to 30 percent. For instance, a couple taking in $25,000 from interest and dividends would easily see their taxes go up by more than $2,000.
Despite warnings from lawmakers, Obama and congressional leaders on both sides of the aisle say they’re intent on extending at least some of the tax cuts — unfinished business to be taken up after the election. Republicans want all the rates extended, while Obama wants the rates extended for all but the wealthiest earners. Under the Obama plan, the top-bracket capital gains and dividends rates would rise to 20 percent.
As I’ve said many times on these pages, the Bush tax cuts must be extended for all income earners; to do otherwise would be potentially catastrophic for the economic recovery of our nation.
In an attempt to placate voters, President Obama signed into law the new $ 30 billion small business bill full of lending and tax credits, which he misleadingly calls tax cuts. This program will only provide some minor and temporary benefits to businesses and will hardly impact our much-needed economic recovery. Unlike politicians who only plan for the next election, businesses engage in long-term planning. The only sensible program would be to extend the Bush tax cuts for the long haul, so that businesses and higher income earners can invest. Unfortunately, our president is unwilling to pursue such a measure.
The WSJ is reporting this evening that Congress has decided to delay voting on the status of the Bush tax cuts until after the election. While they lay the blame on Republicans, the truth is that the Democrats are running scared in the late stages of election season and incumbents don’t want their vote to go on record.
This further impacts Americans and small businesses who will have to wait to know how their taxes will be affected next year.
Mark Zandi, chief economist of Moody’s Analytics, wrote last week. “The uncertainty of not knowing what tax rates will be just a few months from now is adding to the collective nervousness.” He called the impact on business decision-making, especially hiring, “discernible”.
The Democrats have proven yet again that they are willing to sell out the wealth and health of our nation’s economy for a few Congressional seats.
Seems that El Rushbo was correct when he chose to vote with his feet last year and leave New York City.
Back in early 2009, Limbaugh warned that impending tax hikes on New York City residents would crush a top income earner like himself, and cited these taxes as the reason why he was leaving NYC for good. Now there’s even more proof that’s true. According to a recent study by the Tax Foundation, if Obama’s tax plan is adopted by Congress, “state, local and federal levies would result in a top 50.8 percent rate on high-income New York City residents”.
That’s half of your money– not yours anymore.
The rest of the article is a worthwhile read regarding the impact of Obama’s plan on taxes, deductions, and exemptions in different tax brackets. As a practicing NYC CPA, whose clientele is composed of many of these highest income earners, the news is grim indeed.
The Weekly Standard has a fascinating discussion this week regarding the Obama Administration and Koch Industries. It describes how Obama singles out these libertarian billionaires for their opposition to Democrats — something that other Democrat politicians have begun to do en masse.
Apparently, as part of Obama’s attack strategy, his administration disclosed tax information about Koch Industries (which, under law, is supposed to be confidential) in an effort to hint at tax impropriety.
There was also another important part of the article regarding taxes that was misrepresented by the Obama Administration.
“According to Mark Holden, senior vice president and general counsel of Koch Industries, a senior Obama administration official told reporters at an August 27 on-the-record background briefing on corporate taxes:
So in this country we have partnerships, we have S corps, we have LLCs,we have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know Koch Industries is a multibillion dollar businesses. So that creates a narrower base because we’ve literally got something like 50 percent of the business income in the U.S. is going to businesses that don’t pay any corporate income tax. They point out [in the report] you could review the boundary between corporate and non-corporate taxation as a way to broaden the base.
Holden tells THE WEEKLY STANDARD that this quotation from a senior administration official “came to our attention from different avenues”.
Folks, here we have a senior Obama Administration official going after non-corporate entities on-the-record. Austan Goolsbee intimated this very line of thought during his recent interview with Chris Wallace on September 12. That’s pretty bad.
What the administration also purposefully does not explain, however, is that the reason why these businesses file as non-corporate entities is so that they can avoid the egregious problem in our tax code known as double taxation.
Some companies–say a Fortune 500–pay taxes at corporate rates. The highest corporate rate is 35%. Right now, if a corporation pays taxes and reinvests its profits, there is no extra tax. But if it profits are given to the owner, they are taxed again on that amount–which is knows as double taxation. Those business owners who wish to avoid the double taxation instead pay at individual rates, the highest of which is also 35%.
Obama is specifically trying to discredit Koch Industries and a plethora of small businesses by leaving the impression that not paying corporate taxes is somehow wrong or underhanded. These types of small businesses are the backbone of our country. They will further be impacted if the Bush tax cuts for the top earners is allowed to expire because many of these non-corporate entities pay in that highest individual tax bracket, which is set to rise to 39.6%.
For an administration to target small businesses in this way is unacceptable. Doing it while discussing sensitive tax information that likely should not be disclosed (from my perspective as a CPA) is quite alarming.
Bagel lovers, beware! In order to provide more tax revenue for the cash-strapped state, NY plays Goliath to the Brueggers bagel company.
Picking out some obscure tidbit in the state sales tax law, NYS has successfully forced this company to cough up additional tax revenue…on sliced bagels and items eaten in-house. A nice chunk of dough for the tax man, indeed.
Interestingly enough, the rule isn’t explicitly stated in the tax code. Some sliced items (bagels) are taxable, but others, such as sliced bread, are not. These differences are inconsistent at best. Worse, they’ve only targeted Brueggers– presumably because it owns 33 franchises.
Seems as if the State Department of Taxation doesn’t even know its own code; the WSJ reports that NYS “will provide additional guidance via our Web site and publications in the near future.“. Guess they can continue to make up the rules as they go along and as needed. In New York, what else is new?
The folks over at Investors.com did a great round up of the new taxes slated to start in 2011. The end of the article cuts right to the core:
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Not all Americans may fully realize what’s in store come Jan. 1. But they should have a pretty good idea by the mid-term elections, and members of Congress might take note of our latest IBD/TIPP Poll (summarized above).
Fifty-one percent of respondents favored making the Bush cuts permanent vs. 28% who didn’t. Republicans were more than 4 to 1 and Independents more than 2 to 1 in favor. Only Democrats were opposed, but only by 40%-38%.
The cuts also proved popular among all income groups — despite the Democrats’ oft-heard assertion that Bush merely provided “tax breaks for the wealthy.” Fact is, Bush cut taxes for everyone who paid them, and the cuts helped the nation recover from a recession and the worst stock-market crash since 1929.
Maybe, just maybe, Americans remember that — and will not forget come Nov. 2.
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=541131
Alternative Minimum Tax Report
Introduction
The Alternative Minimum Tax (“AMT”) presents hardships to the practitioner as well as the taxpayer who prepares his own return by, as its name implies, imposing a second tax calculation mechanism on taxpayers. This mechanism brings with it major record keeping and calculation complexities, yet serves virtually no useful purpose-other than the raising of an ever-increasing amount of tax revenue. But as has become very clear in recent years, this increase in tax revenue is not coming from taxpayers who were the intended targets of this tax.
Summary of Conclusion
The AMT does not serve the purpose for which it was intended and functions in a most inequitable manner while adding enormous compliance burdens. It should therefore be changed to eliminate the adjustments for state and local taxes and miscellaneous deductions, update its rates, and modify its exemption.
Discussion & Analysis
The AMT was instituted in its present form when the prior “add on” Minimum Tax” was transformed into the AMT in the early 1980’s. Its “stated” purpose was to require that all taxpayers paid at least a fair share of tax. It was to do this by identifying “loophole” type deductions. {These are referred to as either “preferences” or “adjustments” in the law, and will be referred to hereinafter as “preferences”}. There would then be an alternative calculation using lower tax rates applied against this taxable income as increased by the preferences. However the AMT was seriously flawed from the outset. Instead of focusing on these loophole type preferences (which would have limited the tax to a very small number of tax law “abusers”), the law that was passed included items that were not loopholes at all. And it was then imbedded in an exemption structure which guaranteed that over time all taxpayers would be moved towards paying this tax.
From the beginning, a very substantial majority of all AMT paid by taxpayers results from the following four factors:
Each of these, however, can be quickly shown as innappropriate factors with which to base a tax system intended to just make sure everyone pays a “fair share” of tax.
Conclusion
The AMT in its present form has no place in the tax law. If it is kept at all, the addbacks for taxes and for miscellaneous deductions must be eliminated, the rate modified to be appropriately related to regular tax rates, and the exemption made comparable (or greater) than the exemption for purposes of the regular income tax. The AMT is absurdly difficult to administer because of its complex provisions, illogical and inequitable effects, and uncertain interaction with other provisions of the Internal Revenue Code. It is inequitable in the highest order, placing maximum burden on those to whom the most rational elements of the Internal Revenue Code would otherwise apply.
The figures bandied about regarding the percentage of tax cuts in the stimulus package was false. Only a very small portion of the bill represented real tax cuts – the rest was spending implemented by having it paid through the tax system. This same type of deceit put Enron executives behind bars. Yet, because it is Uncle Sam and not Kenneth Lay, we let our guard down—and our sensibilities.
Tax cuts and tax credits are terms often used interchangeably. Most Americans don’t know the difference and Congress was counting on that. The stimulus package was sold as “tax credit this” and “tax cut that”. We eventually tuned out: they sound alike, ergo they must be alike. But that is simply not true.
Tax credits peppered the stimulus package. Whether it was a “credit” for energy saving devices, college tuition, alternative energy, gasoline efficiency, or even for being over a certain age; all are simply government expenditures being run through the tax system, But its your money collected and then given back to certain people who meet the criteria—or dare we say, agenda.
For example, if the law provides that by purchasing a $5,000 energy saving device you can reduce your taxes by $1,000, this has nothing whatever to do with a tax cut. If you have to do something to get something, you must look at what is really going on. In this case, the manufacturer and seller of the device is being paid a $1,000 subsidy by Congress to help it sell its product. The payment is being made by having the IRS write the check.
We’re in a recession now. Tax cuts have helped end recessions in the past. The same cannot be said for tax credits. Government is simply laundering its expenses by running it through the tax code. Stimulus spending will do nothing to fix the economy and everything to make the government and its deficit bigger. With politicians and the media using confusing rhetoric, many Americans bought into The Big Lie.