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To Reform or To Campaign: That Is The Question

by | ARTICLES, ECONOMY, GOVERNMENT, TAXES


Charles Krauthammer has an interesting strategy for debt negotiations — short term solution now to avoid default, which will give a both sides a little extra time to  formulate a long-term plan. The intriguing thing to me about this approach is that it forces Obama to make hard decisions during his campaign season. Would Obama stand and do what is right for the budget and economy regarding entitlement reform and tax increases, or will Obama push any major reform initiatives to the Republicans — and then swoop in to protect certain important voting blocs from any proposed big bad cuts? Would such a strategy hurt or help Obama when most of the country wants to reduce the size and scope of government. Read Krauthammer’s essay about Obama’s failure to make any substantive changes thus far and what this could mean for both sides in 2012.

WSJ: Adding Taxes To Taxes

by | ARTICLES, ECONOMY, OBAMACARE, POLITICS, TAXES


The WSJ had a fantastic piece today, reminding us of the new taxes yet to come, signed into law under Obama. And he wants MORE tax increases as part of this deficit negotiation?

Go read the full synopsis right now.  Some of the additional taxes are listed below

• Starting in 2013, the bill adds an additional 0.9% to the 2.9% Medicare tax for singles who earn more than $200,000 and couples making more than $250,000.

• For first time, the bill also applies Medicare’s 2.9% payroll tax rate to investment income, including dividends, interest income and capital gains. Added to the 0.9% payroll surcharge, that means a 3.8-percentage point tax hike on “the rich.” Oh, and these new taxes aren’t indexed for inflation, so many middle-class families will soon be considered rich and pay the surcharge as their incomes rise past $250,000 due to tax-bracket creep. Remember how the Alternative Minimum Tax was supposed to apply only to a handful of millionaires?

Taxpayer cost over 10 years: $210 billion.

• Also starting in 2013 is a 2.3% excise tax on medical device manufacturers and importers. That’s estimated to raise $20 billion.

• Already underway this year is the new annual fee on “branded” drug makers and importers, which will raise $27 billion.

• Another $15.2 billion will come from raising the floor on allowable medical deductions to 10% of adjusted gross income from 7.5%.

• Starting in 2018, the bill imposes a whopping 40% “excise tax” on high-cost health insurance plans. Though it only applies to two years in the 2010-2019 window of ObamaCare’s original budget score, this tax would still raise $32 billion—and much more in future years.

• And don’t forget a new annual fee on health insurance providers starting in 2014 and estimated to raise $60 billion. This tax, like many others on this list, will be passed along to consumers in higher health-care costs.

 

 

 

 

 

He Was Against It Before He Was For It

by | ARTICLES, ECONOMY, GOVERNMENT, TAXES

Over at the Weekly Standard, Stephen Hayes gives a cogent summary of Obama’s flip-flopping on raising taxes during a recession.  When pushing for his stimulus package in 2009 and again on his bipartisan relief effort in December 2010, Obama stated that raising taxes would be difficult on the economy and small businesses.

Now when he’s running for president, to heck with the economy. Taxing the wealthy is popular and necessary in order to avoiding entitlement spending cuts — as a means to gain leverage with voters and his own party.  Clearly, as POTUS Obama’s going to say and do what’s best for Obama, not America, first.

Do yourself a favor and read Hayes post in its entirety.

 

Obama’s Businesses and Wealth Redistribution

by | BUSINESS, ECONOMY, GOVERNMENT, HYPOCRISY, TAXES

It is truly embarrassing for the businessmen in this country to have a president who makes such economically incompetent statements and gestures. Speaking to the U.S. Chamber of Commerce a couple of months ago, our president effectively rebuked business success. He  suggested that “if we’re fighting to reform the tax code and increase exports to help you compete, the benefits can’t just translate into greater profits and bonuses for those at the top. They should be shared by American workers”. This is a blatant example of wealth redistribution.

In a free economy, employee wages are such that an employer willingly pays whatever it takes so that the amount paid to an employee is less than what can be earned from them – i.e. they have to be able to produce. Take, for example, someone who sweeps floors. If you are in need of a floor sweeper and the benefit of sweeping is worth more than the sweeping costs, then you hire the floor sweeper. If not, then you leave the floors dirty.

The same principle has always applied – albeit on a grander scale– in the United States. We see this currently in manufacturing which is at an all time high, but the number of manufacturing employees is a lot less. Workers are so productive with technology and capital, they can be – and it’s worth it for them to be – paid more.

On the other hand, if a company pays its worker more than the worker is actually producing, then the worker will become wholly uncompetitive. It is not better for a worker to be paid more than he is worth, because at some point, he loses the capability to independently support himself. The scenario becomes not what his labor is worth – but instead that he has been given a gift. This takes away the incentive to produce and earn. It goes against what has made our country thrive, which is hard work and an investment of time and talent.

By publicly and strongly suggesting that employers unfairly and extraordinarily compensate their workers in an attempt to level the playing field, Obama has effectively shown his true colors regarding his attitude toward businesses and their operation. Private businesses in the country, unlike the government, do not have the luxury of spending without consequences. Attempting to coerce fairness instead of cultivating a free market, Obama has strongly disadvantaged this country to the rest of the world.

Do Higher Taxes Encourage Tax Avoidance?

by | ARTICLES, ECONOMY, TAXES

The latest tax article from my interviews with Reuters


Nothing riles Americans quite like taxes: who pays what, whether the government needs to raise them or might slash them, and how much they’re eating away at our paychecks.

And when it comes to tax avoidance — the legal means of minimizing one’s tax burden — a growing chorus of critics say high tax rates are to blame, and an overly complex tax code isn’t helping. The emerging point of view: The higher tax rates get, the more people will try to figure out ways to stop paying them.

As evidence of that, analysts point to the relatively steady chunk of gross domestic product that can be attributed to tax revenues, even as nominal rates rise and fall. From 1950 until 2010, all federal taxes hovered between 15 percent and 20 percent of GDP, though top income tax rates varied wildly (from 28 percent to 91 percent) during that period. And that suggests a greater reliance on loopholes when rates are higher, experts say.

“When tax rates are that high, nobody is going to pay,” says Alan Dlugash, an accountant at Marks Paneth & Shron LLP in New York. “You’re going to find a way to get out of it,” he says. In fact, he says his high-end clients in New York are holding onto stocks and avoiding selling their business for fear of being bulldozed by a giant capital gains tax bill.

Big business appears to be following suit. The New York Times reported in May that loopholes in the tax code have meant U.S. multinationals are paying far less than the corporate tax rate (one of the highest in the world), leading one expert to conclude that U.S. businesses were “world leaders in tax avoidance.”

The Internal Revenue Service doesn’t have specific figures on the revenue lost each year to tax avoidance, but nearly a decade ago it reported a tax-gap of $345 billion, the vast majority of which was lost to under-reporting. That figure hasn’t been updated since 2001, though the IRS says plans are underway to release more current stats.

Tax critics, meanwhile, are busily trying to prove the harmful effects of high tax rates. For example, raising $1 trillion in tax revenue costs the economy and taxpayers an additional $110 to $150 billion, according to a 2009 report by Robert Carroll, a fellow at the conservative-leaning Tax Foundation. And a 2008 IMF paper argues that lowering the tax rate would effectively increase tax compliance and raise revenues.

Nina Olson, national taxpayer advocate at the IRS, says she hasn’t seen any definitive evidence that high rates contribute to tax avoidance; the problem, she says, is ambiguity: the tax code has undergone a staggering 4,428 revisions in the last decade. The code itself is some 3.8 million words, creating endless opportunities to exploit the system and confusing even those who want to comply into unintentional non-compliance.

“People find it confusing. And if you don’t understand it, then you’re going to feel ripped off,” Olson says, adding that a person whose marginal tax rate is 28 percent could actually pay only five percent once all the various tax benefits are factored into the equation.

Olson’s office is examining the root causes for non-compliance, looking specifically at attitudes towards tax, education, the influence of tax professionals, enforcement and even civic duty.

Not everyone is convinced that lowering tax rates would stem the wave of tax avoidance. Ted Gayer, a senior fellow at the Brookings Institute, acknowledges that high taxes impact the economy through consequences such as lower labor supply and disincentive to invest. But slashing taxes won’t bring a tide of new revenue, he says.

“When you change taxes, you’re going to get a behavioral response,” Gayer says. “But we shouldn’t fool ourselves into thinking we can get a free lunch by lowering tax rates and collecting more revenue. I don’t buy it.”